A description of key contracting terms that EM groups must address and understand is given next.
The term or length of the contract “is the business.” This is particularly for those physicians who are dependent on this contractual relationship. If the contract is lost, the entire business and livelihood of the group, at least at that location, simply goes away. As such, obtaining the longest term length (ie, 3-5 years) in a contract with the hospital is preferable. However, many hospitals prefer, or for legal compliance reasons are bound to a contract of 1 to 2 years in length. When a longer term is not possible, an automatic renewal (“Evergreen”) clause, creating regular renewals, may be possible. For instance, a 2-year initial term contract with an automatic 2-year renewal is a method to extend a short-term contract.
There are many reasons why both parties may want to end the contract relationship. Either may wish to terminate the relationship when
- Promised services are not delivered
- Delivered services do not meet acceptable standards
- There has simply been an unacceptable deterioration in the relationship
For instance, if the group cannot fully staff (recruit and retain acceptable practitioners to cover) the number of hours defined in the contract, the hospital may perceive a serious patient safety issue. Alternatively, the hospital may not be able to maintain adequate (and promised) nursing and support staff to “safely” manage the ED census.
Termination in the following examples would be considered “For Cause Terminations.” A “For Cause Termination” is the one in which a party claims that the other party does not adhere to (deliver) a significant contractual obligation, a “breach.” The specific reasons that either party may invoke a For Cause Termination are often anticipated and usually defined in the contract. One party must only provide the other party written notice of intent to terminate the contract for cause and identify the reasons or contract breach. There are multiple causes for termination, including financial insolvency, breach of obligations, duties or policies, conduct injurious to the other party, disclosure of confidential information, material violation of the law, and so on.
When defining the process of a “For Cause Termination,” a contract should contain
- Examples of “cause”
- Anticipated types of how the notice to the breaching party is to be given
- Whether, and in what circumstances, the breaching party has an opportunity to “cure” or fix the alleged breach
- The time period until services is discontinue (eg, immediate, 30 days, etc).
It is preferable to have a “cure” provision defined in the contract whenever possible. A cure is generally a defined period of time, for example, 30 days, during which the breaching party has the opportunity to resolve a correctable breach. While many of the specific reasons for a “For Cause Termination” are written into the contract, not every problem or the cause of the apparent breach can be anticipated.
- Example: A contract states that all providers must continuously maintain malpractice insurance. However, a physician loses his or her malpractice insurance simply because a check was not cleared in time. If the practitioner does not work until this is rectified, perhaps 24 hours later, a devastating and unnecessary termination may be avoided. Both parties should permit the opportunity to review claims of possible breach.
Termination Without Cause
Most contracts also contain termination provisions that are called termination for convenience or “Termination Without Cause.” “Termination Without Cause” allows either party to end the contractual relationship without providing a reason. Hospitals and physician groups may want this clause in their contracts in order to ensure flexibility. This clause limits the value of the term section of the contract, since termination without cause, once exercised, immediately redefines the term of the contract.
- Example: A physician group and a hospital enter into a 5-year emergency services contract, but the contract also contains a 180-day without cause termination provision. Once exercised, the contract immediately becomes a 180-day contract, irrespective of the remaining term. In this case, either party can cancel the contract without any cause or reason in 180 days.
From one point of view, both parties may wish to avoid a “Termination Without Cause” provision to “lock in” the relationship. However, hospitals may desire a Termination Without Cause clause to ensure that they have maximum future flexibility to determine the group that will staff and manage its ED. Physician groups desire a “Termination Without Cause” provision particularly when there are uncertain business issues.
- Example: A physician group's estimate of the costs of and collections from services proves inaccurate and the business becomes unviable. Then rather than losing money for the term of the contract, the physician group may want to exit the relationship.
The “Termination Without Cause” language allows both parties to address future unknowns and avoid potentially contentious initial negotiations.
- Example: A hospital is instructed by its board that an initial subsidy to the group must end by the beginning of the third year. The physician group, hopeful, but uncertain about their long-term prospects could aggressively, but unsuccessfully argue to remove the “subsidy elimination” language from the contract. This tenacious approach might be a deal breaker and the Hospital might not sign the contract. However, if in fact, at the end of the 2 years, the group still needs some financial support to survive, a Termination Without Cause provision allows the group to avoid a financially nonsustainable relationship by terminating the contract. Alternatively, if the group becomes a critical hospital partner, the Termination Without Cause language could spur a renegotiation of the financial terms of the agreement.
