Healthcare Law Blog

A Physician’s Guide to Employment Contracts with Hospitals and Health Systems

As hospitals and health systems continue moves toward clinical integration, more physicians are being employed by hospitals and health systems rather than practicing medicine in their own private practices.  The trend toward direct hospital employment of physicians accelerated after 2012 and it appears that the trend will continue as both hospitals and physicians navigate regulatory, reimbursement, and operational challenges in the future.  When considering employment by a hospital or health system, physicians should be mindful of various provisions that are often contained in physician employment agreements and how these provisions may impact the physician’s professional practice and personal life.  Here are important issues to consider when evaluating whether to enter into an employment agreement with a hospital or health system. 

Annual Salary / Compensation 

Of course, one of the foremost considerations in an employment agreement with a hospital or health system is the level of annual compensation to be paid under the agreement.  Physicians should review salary information by specialty and region to determine if it is customary and within the range of fair market value and commercial reasonableness based on the physician’s duties and responsibilities under the employment agreement.  The Medical Group Management Association (MGMA) publishes annual salary survey information by region and specialty and is one of the primary sources that hospitals and health systems rely upon in setting an employed physician’s annual compensation.  Other organizations also publish annual compensation data.  These sources of information should be consulted to determine if the level of compensation is competitive, fair and reasonable. 

Call Coverage Requirements 

Another important consideration in reviewing an employment agreement with a hospital or health system is whether the physician will be required to provide hospital call coverage and, if so, how many days or hours of call coverage will be required per month.  Consideration should also be given as to whether weekend or holiday call coverage will be required.  Being on call places limits on the physician’s personal and family life and activities during time outside of normal working hours and thus should be carefully evaluated when reviewing an employment agreement. 

Professional Liability Insurance Coverage and “Tail Coverage” 

Hospitals and health systems routinely provide medical malpractice insurance coverage to their employed physicians during the term of the employment relationship.  If the coverage was provided on a “claims made” basis, when the employment relationship is terminated it will be necessary to purchase prior acts coverage (or “tail” coverage) to address any acts of medical malpractice that occurred during the employment relationship. These policies are designed to cover any claims filed after the employment relationship has ended.  Tail coverage can be quite expensive, depending upon physician specialty.  Employed physicians should ensure that the employment agreement with the hospital or health system requires the hospital or health system to purchase or otherwise provide tail coverage upon termination of the employment relationship. 

Non-Compete Clauses 

Most, if not all, employment agreements between a hospital or health system and physicians contain a non-compete clause in some form or fashion.  A non-compete clause is designed to prevent a physician from practicing in competition with the hospital or health system in a specified geographic area for a specified period of time following the termination of the employment relationship.  In Kentucky, non-compete clauses are generally deemed enforceable if they are reasonable as to the amount of time and the geographic area specified in the non-compete clause.  In evaluating a proposed employment agreement, physicians should carefully review the non-compete clause and negotiate its terms so that there are exceptions to its applicability in certain situations, such as where the hospital or health system terminates the employment relationship “without cause” under the terms of the employment agreement. 

Each physician employment agreement is unique and must be evaluated carefully.  The above simply outlines common provisions found in most physician employment agreements and how those provisions will affect the employment relationship both during employment and following the termination of employment.

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This article does not constitute legal advice.