With the recent changes in healthcare laws, more physicians are becoming employees of hospitals, medical groups, or affiliate organizations rather than setting up their own practices.
There are a number of considerations and pitfalls that should be taken into account when structuring your employment agreement. The most important consideration for most physicians is physician compensation. A physician should make sure that he or she is checking for fair market value (base salary and productivity bonus) in employment contracts with hospitals, as hospitals are bound by law. The legal limits are imposed by Stark law, 42 U.S.C. §1395nn and the IRS rules for tax-exempt hospitals. See this wiki link for more information on Stark law.
Common compensation methodologies in physician employment agreements should include fixed salary, base salary with productivity bonus or compensation based solely on productivity. Newer physicians to the area generally select a fixed salary for either each year of the contract or for the first year or two followed by fixed adjustments in subsequent years.
Many agreements contain lower base salary combined with a productivity bonus based on either of the following:
1) percentage of collections,
2) percentage of net revenue, or
3) physician work relative value units as established by the Centers for Medicare and Medicaid Services.
The total compensation is generally capped either by a certain dollar amount or by a percentage of base salary, that should be adjusted upward annually by the increase in consumer price index. Physicians should pay close attention to how a bonus is calculated and paid. Legal issues with productivity bonuses or compensation and referrals are triggered by Stark law and the Anti-Kickback statute.
If Stark applies, all compensation arrangements with physicians must be structured to fit the exception to Stark. This is why it is important for an attorney to be involved with the process. Stark law prohibits referrals by physicians who have a financial relationship to the entity receiving referrals if a hospital-employed physician provides “designated health services” under Stark, which are reimbursed under Medicare or Medicaid, unless an exception applies. Other important terms to consider include contract termination, emergency room call compensation, non-competition and non-solicitation provisions, participation in a hospital’s managed care contracts, professional liability insurance, and indemnification.
Written by Pamela Tahim