BMN Blog

JUL 06

Why do physicians leave their employment with a practice group? 

There’s no single reason for such a separation. A physician's leaving might be planned well in advance, or might be an unplanned, precipitous event. 

Beyond death or disability, these reasons include loss of licensure or privileges, inability to secure professional liability insurance, retirement, conflict with colleagues, termination for cause, an opportunity to relocate to another practice or the lack of demand for their services. 

Regardless of the reason, such a departure triggers a number of issues that must be addressed as a result. This writing explores many of these issues, at least at a cursory level. This is not intended as a substitute for being advised by a qualified attorney. While it was written mostly from the point of view of the group remaining after a physician leaves, the hope is that it also provides useful guidance to physicians contemplating leaving their groups. 

  1. What About the Patients?

First, there is patient notification. Patients should be able to know how to reach their physician who has left a group to secure ongoing care. 

Statutes enacted by the states under what may be called a “Physician Practice Act” do govern certain aspects of the physician-patient relationship that arise when a physician leaves a group. 

For example, so-called “patient abandonment” laws may require a physician (or group) to provide notice to the patient population whenever a physician is, or will, no longer be “available” to provide care to his or her established patients. Failure of a physician to notify patients when required can constitute “unprofessional conduct” and expose the physician to disciplinary action by a state medical board or commission. 

It is also frequently the case that a group may seek to deny a departing physician access to patient contract information to allow the physician to satisfy this duty. Groups may also refuse to inform inquiring patients as to the whereabouts of the departed physician. 

In such case, perhaps cooler heads can prevail among the group members to allow patients to be notified as required by law. This does not always occur, especially when a physician’s departure is a contentious event. 

Instead, it is frequently the case that patients become “hostages” when there is conflict between a departing physician and a group. The same imposition on patients occurs when a group declines to promptly furnish copies of their medical records to the physician or any other doctor after a physician has left a group. 

The conditions created when a physician leaves a group, or is terminated, are much like those when a married couple faces a divorce. There can seemingly be no end to the shenanigans. When such conditions accelerate, the parties’ lawyers should get involved and allow a neutral mediator to participate in resolution of issues that they are unable to resolve alone.

Second, there’s the intersection of medical records and noncompetition agreements. While groups may lawfully claim title to the assets owned by them, patients are for the most part free to seek care from a physician of their choosing. Accordingly, even though physicians and physician groups may believe they are “entitled to the patients,” seldom is this completely true under applicable law, contracts or health plan terms and conditions. 

Nonetheless, the crafters of physician employment agreements often seek to establish certain property rights in the group, and not in the employed physician, with respect to certain aspects of the relationship with patients. For example, most employment agreements provide that the medical records (physical or electronic) belong to the group. While the law will uphold this principle, it is also true that patients enjoy a concomitant right to access to a copy of the contents of their medical record. 

So begins the tension between the rights, duties or obligations of the departing physician, the group and patients when patients treated by the departing physician wish to continue their care with that person, and to have their ongoing care informed by the contents of the historical medical record. This issue may also, in some states, be compounded by enforceable non-competition agreements between the physician and the group which legally prevent a physician from rendering services to a patient attended while with the group for a period of time, and in a defined territory, after the termination of the physician’s employment. 

The result is that the patient may be denied access to care with that physician for a prescribed period of time. This is but one, albeit important, of the many issues that will arise when a physician leaves a group. 

Third, there’s the physician’s employment agreement itself. A well-drafted employment agreement can minimize issues that unfavorably affect patients when the physician leaves. Accordingly, much emphasis should be placed on having clear and lawful agreements in place at all times so that there is a “roadmap” for all to follow when a physician does, or plans on leaving. 

  1. What about the Partners? Or the Shareholders?

First, there’s the physician’s employment agreement (again). A well-prepared physician employment agreement addresses the “who, what, when, where, why, how and how much” of the employment relationship covering its creation, its operation, its termination and beyond. Without this, it may be unclear as to what terms, conditions and principles will govern the relationship. 

At a minimum, the employment agreement should address: 

∙ The identity of the parties 

∙ The term or duration of the agreement 

∙ How and under what circumstances, the agreement may be terminated by the parties. The required notices to terminate the agreement 

∙ The duties of the physician and the group during and after employment 

∙ Where the duties are to be performed 

∙ What compensation is to be paid to the physician, how it is calculated and when it is due to be paid 

∙ The benefits to be provided along with the terms of eligibility 

∙ The compensation and benefits payable to physician after termination of employment. How patient medical records access will be handled during and after employment  ∙ The inclusion of any and all restrictive covenants applicable to physician (e.g. non

solicitation, non-competition, no-hire, etc.) during and after termination of employment and any and all applicable damages for breach of such a covenant 

∙ Obligations of the parties with respect to securing, maintaining and paying for professional liability insurance during employment and after termination of employment. Any required methods or procedures for the resolution of contractual disputes.

