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EMPLOYMENT CONTRACTS: WHAT PHYSICIANS NEED TO KNOW

According to an AMA study released in June 2019, the number of employed physicians now exceeds the number of self-employed physicians in the United States. This means that more physicians are entering into employment contracts than ever before. Doctors may dislike having to negotiate employment contracts, and for this reason may not closely examine some of the contract provisions.

Tail Coverage

Problems often result when physicians leave an employer and discover that they may have to foot the bill for an Extended Reporting Period policy.  An Extended Reporting Period policy, or “tail” coverage, provides insurance coverage for claims brought after the termination of a claims-made insurance policy. These policies cover physicians for claims brought against them for services they provided while the policy was in effect. When a physician leaves an employer, their current insurance policy is cancelled, but the liability lingers. Tail coverage addresses this liability, covering physicians after claims-made policies are no longer in effect. The issue for physicians is: Who pays for the tail?

Ideally, it is best to negotiate this coverage into employment contracts at the start of the relationship. I know from experience, however, that physicians may sign employment contracts without fully understanding the nuances, particularly those that deal with insurance. Often, those employment contracts state that when doctors leave an employer, they’re responsible for purchasing their own tail coverage. This coverage can be very expensive. But physicians who thoroughly review their contract, looking for this provision before they sign, have had success in negotiating for the employer to pay the tail coverage should they leave employment.

Consent to Settle

Another aspect of employment contracts that I advise my physician clients to watch out for relates to consent to settle. If an employed physician is sued, does he or she have any rights to settle, or do those rights rest solely with the employer? This is a big issue, because if you’re an employed physician and settlement money is paid on your behalf due to a claim, it is reported to the National Practitioner Data Bank and becomes a permanent part of the physician’s record. Where settling quickly may benefit the employer, it may not be in the best interest of the physician. Without consent to settle rights, physicians may find themselves without any control over decisions made that impact their record. When reviewing and negotiating employment contracts, physicians should look very carefully at the language surrounding consent to settle.

Review is the Key

Before entering into an employment contract, it is always in a physician’s best interest to have the contract thoroughly reviewed from a legal and an insurance standpoint. By involving trusted professionals from their respective disciplines up front, it is possible to negotiate an agreement that provides the best protection for all parties involved.

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Phillip Smith
Phillip Smith

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