The initial inclusion of the “Termination Without Cause” language allows the group to take the risk of entering into this relationship. As a general rule of thumb, a “Termination Without Cause” provision is less desirable to the party with the more favorable contract. That party desires the longest term possible.
It is important to delineate the services performed by each party under a contract.4 Most emergency services contracts will go to great lengths detailing specific aspects of the services, that is, the necessary physician qualifications, the physician credentialing and privileging process, the required physician coverage and backup, and so on.
Increasingly, hospitals require specific contractual performance standards that outline what the group is expected to achieve. For instance, operational metrics such as “door to doctor” time may be included in the contract. The hospital may wish to establish a specific time period for its emergency physicians to see the patients after the patients enter the ED. Other similar performance metrics might include
- 100% achievement of core measures
- <1% of patient who leave prior to medical screening examination (LPMSE)
- <150 minutes average length of stay (LOS) for discharged patients
- >80th percentile patient satisfaction scores
While these types of performance standards appear straightforward, they may actually be quite difficult to achieve without collaboration from the other party. To agree to be accountable for a specific outcome, the responsible party must be in control of the process. For instance, achieving a “door to doctor” time of less than 30 minutes may not be possible if patients aren't triaged and placed into a bed within that 30 minute time period.
- Example: The hospital insists on contract language requiring the group to ensure that discharged patients have an overall LOS averaging 120 minutes or less. Since the hospital is responsible for providing all of the staff and equipment, the control of these resources (ie, nursing, laboratory, imaging) are in the hands of the hospital. If these resources are inadequate, the EM group could assume responsibility for performance it cannot control. If the performance standard is contractually promised, the group may find itself in breach of the contract and ultimately have its contract terminated for cause.
Contractual performance standards should reflect the level of control the performing party has over the measure. If certain performance measures are shared responsibilities, it is appropriate to identify which party is responsible for which component and to outline a process for the parties to work together to achieve the identified measures.
- Example: Hospital and group agree to achieve patient satisfaction score levels of the 75th percentile. Should patient satisfaction scores not reach the agreed-upon level, the hospital and group agree to jointly hire a mutually acceptable patient satisfaction consultant. Both hospital and group agree to adopt the consultant's recommendation and actively participate in the recommended patient satisfaction improvement activities.
It is common for hospitals to define the number and types of physicians, and any other providers that the group must contractually provide. The contract may only create vague requirements, that is, the “group must provide enough emergency providers (physicians and mid-level providers) necessary to staff the hospital ED.”
Alternatively, the contract could specifically itemize the numbers of shifts, the types of providers covering those shifts, and even define aspects of the provider schedule and by when it must be produced and delivered to the Hospital. The contract might stipulate the specific qualifications of the providers (ie, board certified in emergency medicine). Other contractual responsibilities required by the hospital might include
- Provision of a medical director, nonphysician providers (NPs, PAs), and scribes
- Attendance at medical staff and hospital meetings
- Emergency physician completion of admission or transition orders
- Responsibility for in-house codes
- Education in-services to the ED staff
- Participation in quality programs
- EMS outreach and leadership involvement
When negotiating contractual responsibilities, it is critical that the obligations are clearly laid out in the contract and that both parties understand the resource implications required to execute the obligations. Further, it may be appropriate to describe which party is responsible for the additional resources potentially required if an obligation cannot be readily met.
Absolute and unconditional legal wording can cause a “technical breach” when the parties' actual intent was different. It may be wise to use language such as, “… will use reasonable efforts to …”
- Example: A contract may stipulate that the “group will comply with all Joint Commission, EMTALA, medical staff, and state regulatory standards.” However, a physician might be unaware of, or not have the resources to accomplish, a new minor hospital or regulatory standard. This “minor infraction” should not be cause for a breach by the group, particularly if the group makes “reasonable efforts” to address all protocols and standards.
In order for the group to effectively provide its patient care and administrative services, the hospital must provide certain resources and perform certain agreed-upon contractual duties. The contract between the group and hospital should define the hospital's performance requirements. Among the most common hospital responsibilities are the obligation to provide adequate
- Staffing (nurses, technicians, unit secretaries)
- Supplies and medical equipment
- Registration services that are accurate and timely
- Office space for medical director, including telephone, Internet
- Physician's on-call room/office
- Medical staff on-call list
- Tools for communication
It is reasonable for the hospital to contractually request the group to meet performance criteria. It is also prudent to contractually define the hospital's performance responsibilities using measurable criteria. Further, there are several performance criteria that can only be met by joint and collaborative efforts of both the hospital and the group.
