We all know that the healthcare industry is experiencing a wave of integration. This trend has been evident for many years. Fewer physicians are willing to assume the legal, financial and other business risks associated with owning their own practices. More and more physicians are becoming employed by large physician groups, health systems and national providers.
This shift necessarily involves not only entry into new employment arrangements but also the termination of existing relationships. And those terminations are often governed by written employment agreements, state and federal healthcare laws and employer benefit plans and other policies and procedures.
Before pursuing their next opportunity, physicians should pause for a moment and first attend to the arrangement that they are leaving. Departing physicians need to understand their legal rights and obligations when leaving their current employment relationships in order to avoid unintended consequences and detrimental missteps along the way. Here are a few words of practical advice for physicians contemplating an exit from their current employment arrangements.
- Ensure that the relationship is terminated in accordance with the terms of the written employment agreement. Whether the physician is terminating the employment agreement with or without cause, the physician is facing an involuntary termination initiated by the employer or the parties are mutually agreeing to end the relationship, the parties must terminate the relationship in accordance with the timing, prior notice and other procedural requirements set forth in the written employment agreement, when applicable. Failure to do so can result in a breach of contract claim and sometimes significant liability exposure.
- Avoid relying on verbal promises and assurances regarding the transition. In the event that the parties have mutually agreed to terminate an employment relationship in a manner that is contrary to the terms of the written contract, such agreement should be reduced to writing. Verbal promises and assurances provided by the other party that it will cooperate and agree to waive certain rights under the employment agreement are generally not enforceable unless reduced to writing. Relying upon verbal promises and assurances is especially dangerous when the departing physician’s primary contact is not the ultimate decision maker and lacks ultimate authority to ensure a smooth transition.
- Understand your obligations to obtain tail coverage. Employment agreements that permit professional liability insurance to be maintained on a claims made basis often require the physician (at least under certain circumstances) to assume the cost of obtaining tail coverage upon termination of the relationship. Before exiting an employment relationship, the physician should assess whether such obligation is present and the associated expenses. Note that the cost of tail coverage may vary greatly depending upon the particular state. Sometimes a physician’s obligation to procure tail coverage can be addressed, upon consent of the employer through an amendment to the written employment agreement, through the maintenance of the existing policy or by obtaining nose coverage.
- Determine your rights and obligations to provide patients with notice of your departure. The right of a physician to inform his/ her patients of the departure is often addressed in the underlying written employment agreement. Many state laws also include provisions related to patient notices upon a physician’s departure. Non-solicitation provisions set forth within employment agreements are subject to applicable state law. Further, even when employment agreements include non-solicitation provisions and the state laws are silent on patient notices, physicians are sometimes able to persuade their employers to permit appropriate notices to patients based upon applicable ethical rules, principles of patient choice and continuity of care considerations.
- Assume that noncompetition covenants will be enforced when permitted under applicable state law. It is common for physicians contemplating a departure to express disbelief that their employers would actually want to enforce a restrictive covenant or that a court would compel compliance with such an obligation. But they are often surprised. Employers place non-competes in their agreements for a reason—they believe they are important. When enforceable under applicable state law, non-competition prohibitions may significantly impact a physician’s post-termination career and should be taken very seriously. Physicians should review the restrictions carefully and objectively to ensure complete compliance. Applicable case law often informs how courts will interpret ambiguities within the contractual language (e.g., how the restricted geographic area would be determined). That being said, employers will sometimes grant waivers of such covenants when there is an incentive to do so.
- Consider a separation agreement. In the event that either party has potential claims against the other or there are ambiguities in the underlying written employment agreement regarding the terms of departure, it may be best to enter a separation agreement. Whether a separation agreement is necessary or appropriate depends upon the particular circumstances and each party’s respective negotiating leverage. Separation agreements often include releases of claims and confidentiality, non-disparagement and indemnification provisions. They also often include, for example, provisions related to post termination access to patient and billing records (for continuing care of patients, audits, litigation, etc.), non-solicitation and non-competition prohibitions, obligations to obtain and pay for tail coverage, the calculation and payment of bonus compensation, payout for unused vacation or sick time, settlement amounts and buy-outs, references provided by the employer to third-parties with respect to the departing employee and reports to licensure bodies, the National Practitioner Data Bank and governmental bodies, as applicable.
- Anticipate collateral consequences, when applicable. Departing physicians should understand the impact that their employment termination may have on any medical staff memberships and faculty appointments. Also, those physicians who participate in or own the employing practice or related or third party physician organizations, accountable care organizations, co-management companies, ambulatory surgical centers, real estate investment entities and other ventures may need to terminate such membership or ownership interests in connection with the termination. Such termination requirements may be set forth in the employment agreement itself or in the shareholder, operating, participation or buy-sell agreements, as applicable.
- Refrain from saying or doing something you regret. Some employment terminations are amicable but others are more like a bitter divorce. In such cases, it is often wise for physicians to take the emotion out of all negotiations and communications with the soon to be former employer and others to the extent possible and rely upon attorneys and other advisors to negotiate the transition when helpful. Employment agreements often contain confidentiality and non-disparagement provisions that apply during and after the term. Even when those requirements are not reduced to writing, physician employees should understand that they are generally not entitled to retain any property, passwords or confidential information of the employer after the termination. Further, even if the governing employment agreement does not include a non-disparagement provision, departing physicians should be careful not to impermissibly defame their employers or violate any applicable fiduciary duties owed to the employer on the way out as such actions can result in substantial legal exposure and financial liability.
Briefly stated, physicians should exit their existing employment relationships with care. It is advisable for physicians to take some time to review the terms of their written employment and related agreements, to understand their rights and obligations under applicable laws (including for example those pertaining to post-termination restrictive covenants, access to records and patient notices) and to understand how employer benefit plans will impact their departure. Before succumbing to the relief, hope, excitement (and perhaps even fear or anger depending upon the circumstances) regarding the termination and what lies ahead, physicians should take a moment to tie up any loose ends before moving forward.