What are four reasons that a medical employment contract can be terminated? Let’s talk about the differences between why a contract would be terminated and how a contract can be terminated. The “why” doesn’t really matter. What matters is the language in the contract that tells the provider how the contract can be terminated? There are four common ways for a contract to be terminated. First, in a contract, it’s going to list the terms of the agreement. The term just simply means how long does the agreement last. Now, there are contracts that have a language where it automatically renews after the initial term, usually for one year period. Let’s say it’s a two-year initial term, it’ll just continuously automatically renew for one-year additional terms unless terminated in one of the three ways. After this, we’ll talk about that next.
There are some contracts that have no fixed term at all. Meaning all it states is that as soon as the contract is signed, it continues forever unless terminated. The first way to terminate the medical contract is for the initial term to end. There’s no renewal language, neither party wants to renew the contract and that’s it. Next would be by mutual agreement. A medical contract can be terminated by mutual agreement of both parties. Let’s just say, the provider starts, just not the right fit, the employer says, you know what? This isn’t the right fit. We’re not going to require you to give us notice. We’re not going to require you to work anymore. Let’s just wash our hands of the situation. And you both can leave. A mutual agreement is the second way you can terminate a medical contract. The third way is for cause or with cause termination.
What this means is that if a provider or the employer is in breach of contract, there will usually be language that states one of the parties has to give written notice to the other that they are in breach of contract and the reasons why. And then normally, there would be what’s called a cure period. A cure period simply means how much time a party must fix the breach or cure the breach. Let’s say, a provider had productivity bonuses in their contract that was supposed to be paid out monthly. The employer is simply not paying it either on time or at all. Well, in that situation, the provider would then send a written notice to the employer stating, you’re in breach of contract. Other blogs of interest include:
You’re supposed to pay me a monthly bonus, and you’re not. If you don’t fix this within whatever the allotment is, let’s say 15 days, then the provider can terminate the contract immediately for cause. The third way of terminating the medical agreement is for cause or with cause termination. It honestly doesn’t happen very often that a contract would be terminated with cause. Normally, the parties would work out the differences in advance of that. But it does provide some leverage, I guess, to both sides if one of the parties isn’t holding up their end of the bargain. From the employer’s side, let’s say the contract states that the provider must take one in four calls and then the provider refuses to take calls at all, well, then they’re in breach of contract. The employer will then basically state, you’re not taking calls, you’re in breach.
You need to start taking calls or we’re going to terminate the agreement immediately. So, it goes both ways. And then the last, and the most common way to terminate a medical contract is through what’s called without cause termination. Nearly any employment agreement is an At-will contract. And that simply means either party can terminate the agreement at any time, but for a medical provider, it’s a certain amount of notice. Normally, in the healthcare industry, 60 to 90 days is kind of the industry standard for terminating an employment agreement without cause. Now, why do you have to give this much notice? Let’s say, you’re a provider, you’re unhappy, you want to leave, you have a better opportunity, the contract states, you have 60 days without cause notice, then you’d send them in writing saying, I’m terminating the agreement per without cause termination section. Then you’d work out your 60 days and then you’re free to move on after that.
The reason why this is important and the reason why it needs to be in the contract is if a provider starts with somebody and the practice made it out to be much better, the volume is much better, your productivity incentives are going to be great, the hours are going to be reasonable and it’s not, and there’s no language in the contract where the provider can terminate it without cause they could be stuck in that contract until the initial term ends. So, you always want to have without cause termination. And as I said before, normally 60 to 90 days. If you have 180 days, you want to negotiate that down to a reasonable amount. Now, the reason why there is between 60 to 90 days in most contracts, is for continuity of care purposes. Maybe if you’re in sales, you don’t need 90 days lead time to leave.
But if you’re a medical provider and you have a patient base, there needs to be some time to either transition them to a new provider, refer them out to different providers, or provide bridge prescriptions. So, they don’t just go cold turkey until they find a new provider. That’s normally why there’s 60 to 90 days. Just to allow enough lead time to make a smooth transition and provide continuity of care for the patients. So, those are the four reasons you can terminate a contract. Either the term just ends, mutual agreement, for cause termination, or without cause termination.
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