What is Considered Breach of a Physician Contract? | Physician Contracts

What are some reasons behind the breach of contract for a physician employment agreement? What are the things that an employer could terminate a physician? And then alternatively, what are some things the physician could terminate the contract? 

How a Physician’s Contract Can Be Terminated?

First, let’s go through how an employer terminates a contract, and then we’ll go through the specifics. Rather, any agreement will usually be for a fixed term. Let’s say it was a two-year contract. If both parties decide not to renew the contract, the contract will terminate at the end of the two-year term. That’s one way a contract could end due to mutual agreement. Both parties decide it’s not working out, and we’re not going to wait till the end of the term. They will terminate the contract. Now, they can also terminate the contract without-cause. 

Any physician’s contract will have language that says that either party can terminate the agreement for any reason, with a certain amount of notice to the other party. In most cases, it’s usually either 60 or 90 days. And then finally, the contract can be terminated for-cause due to a breach of contract. And in this case, the employer will list a whole bunch of things they can terminate the contract for if the physician breaches the agreement in some way. There is no language at all about the specifics of how a physician can terminate the contract if the employer is in breach.

What Are Some Normal Reasons an Employer Could Terminate A Physician Contract?

First, let’s go through some usual reasons the employer could terminate the medical contract. If the physician loses their license, let’s say the medical board and their state decide they’re going to revoke the physician’s license. The contract will be terminated. They can no longer practice medicine. Their DEA registration was taken away, and almost every setting would not allow them to do their job effectively. They are excluded from billing and are placed on the office of the inspector general’s ban list. CMS has a list that basically if a provider does certain things negatively. They can be put on this list, which would exclude them from being able to bill under Medicare and Medicaid. 

And that would, for the most part, make it impossible for the physician to practice. Most contracts state if the physician is given a felony, usually convicted of a felony, that would be grounds to terminate the agreement. The physician is uninsurable. Maybe they have many malpractice claims or settlements. And then, no insurance company is willing to offer them malpractice insurance. In that scenario, employers just aren’t keeping the physician around ordinary things. There’s usually some morals clause that says the physician will present good character and get along with others. And then usually, there’s something at the end that says for other good cause or other good reasons, which is very broad, and they can kind of shoehorn that.

What is a Physician Contract Cure Period?

Suppose the physician is in breach and there is some way to fix it. In that case, there’s usually language in the medical contract called a cure period. They’ll generally say, if one party is in breach of contract, the other party gives them a notice. They say, hey, you’re breaching the contract. And then there’s a period to fix the breach—usually between 15 to 30 days. Now, suppose you’re a physician and have your license revoked. In that case, you’re put on the OIG list. They will take away your DEA registration. The employer will immediately terminate these things that cannot be remedied in 15 to 30 days. Now, some things can be fixed. One is I talked about before with the morals clause. So, they say, you’re not getting along with others and not presenting good character.

Legal Mistakes Physicians Make

Here are the things you can do to fix these. The physician can then attempt to fix them within that period. And then, the employer would then have no ability to terminate them for-cause. As I said, the physician can always be terminated without-cause, in a certain amount of notice. Maybe the employer doesn’t have the grounds to end the physician for-cause after they’ve fixed a breach. However, they could still give them notice and give them out after that period. There is also usually language in the termination clause that if an employer offers, let’s say, a 60-day without-cause notice. The employer provides the physician 60 days, but they say, we don’t want you here anymore. Even though we must give you this notice, don’t come to work tomorrow.

The employer would still have to pay the physician for those 60 days because they were terminated without-cause. Still, they don’t have to provide the physician the entire period to work there. 

Ways a Physician Can Assert an Employer is in Breach of Contract

On the physician side, usually, they can assert that the employers in breach of contract are, if they’re not being paid in time, maybe they have some bonus. It’s not being calculated correctly or paid out on the contract’s time. Perhaps the physician is not being adequately supported via staffing. They don’t have the proper MAs, an office manager, or front office staff to work efficiently. Maybe they’re being asked to do some things that they believe are unethical or illegal. 

In that scenario, I always suggest you must let the employer know that they’re in breach of the contract in writing so that you establish a record of what’s going on. Many times, I’ll talk to physicians who feel like they’ve agreed in some way. The employer is simply not providing them with a safe atmosphere, or they’re not following through on things written into the medical contract. And my first question is, have you given them written notice? Most of the time, it’s no. I’ve talked to them, I’ve spoken with the med director and my boss, but nothing’s happened. Well, you need to establish a record. 

And in that case, you must provide them a written notice that they’re in breach of the contract. Most of the time, it’s unlikely that an employment relationship would end with a kind of for-cause termination due to a breach. Most of the time, in that case, the parties will agree to move on, or they’ll give them, as I said before the without-cause notice. And then tell them to go home anyway, pay it out, and move on. Hopefully, that was helpful. I went through some examples of breach of contract for a physician employment agreement and then how each party can terminate the contract.