- Example: The hospital and group contractually agree to a “door to doctor” time averaging 30 minutes or less. To accomplish this goal, both the hospital and the group must be accountable for the processes that they control. As such, the
- Hospital may contractually agree to an average “arrival to bed” time of less than 15 minutes
- Group may contractually agree to an average “bed to provider” time of less than 15 minutes
Each goal is measurable and places performance responsibility on the party that has the capacity to achieve the goal.
The emergency services contract between a hospital and group contains a section that details the financial commitments of each of the parties. All financial relationships affecting ED patient billing should be divulged during contract discussions. For instance, the physician group must understand the implications of a hospital's intention to provide
- Free ED care to all employees and their families
- Free ED care to community physicians and their families
- Write-offs to any complaining patient or family member
- Reduced charges to special groups
Hospitals are closely scrutinized by multiple government agencies to ensure compliance with regulations (Stark, etc). Any time there is an exchange of money (including “in kind payments”) between a hospital and a physician (physician group), legal counsel should ensure that that exchange is allowable and reasonable. For instance, it would not be reasonable or allowable for a hospital to
- Pay a group for more hospital admissions
- Provide the group with a start-up loan with no intention of obtaining repayment
- Discourage a group from providing a medical screening examination and stabilization on patients without means of payment
- Split fees or obtain a “kickback”
If the emergency services agreement does not require financial support from the hospital, then the financial section may be brief, perhaps only requiring the group to have its fee schedule approved and a description of the relationship of the parties when contracting with managed care entities.
Alternatively, the hospital might provide funding, such as a medical director stipend or monthly stipend to support a practice that is unable to support itself based on patient billing. In that case, the amount, timing, and payment terms must be clearly described. While in some ways the financial terms are often contractually the most straightforward terms, in other ways they often lead to the most complications. There is a saying, “You name the price and I'll name the terms.” This means that different levels of financial support may lead to different practice models. For instance, a subsidy may be necessary to support a contract that requires
- The group to use only board-certified emergency physicians
- The medical director to spend 75% of their time administratively
- The group to participate in all managed care contracts
- The group to give free care to multiple categories of patients
Obligations, performance standards, penalties for not achieving standards, and changing payer mix, volume, and acuity levels may all erode the financial terms of the relationship. The challenge is to ensure that the price and terms are most likely to lead to overall success of both parties.
The hospital generally grants the group exclusivity (an exclusive contract), permitting and requiring the group to provide services to all of the patients presenting to the ED. The typical exception to this exclusivity clause allows the private medical staff to see their own patients in the ED. However, with increasing utilization of hospitalists, fewer and fewer private medical staff members want to see their own patients in the ED.
From a business standpoint, exclusivity, in essence, provides the group with a “monopoly” on all the emergency patients and emergency services at the Hospital. If the group had to compete with other sets of physicians on the medical staff for these patients, the value of the “business” would be minimal.
There are other forms of exclusivity, that is, restrictive covenants that the hospital may require of the group, including
- Outside practice restriction: This restriction prevents the group or its providers from working at other hospitals or facilities that may directly compete with the hospital. An emergency physician group would be precluded from opening a private urgent care center in a particularly affluent community one mile from the group's hospital. The outside practice restriction should not unreasonably limit a physician's practice.
- Nonsolicitation: The group may not hire staff away from the hospital. An emergency physician group might otherwise attract some of the best clinical and administrative staff away from the hospital. A nonsolicitation agreement could also prevent the hospital from hiring the group's doctors.
- Noncompete: This provision could prevent members of the group, upon termination of the hospital relationship, from practicing in a competing hospital or facility. This is an example of the hospital attempting to protect its interests against competitive organizations.
- Noncompete restrictions are not valid in every state. In those states, where noncompete clauses are permissible, they must have a reasonable time period and geographic boundary. For instance, in most jurisdictions, it would be unreasonable to prevent a physician from practicing within 100 miles and for 5 years.
All of these restrictions are intended to ensure that the group and its members commit to a loyal relationship with the hospital.
Termination of Medical Staff Privileges
There are 2 forms of resignation of medical staff privileges addressed here—the “clean sweep” provision and the hospital request for individual provider termination.
