Can You Break a Physician Contract? | Physician Contracts

So, can you break a physician’s contract? Every day, I deal with physicians with new employment agreements that need review. Or are on a current agreement that they need to analyze, usually due to wanting to terminate the agreement. Like the base level, one reasonably frequent question is whether you can break a physician’s contract. I think defining break is probably the essential part of that. So, can you break a physician’s contract? If breaking means breaching the contract, not following through on the terms of the contract? Sure, you can.

How to Terminate Physician Employment Agreements

But then you would open yourself up to liability. You could get sued, and litigation could begin. If there’s an arbitration clause, then it could go to arbitration. The employer could come after you for damages, recruitment fees for a new physician, and lost revenue from you, leaving extra admin fees if there’s no physician to support. Can you breach a contract? You can, but it’s certainly not a good idea. For this video, If we’re going to say, can I break a physician contract? I think the best way of handling that would be, can I terminate the contract? And indeed, yeah, you can. At least every physician employment contract will have a termination section. And in that section, it will dictate the terms of how the physician can terminate the agreement.

There are usually three ways: First, by mutual agreement. If you and the employer agree, the check can be terminated. And maybe you can work out how long the physician will stay. That does not happen very often, to be honest. The second way to terminate a contract is with-cause. It goes both ways. For the most part, most of these employment contracts are highly slanted towards the employer, as far as what they can fire the physician for. And honestly, most contracts are completely silent on what the physician can do if the employer breaches the contract. Some normally think that the employer can terminate a physician immediately for-cause at their option. So, the physician loses the license, DEA registration, they’re running shareable, they’re on the OIG list, those types of like obvious, right?

Chelle Law

Chelle Law will provide a physician contract review to identify the areas that can improve and assist you in negotiating the best contract possible.  

Breach of Physician Contracts

Like you can’t practice as a doctor, so you can’t fulfill the terms of the contract. The employer can fire the physician immediately for that. The most important section is, can a physician break a contract? If we’re assuming break means terminate, there should be a without-cause termination section. That section normally states that the other party can terminate the agreement with a certain amount of notice. I’d say the industry-standard amounts are between 60 to 90 days. So you would give the employer notice as it’s written. And there’s also a notice section that says how you can provide adequate notice. So you’d write them a letter and then go through the notice section properly, usually certified mail, hand delivery, and not very often, email.

If you verbally tell your boss, Hey, I’m leaving. That won’t be effective notice. So, if it’s 60 or 90 days, you give them 60 days’ notice. Now, there are some considerations. However, if you break the agreement, terminate the agreement. In this case, if you’re a new physician and received a signing bonus or relocation, there’d usually be some forgiveness in the first couple of years. If you leave before the initial term, you must pay back some of the signing bonus and relocation assistance. The second consideration is, will you have to pay for tail insurance? Most contracts, at least for the smaller physician-to-own groups, will have some clause. That states that if the physician terminates the agreement without-cause, they’ll be responsible for paying for tail insurance.

Legal Mistakes Physicians Make

If you don’t know what tail insurance is, I have some other videos that you can look at. The last consideration is the restrictive covenants that will apply if you terminate the contract without-cause. Those restrictive covenants are going to apply. Restrictive covenants would be the non-compete notes. It is non-disparagement, like everything you can’t do after the contract ends. Just because you terminate an agreement doesn’t mean you don’t have either responsibilities or obligations once the agreement ends.

In summary, yes, a physician can break a contract. Still, I would suggest doing it properly, how it’s written in the termination section. And then once you decide to terminate, you got to think about all the kinds of things that you’ll be responsible for. One more thing that just came to mind, the contract will also state the payment responsibilities after the contract ends.

I just had something like this come up yesterday. They were on a net-collections compensation structure. Meaning paid what was collected, but the contract stated that they would only get paid through the end of the termination date. With a standard 90-day accounts receivable cycle and getting reimbursed for claims, the physician missed out on essentially 90 days of collection. If you think of it this way, they almost worked for free for the last two or three months, which nobody wants to do. Physicians need to be cautious if they’re on a net-collections model. It states there’ll be some collection period after the contract terminates, so they don’t lose out on all that money. I mean, it’s sled towards the employer.

Physician Contract Review

It’s not fair, but many physicians don’t think about that when the contract gets terminated. Hopefully, this is helpful. If you’re a physician and have a question about your current contract or a new employment agreement, I’m happy to look at it. Take care.

Other Blogs of Interest

• What to Know Before Signing Your First Physician Contract | Contracts
• What Can You Negotiate in a Physician Contract? | Doctors Contract Negotiations
• Will I Be Paid My Bonus if I Terminate the Physician Contract Early? | Termination of Contracts

What Should Be in a Physician Contract Termination Letter?

What should be in the termination letter? When a physician decides to leave a position, I find that many physicians feel like the termination letter would be a good place to air their grievances. These are why I’m leaving all the things that have happened to me that I don’t appreciate. These are the things that led to me deciding to terminate the agreement. The termination letter is not the place to do that. Suppose a physician believes that the employer is not following through on the terms of a contract. In that case, they should inform them in writing that the employer is in breach. Generally, most contracts will have a cure period, which will give the party a certain amount of time to fix whatever the problems are.

Medical Agreement Termination

So that would be the appropriate place to air the grievances. In the termination letter, there should only be two things. If the person terminates the agreement, it will likely be without-cause. That means nothing has happened that can give either party the ability to terminate the agreement immediately. Nearly every physician contract has without-cause termination. And that means either party can terminate the agreement with a certain amount of notice to the other party. 60, 90 days is the industry standard. Sometimes it can be as low as 30 and as high as 180, but 60 or 90 is the average amount. The physician in the termination letter should cite the contract’s specific section. 