  1. What About the Partners or Shareholders?

As the parties negotiate these components of the physician employment agreement, the draftsman should pay particular attention to the rights and responsibilities of the parties both during and after termination of the employment. For example, if the employer is to condition payment of final compensation upon the physician employee’s entry into a release-of-claims agreement with the group, then this obligation should be clearly memorialized. Similarly, the physician’s obligation to complete medical records, return entity property, secure professional liability tail insurance or any other required affirmative actions should also be included. 

Just as physicians are well-advised to have their proposed employment agreements reviewed by qualified counsel before entering them, so, too, are groups advised to use legal counsel to periodically review and revise their agreement forms to assure currency and completeness to conform to existing conditions. 

Second, there’s the relationships with the group’s shareholders and other interested parties. Physicians may have at least two, but perhaps more, distinct legal relationships with a group. Each relationship must be contemplated when structuring and administering agreements. 

A physician who is a “shareholder, member or partner” in the group likely will also be a physician employee of the group. Typically, the legal relationship between a physician as a “shareholder, member or partner” and the group will be governed by “corporate documents” such as, among others: 

∙ The entity’s bylaws or operating agreement 

∙ A stock purchase and sale agreement (a.k.a. a buy-sell agreement) 

∙ A guarantee and indemnification agreement (concerning certain entity debts and liabilities), and. A non-competition, non-solicitation and no-hire agreement. 

These corporate documents certainly will govern the legal relationship between the physician as an owner of the group and the group’s entity. They likely will also govern the relationship between the physician owner and the other entity owners. 

A group will typically be incorporated as a legal entity with physician owners to conduct the medical practice of the physician owners as employees of the practice. The group may also incorporate additional related or affiliated entities to support the practice entity in ways such as ownership of the office building or diagnostic services used by the practice entity. 

Consequently, when a physician “leaves” a group, it likely means that the legal relationship of the physician as an employee, and possibly co-owner, of the practice and other related entities will be terminated or otherwise affected and must be addressed promptly. Thoughtful drafting of the employment agreement and corporate documents of the practice and related entities should be “integrated” in a way to either make all relationships and agreements be co-terminus with each other, or to at least address any ongoing relationship between the owners of related entities upon the termination of the physician’s employment agreement. This is especially important when there is a termination of the physician’s employment “for cause” by the group. 

One frequently encountered issue when a physician leaves employment and is thereby required (or not) to divest interest in the group or related entities is whether or how the divested owner physician is released or indemnified from and against any individual guarantee obligations of corporate debt or liability previously given by the physician. This subject should be addressed in the corporate documents but is often not, thereby making this issue one to be resolved by operation of existing and applicable law if an agreement cannot be reached. The results may not be desirable to those involved.

When separation from employment and ownership of the practice and related entities is either unplanned or for cause, it likely will be a contentious situation. Clear, comprehensive agreements can reduce conflict and offer guidance on the myriad issues that will arise. 

  1. What About Restrictive Non-Solicitation and Noncompetition Covenants?

In large part, the law governing the enforceability of non-competition and non-solicitation agreements (“Restrictive Covenants”) is a matter of state statute or common law. There is not much uniformity across these state laws governing enforceability. The laws of some states readily permit and allow enforcement of Restrictive Covenants, while others strictly prohibit enforcement of most Restrictive Covenants against physicians (e.g. Alabama). 

Accordingly, one must look to the law of the state in which the physician performs services under contract to determine whether enforcement of Restrictive Covenants will be allowed. Among others, Restrictive Covenants take on several forms: 

∙ Ones in which a physician is prohibited, during employment and/or afterwards, from practicing medicine in competition with the group within a defined geographic territory for a defined period of time; 

∙ Ones which prohibit a departing or departed physician from contacting or soliciting patients of the group to receive services from physician in a practice other than the group’s practice 

∙ Ones which prohibit a departing or departed physician from hiring or contracting with employees (professional and/or support staff) of the group to provide services for services in another practice 

∙ Ones which in any way prohibit a physician from dealing with a supplier, vendor, consultant or other person with whom the group has a business or contractual 

relationship. 

Obviously, if enforceable, Restrictive Covenants have a significant impact on the ability of a physician to continue in practice treating the same patients seen while employed once the physician leaves the group.  The disruption of livelihood, patient/physician care continuity, community and social relationship when this occurs cannot be overstated. As such, physicians are advised to consult with knowledgeable counsel prior to entering such an employment agreement to determine whether this condition is tolerable. 

This area of law is on some level complex and nuanced. The draftsman of Restrictive Covenants must be as qualified as the advocates for physicians seeking to void, limit or otherwise gain relief from the enforcement of a Restrictive Covenant. 

