Many contracts between medical providers and physicians
describe the physician as an independent contractor.  As a result, the
physician receives a 1099 instead of a W-2, and the medical provider does not
have the responsibility of paying benefits or deducting certain taxes.
Those responsibilities shift to the physician.

In many cases, physicians are not independent contractors.
Medical providers want stringent quality control procedures and policies and
they usually provide in their contracts that physicians comply with all
procedures and policies.  While this is favorable for the provider and the
patient, this can work to undermine the status of the physician as an
independent contractor.  Does the provider have senior physicians “look
over the shoulder” of junior physicians?  Does the physician rely on the
provider for patients, equipment, and other aspects of their practice?
Medical providers that exercise control over their physicians are unlikely to
be able to fight IRS claims that in fact, such physicians are employees.

There are additional issues for physicians when they are
categorized as independent contractors, some positive and some negative.
On the positive side, there is more mobility for physicians who are independent
contractors.  Most emergency room physicians are independent contractors,
allowing them to be flexible in the amount of hours they work, the number of
hospitals they work at, and the ability to change hospitals.  There are
also some tax advantages for independent contractors.  While you do have
to keep track of your own finances and pay quarterly payments to the IRS, you
are able to deduct more of your expenses if you form a corporation.

A few negative concerns.  First, the status of
independent contractor is very difficult to defend in an IRS audit, or if there
is any issue in a civil court.  Second, you may not enjoy the same protections
under the law as an employee, such as discrimination laws or other laws
designed to protect employees.  Third, you must pay for your own health
insurance and pension, and you generally do not have access to the provider’s
401k plan.  Fourth, an independent contractor has some concerns with
regard to the Anti-Kickback statutes and Stark rules for referral of

Ethics in Patient Referrals Act (“Stark”).  Under
Stark, if a physician or a member of the physician’s family has a contract or
other financial relationship with a hospital or other health care provider, the
physician may not refer patients to the provider for certain designated health
payable by Medicare, and the provider may not bill Medicare for such
services, unless the arrangement is structured to fit within a regulatory safe
harbor. Stark is a strict liability statute: even technical violations require
repayments.  It is therefore imperative to structure and maintain
contracts consistent with a regulatory safe harbor.

In order to lessen the risks and downsides of being an
independent contractor physician, you should make sure you have a written
contract and that the contract is current.  Contract performance may morph
over time so the contract must accurately document the physician’s
performance.  The contract should specify the services and compensation,
and the compensation should be clearly set forth in advance.

Always assure that the independent contractor is paid fair
market value
for their services. This is the single most important factor in
evaluating a physician contract.  Most compensation can be based on
relevant surveys, however, differences in geographic location, specialty,
services provided, productivity, hours worked, and similar factors effect fair
market value. Parties often overestimate fair market value at the outset of a
contract: actual productivity may not justify the compensation promised.
Incorporating an appropriate productivity-based compensation formula can reduce
the regulatory risk and ensure the long-term viability of the arrangement.

Finally, payment should not, in any way, be based on
referrals. Physicians may be paid a set salary or a fee per hour for services

Written by Matthew Kinley