Physician Contract Breach

And then, in almost any contract, there will be a renewal clause that states after the initial term, the agreement will automatically renew for one year, and it’s standard. If a physician wanted to terminate the contract before the two-year term, they would have to follow the terms in the agreement under the termination section. The termination section will state how the employer can terminate the contract. One, if it was a two-year term, it has an automatic renewal clause. There will also be a language that states that the physician or the employer must give notice to the other party if they intend not to renew the agreement. 

That way, if they provide notice, the two-year contract ends, and that’s it. I wouldn’t consider that early, that would be the initial term that ends, and parties go their separate ways. There’s also an ability to terminate a contract early through mutual agreement. Maybe there’s a problem between the employer and the physician. There are some cultural class clashes, personality conflicts, whatever. And they say you know what, it’s not working out. Let’s move our ways. Then they could agree. Alright, here, let’s end the contract and move on.

Other Blogs of Interest

• How to Terminate a Physician Contract with Cause?
• Remedies for Breach of a Physician Contract
• What Happens if you are Fired as a Physician?

Can a Physician Contract be Terminated Early?

Can a physician’s contract can be terminated early? The short answer is yes. In 99% of physician’s contracts, you can terminate the agreement early. Let’s kind of hit the basics of how that happens. In any contract, there’s going to be a term ‘length’. The employment agreement lasts for one year, two years, or three years. Anything beyond that is rare. Also, more and more I find physician contracts are what we call evergreen. Meaning, there’s no fixed term. They just continue until they are terminated by one of the parties. The only way a contract could be terminated early would be if there is a fixed term. Let’s just use an example as a physician sign an employment agreement, and then it states the term of the agreement is two years.

Where Can You See How a Physician Contract Can Be Terminated?

And then in almost any contract, there will be a renewal clause that states after the initial term, the contract will then automatically renew for a one-year period, and it’s standard.  If a physician wanted to terminate the contract prior to the two-year term, they would have to follow the terms in the contract under the termination section. In the termination section, it will state all the ways that the contract can be terminated. One, if it was a two-year term and then it has an automatic renewal clause, there will also be a language that states, that the physician or the employer, if they intend not to renew the agreement, then they must give notice to the other party. 

That way if they give notice, the two-year contract just ends, and that’s it. I wouldn’t consider that early, that would just be the initial term that ends, and parties go their separate ways. There’s also an ability to terminate a contract early through mutual agreement. Maybe there’s a problem between the employer and the physician. There are some cultural class clashes, personality conflicts, whatever. And they just say, you know what, it’s not working out. Let’s just move our own ways. Then they could just agree. Alright, here, let’s end the contract and move on.

The Most Common Way to Terminate a Medical Contract Early

Another way the contract can be terminated early, and this is the most common way is without cause termination. That means, that either party can terminate the physician’s contract for any reason, with a certain amount of notice to the other party. The standard amount for a without-cause termination notice is usually 60 to 90 days. Anything above that should be a red flag or a concern for a physician for several reasons. Let’s say a contract has 180 days’ notice to terminate the contract without-cause. 

Well, if it’s that high of a notice period, then usually that means that the employer has had a hard time retaining people. So, they’ve put in a giant notice period to kind of dissuade people from leaving. Another reason why that’s bad for a physician is, that once notice is given, the relationship changes between the physician and the employer. 

Physician Employment Contract

You’re no longer in the long-term plans. You’re not rowing the boat together. There can be an awkward relationship after the physician gives notice. It just changes. And the longer that the physician must stay with the employer under those circumstances, the worse it is for the physician. So, without cause termination, ideally, it would be a shorter period. Now, there must be some notice required, once again, for a couple of reasons. As a physician, there is always continuity of care concerns. If a party could just come up and say, hey, you’re fired, don’t come back tomorrow, there must be a plan in place if a physician is leaving an employer to transition those patients to another provider, or to have to refer them out to other physicians in the area. It’s specialty-dependent as well.

How to Terminate Medical Agreements

Maybe in primary care, it’s not that kind of urgent of an issue to move the patients onto someone else. But let’s say it’s in psychiatry, you have some very delicate patients. They absolutely need medications or bridge scripts where someone can take over their care. That notice period gives both parties, the physician and the employer, time to arrange the transition to others. That’s why the without cause termination is there in the first place for a physician. 

That’s how a contract can be terminated early. So yes, it absolutely can be terminated early. If there is no language that allows the physician to terminate the contract without cause and they must stay for a fixed term, once again, that’s an enormous red flag. In those situations, as I stated before, usually, it’s because the employers had a tough time retaining physicians and no physician wants to be in a situation where they just hate going into their job.

Contract Review Law for Physicians

They don’t feel safe practicing, it’s just a bad environment and they’re stuck for a period without being able to get out of it. The only situation that requires kind of a fixed term without either party being able to terminate the agreement without cause is under a J-1 waiver employment agreement, must be three years, and in that situation, usually can only be terminated for cause. Meaning, either party breached the agreement. That’s about the only situation where a fixed term makes sense and there’s no without cause termination.