  1. What About Ongoing Relationships?

When a physician leaves a group, this does not always mean that there is no longer to be any ongoing professional relationship. Indeed, if the physician remains in the community, there may be some continued collegial relationship as members of the same hospital medical staff, continued participation in the care of common patients and/or continued participation in call coverage group arrangements.  Accordingly, it is beneficial for all concerned when good professional relationships can be maintained even after a physician leaves a group. 

One item of importance for any formal ongoing relationship will be to document, in writing, the terms of the relationship. For example, Medicare and some other insurers require written agreements for any “reciprocal call coverage” arrangements for billing and payment purposes. Your legal counsel should be

consulted for advice concerning any ongoing professional relationships between the departing physician and the group. 

  1. What About Alternative Dispute Resolution?

Break-ups are more often than not contentious. Sides and positions are taken. Feelings are hurt.  Economic conditions are affected. There is impulsivity. Parties are vilified and rightness is claimed, usually by both sides. The future cannot be seen clearly, so it is usually presumed by the parties to be bad.  Fighting ensues. 

Many physician employment agreements and corporate documents prescribe and require a process of alternative (non-judicial) dispute resolution as the exclusive means of dispute resolution. Many do not, which may make parties who have disputes believe that “going to court” is the only option. Unsurpringly, litigation is expensive, protracted, time consuming, public and seldom results in the parties actually getting their “day in court.” The costs of litigation go well beyond lawyers’ fees and court costs and can result in costs of lost opportunities, fractured professional and personal relationships, emotional distress, inconvenience, embarrassment and other fallout. 

This writer believes that in most circumstances litigation should be entered as a last resort and should be pursued only after exhaustion of other processes such as direct settlement discussions or formal mediation. It must be said that using legal counsel in dispute resolution can be both helpful and harmful.  Some lawyers simply like a good fight and will steer their clients to do so in a “scorched earth” or “zero sum game” manner till the end. Other lawyers seek to find effective, efficient and mutually acceptable solutions of the dispute. Clients of lawyers may themselves just like to fight vigorously and demand that their lawyers fight at all costs. One thing is for sure: Ultimately it is the clients who have the authority to direct their lawyers as to the means and methods employed in connection with their representation. 

What is mediation? Mediation is a private and confidential process where the parties in a dispute meet with a neutral person, usually a lawyer, to work to resolve the dispute. The mediator is not a judge, arbitrator or decision-maker. 

Instead, the mediator will take note of the facts and positions of the parties and seek to propose solutions to the parties for settlement. Ultimately, only the parties agree on a resolution, the mediator will prepare a written and binding settlement agreement for the parties to sign. 

The mediator does not decide or issue an order to resolve the matter. Parties to mediation may be represented by counsel during the mediation session(s) if they choose. The cost of the mediator is typically split equally between the parties or otherwise apportioned by prior agreement. 

Any settlement agreement reached during a mediation becomes a confidential binding contract between the parties once it is fully executed by all parties. The greatest majority of disputes submitted to mediation are successfully settled on the day of the mediation or shortly thereafter. The result is almost certainly less costly and less time consuming than engaging in litigation. 

What is arbitration? Arbitration is a private process where the parties’ dispute is adjudicated by a binding order issued an arbitrator, or panel of arbitrators. The parties present their cases, usually through their lawyer, in this quasi-judicial proceeding and the case will be decided by the arbitrator. 

Generally, the arbitrator will conduct the proceeding under an agreed body of rules that are somewhat more “relaxed” than court rules. There is no jury. There is only the arbitrator or the panel. Orders issued pursuant to binding arbitration may be accepted by, and entered as, court judgments. The cost of the arbitrator and administrative fees are borne by the parties by agreement or as otherwise ordered by the 

arbitrator. Generally speaking, an arbitration proceeding is less expensive and faster than judicial proceedings. 

Final Thought: Revisit Your Employment Agreements and Corporate Documents Periodically 

Employment agreements and corporate documents used by a group become stale over time. People, laws and circumstances are constantly changing. As such, it is recommended that these important documents be periodically reviewed and revised for currency and conformance of existing laws and circumstances. 

Long before a physician leaves the group, or perhaps immediately thereafter, is the optimal time to conduct that review. A group’s legal counsel and accountant should participate in this process along with the group’s leadership and management to assure that all are informed and can make decisions about  desirable or required changes to the documents. 

Mr. Stewart is a member of the Birmingham, Alabama-based firm of Wallace, Jordan, Ratliff & Brandt, LLC and his practice includes the representation of individual physicians and group practices. 

Alabama Rules of Professional Conduct require that the following language accompany any communication concerning a lawyer’s services: “No representation is made that the quality of the legal services to be performed is greater than the quality of legal services to be performed by other lawyers.”

 

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