This clause addresses termination of the group's contract with the hospital. In exchange for the exclusive right to practice emergency medicine at the hospital, the hospital will generally request the resignation of the entire group and its practitioners. From the hospital's point of view, it is necessary to provide a new “replacement” group with the same exclusivity enjoyed by the previous group. If emergency physicians were not required to resign their privileges, the potential would exist for 2 or more emergency physicians from different groups to be practicing simultaneously. Hence, the concept of exclusivity as described previously. When combined with a noncompete restrictive covenant, a physician may be excluded from practicing in or near the community.
However, the hospital may want certain physicians from the group to continue to practice in the ED as members of the new entity. To accomplish this, a contractual variation of the clean sweep might state that each physician must resign his or her privileges “at the discretion of the hospital or its representative.” This exception would allow an emergency physician to continue to practice at the hospital. As a second variation, the hospital may communicate to the physicians that upon resignation, they may immediately reapply for and be granted privileges without interruption. To prevent “cherry-picking” the group may include its own restrictive covenant clause in its contract with the individual practitioners, the hospital, or both. (See Chapter 85 for a more in-depth discussion on this topic.)
Request for Individual Provider Termination
Many hospitals press for a contract provision that allows the hospital to request removal of a specific physician. The hospital typically exercises this right when a physician's performance is deemed to be detrimental to the hospital or its patients (in the judgment of the hospital). Under this provision, the group must comply, unless it is able to convince the hospital to reconsider its position, or perhaps, implement a monitored corrective action.
Generally, the group adds parallel language to the physician's contract requiring the physician (or other provider) to resign without the benefit of the medical staff's “due process.” The physician's hospital privileges are then terminated upon separation from the group. Hospitals perceive this clause as necessary to ensure their ability to terminate emergency physicians who cause significant clinical or behavioral problems. Without this right of termination, a hospital might have serious concern about a group's nonaction and be subjected to a prolonged relationship with a detrimental physician.
While the hospital cites the necessity to remedy any physician situation that could cast an unfavorable light, most physician groups see this provision as “heavy handed” and unnecessary. Some groups request the same privileges of due process that “regular” medical staff members enjoy. As an alternative to address the concerns of both parties, a form of “internal due process” can be stipulated in the contract.
- Example: If the hospital has a significant concern about an individual physician's performance, it notifies the group. The group is obligated to address the concern, which could include a review and investigation, supervision, suspension, corrective action, or termination. The plan of resolution is shared with the hospital, which still has the ultimate authority to accept or reject the group's actions and remedy. The process prevents an uninvestigated “knee jerk” reaction and supports the group's and the physician's efforts to improve performance.
Independent Contractor Status
It is necessary to define the relationship of the parties for reasons related to malpractice insurance and the Internal Revenue Service (IRS). Hospitals engage nonemployed physician groups as independent contractors (ICs). This IC relationship somewhat limits the liability of both parties for the actions of the other. The contract language should consistently cite and treat the physician group as ICs. The more control the hospital exercises over the physicians and their activities, the more the group may be seen as employees. This IRS reclassification could have profound effects on the providers, and their pension plans, which could be disqualified and subjected to penalties.
Hospitals frequently ask the physician group to “indemnify” and “hold harmless” the hospital against acts of the physicians and the physician group. This means that the hospital is asking the group to assume responsibility for liability (costs of defense, court costs, and verdicts) for acts primarily caused the physician's actions. Unfortunately, though the physician or group may injudiciously agree to indemnify the hospital, virtually no malpractice insurance will provide that coverage. This noncoverage could leave the physician (group) bare and personally responsible for these costs. If the hospital asks a group for this coverage, it may be wise to ask for the hospital's help finding an insurance company that will provide this coverage.
A clause in the contract defines the professional liability insurance responsibilities of the group. The provisions typically describe the limits, type (occurrence, claims made) and other stipulations (“tail” requirements). The hospital is also required to carry insurance. Other insurances may also be listed in this section, including general liability, worker's compensation, and so on.
Service contracts generally contain a clause that defines the method of resolving contract disputes. An arbitration clause is often the chosen contractual solution. Arbitration is a legal process to avoid litigation when trying to resolve legal disputes, that is, a contract disagreement. There are many potential benefits of arbitration, including
- Streamlined process
- Arbitrator more knowledgeable than most juries
- Frequently, but not always, less expensive
- Proceedings are private
The key, of course, is to avoid a lawsuit or the need for arbitration. Because of the uncertainty of outcome, expense, and disruption, arbitration can be an effective deterrent, encouraging both parties to work out their differences and “avoid the fight.”