How to Negotiate a Physician Contract | Contract Negotiation Tips for Medical Doctors

How do you negotiate a physician’s contract? What are the goals to consider during the contract negotiation process to win the terms of the negotiated agreements? So in my mind, there are three different scenarios. One, you’re either just coming out of training. Two, you’re switching jobs to an area of the country that you’ve never been to before, or three, you’re moving from somewhere within the area where you already live. So negotiation is always based upon leverage. Do you have it, or do you not? So let’s just take coming out of training, for instance. For the most part, in negotiating job offers, the only leverage someone has when they’re coming out of training is in a specialty that’s hard to recruit for? I mean, that’s just the honest truth.

Negotiating an Employment Contract by Physicians

You are not bringing in any established PA patient base. You’re also all relatively new to being out on your own. So, a learning curve will go into moving into any position. Consider this, if you are either in an area that’s very difficult to recruit that could apply to any specialty, or you’re in a specialty that’s all to bring in and is super profitable. Those are two things to consider.

When you’re looking into it, how do I negotiate the terms of the physician’s contract? And when people say negotiate, most of the time, they think about the bottom line, what is my base salary. But I think that’s kind of a narrow mind. And this will apply to anybody looking for a job. There are some other goals to consider during medical contract negotiations, at least in my mind, things that are more important than just the base compensation. One, what are the terms of the restrictive covenants?

Non-Compete is Important to Most People

My advice if someone lives in an area, they have family in the area, they have kids in it. They absolutely cannot move after the contract ends since they will have to also think about things related to moving – like the schooling of the kids, or your wife’s job, or if they are also running a business. Sometimes, the non-compete could be the most important thing in a physician’s contract. A non-compete says you cannot practice within a specific area for a period.

Negotiate Tail Insurance

Another important piece is who pays for tail insurance. Depending upon specialty, this could be an enormous part of a contract. If you’re an OB-GYN and you have to pay for your own tail and your underlying premium is $40,000 a year, your tail insurance cost will be higher compared to other specialties, probably going to be around 80,000. So, who pays for tail insurance certainly could be the most important thing in an employment agreement during a contract negotiation for an OB-GYN. 

Employer Practice Negotiations

My advice if you’re being paid on production. Let’s just say you’re in a contract that’s just pure net collection. An average range for a physician is 35 to 40% of collections. Is there language in the contract that states that when the medical contract terminates, you will be able to collect for a 60 to a 90-day window after the physician’s medical contract terminates? If you don’t have that, then you worked for free for two or three months, which nobody wants to do.

Going back to what is important, it depends upon the person what his goals are. Having the numbers is important when you’re looking at base compensation. They’re not always easy to obtain. Most places, or the majority of the places, use MGMA numbers. That’s a medical group management association. Most of the time, you have to pay for that, and it’s expensive. So no physician, at least most physicians, will not do that. 

You could find someone with access to those numbers or try to get them. Or if you kind of Google around on the internet, sometimes you can find the average RVU production and average compensation. It is broken down into areas of the country. I honestly don’t think those are accurate when determining exactly how much in what part of the country. There’s a feel for what someone is getting in this area, but you also have to consider all the other things I said. If someone has a base that’s $10,000 less, but employers will not make you pay for tail insurance, or the non-compete is extraordinarily small, that’s worth way more than $10,000 in some instances. That are kind of a few factors during a physician’s medical contract negotiation to think about.

Physician Employment Contracts

If you’re just coming out of training, let’s say you’re established in the community, either you’re a primary care PE, it’s cardiology, you have an established space, and you’re just moving into a new practice. Well, this is the highest leverage you can have during contract negotiation. There’s gonna be no, or at least there shouldn’t be much time needed to ramp up the practice. You’re just bringing people with you. Plus, when you have numbers in a community, these were my net-collections, the RVUs I produced, or the weekly patient encounters. Those are absolute hard numbers that you can use to negotiate compensation terms, moving to a different practice. 

In that case, you have the highest leverage possible. Then obviously, you can negotiate all the ancillary things I’ve already spoken about. The last thing would be, if you’re moving, you’re out of training, you’ve been in practice for a while, and you’re moving from one city to another, you don’t have an established patient base, that takes away some leverage. There are two factors that kind of work for you for your contract negotiation strategies.

One, are you moving to an area of the country that’s difficult to recruit to? Very rural communities certainly pay more simply because it’s harder to find physicians in certain specialties to come and make them move and live in those areas. Or two, if you’re in a specialty that is just simply hard to recruit to or extremely profitable. So obviously, surgeons are difficult to find, or some of the other GI subspecialties are always difficult as well.

Doctors Can Negotiate Effectively

If you’re moving to a different part of the country, then the same analysis applies to some kinds of training. However, you benefit from having some numbers of what you produced in your previous position. You can tell them during your medical contract negotiation that this was the net collection that I generated in my last position. Now, it doesn’t always translate from one state to another or one situation to another, and maybe you’re going from private practice into an employed group.

But having any kind of data to back up what your production was is essential during medical contract negotiation in determining your new total compensation in a new position. So, those are some tips on things to think about. I mean, honestly, just doing this video, I can think this could be broken down into ten different videos, but this is just kind of an overview on negotiating.