I am giving you 90 days’ notice. My last date of employment should be on this date. And then, the physician must ensure that the termination letter follows what would be called a notices section. So, in any physician contract, there should be a section called either notice or notice. That states how the physician can give adequate notice, meaning who and how you properly send some notice. And in that section, it will say these are the ways that you can give proper notice. It could be certified mail, hand delivery, email, or fax; most places do not allow emails or faxes. It’s either some registered certified letter through the post office. Almost all of them accept hand delivery in some way. Then, they will list where and to whom to send the termination letter.

Physician Employment Contract Letter to Terminate

If it’s a small physician-owned practice, then it will likely be the owner of the practice. And then, the address would be the address of the practice. Suppose it’s a large corporation, hospital, health network, or something. In that case, you’ll have to send a copy to the CEO or COO and to whoever their general counsel is. I’ve had a couple of situations where I’ve had someone contact me after the fact that they failed to give proper notice. They either told their boss or sent an email and the employer sat on it for 30 days. They didn’t say anything to the physician. And then, they returned to them 30 days later and said, Dr. Smith, you did not give us proper notice. Therefore you owe us another 60, 90 days after you give us adequate notice.

Physician Contract Review for Agreements

They did that because they were mad at the physician. They knew it would likely screw his next job opportunity and the start date. So, the physician must ensure that they’re following: one, what’s in the without-cause termination section, and two, what’s in the notices section of the contract. To summarize, the termination letter is not a place to list all of the physician’s problems. You thank them for your time. You tell them the termination section you rely on to terminate the contract. Then you’re going to send it to the place listed in the notices section. And that’s it. There’s absolutely no value in putting anything more than that.

Backing Out of a Physician Contract | Physicians Contracts

What is Backing out of a physician contract? Let’s discuss the differences between signing a contract and not starting versus terminating a contract once the physician has already started providing care. 

How to Terminate an Employment Contract?

Let’s take the second one first. When a physician signs a contract, begins employment and starts providing care for the employer, there will be a section in the employment agreement that states how to terminate a contract. It’s several ways. If it’s a fixed term, meaning it’s just a two-year contract, and then it ends, then it’s not renewed. That’s the contract to complete that way. The agreement may terminate for-cause, meaning one side breached the contract and then decided to terminate the contract immediately once failed to fix the contract.

There’s always going to be a without-cause termination in an agreement. It means either party can provide a certain amount of notice, usually 60 to 90 days, to the other party. If the physician is the one terminating the contract, they would have to work out those 60 to 90 days. Then they can move on after that. And then lastly, you could have a mutual agreement where both parties say, you know what, this isn’t working out. You don’t need to give notice. You can pack up and move on to something better. That’s not backing out of the contract. That’s terminating the contract. 

What Is Backing Out of a Physician Contract?

When I talk to physicians, I would consider backing out if they have signed the contract but haven’t been at the job yet. And so, that’s a little trickier. There are two ways. One could go if the employer made the physician sign an offer letter. Still, the employment agreement hasn’t been signed yet by the physician. Then it’s easy to back out. The physician says I’m not interested in signing the employment agreement. And even though they sign the offer letter, it’s non-binding unless the language there says it is binding, which is exceedingly rare. In that scenario, if you sign the offer letter but didn’t sign the employment contract, easy, you say, some things have changed.

I’m moving on. Now, let’s say you’re PGY-2 and have this great job. They offer you a position early in the process, you sign the agreement, and then something changes. Either there’s a family problem so you can’t move to the city you thought you would, maybe you get married, have children, or have an illness. I mean, there are a ton of things that can happen in a year or two. And so, in that scenario, the physician must decide. Now, they cannot be forced to work. It’s not like if you sign an employment agreement, the employer can say that you must provide care for us no matter what. 

What Are the Consequences That Need to Be Considered?

However, there are consequences for the physician potentially if they back out of an agreement. Some agreements will have direct language that states that if the physician signs the agreement but doesn’t start with the employer, there may be penalties. Maybe they would have to pay back the recruitment fees or any dollars spent on credentialing or privileging. Perhaps they paid for their license and DEA registration. Maybe they forwarded a signing bonus or a resident stipend.

If the physician backs out in those scenarios, they will likely have to pay those things back. And then the other scenario is if the practice suffers damages, which means that they were relying upon this physician to start. They had a physician ready. They invested capital and maybe built out more rooms. And they could tell the physician, we did all these things, expecting you to start. You signed a contract that said you would begin, and you didn’t. So, the employer could sue the physician and come after them for those damages. Now, that’s not something that generally happens.

The Best Approach to Take

In my opinion, the best approach is if you’re a physician and things have changed. You don’t like the job anymore, and you need to approach whoever the recruiter is. Maybe the practice’s owner, the medical director, and someone in a position of authority. Then say these are the problems; I cannot take this job now. I appreciate the opportunity, but I’d like to end this amicably and move on. And if there are one of those extenuating circumstances, I find almost all employers will understand. 

They’ll likely be disappointed, but they’ll not feel any anger towards the physician. Suppose it’s a scenario where the physician just got a better offer, and they’re leaving for purely monetary reasons. In that case, the employers may not be as forgiving. I’m just saying to an employer I got a higher-paying job. So, I’m leaving. That will open them up potentially to more liability than not. Now, I wouldn’t suggest anyone start a job if they’re not interested in being there. That’s a recipe for failure.

The physician first needs to talk to whoever the recruiter is. Second, send a letter stating they’re not planning to start. And if they’re good personal reasons, you might want to list them in the letter, although that’s not necessary. And then say, hey, I want to resolve this amicably. Then suppose you owe them back money from the stipend, relocation, and signing bonus. In that case, you must pay that back. That’s how to back out of a physician’s contract. And differences between terminating the contract and backing out of the contract.