Typically, when we blog about physician employment arrangements, we focus on major areas of negotiation, such as compensation, professional liability insurance and termination.  However, when the employment arrangement involves the physician, as employee, and a hospital, as employer, such as when the hospital acquires the physician’s medical practice, some unique additional issues arise.  (Indeed, in a November, 2012 press release, the AMA noted that a survey of final-year residents found nearly 1/3 listed hospital employment as their first choice of practice setting.)  As a result, the House of Delegates of the American Medical Association (AMA), at its 2012 Interim Meeting, adopted the AMA Principles for Physician Employment (.PDF) (the “Principles”), in an effort to “identify and address some of the unique challenges to professionalism and the practice of medicine arising in the face of physician employment.”    In particular, it was the AMA’s desire that the “Principles, in addressing select, potentially problematic aspects of the employer-employee relationship, … provide broad guidance for employed physicians and their employers as they collaborate to provide safe, high-quality, and cost effective patient care.”  These problematic areas, discussed in more detail below, are:  (i) conflicts of interest, (ii) patient advocacy, (iii) contracting, (iv) hospital medical staff relations, (v) peer review and performance evaluations, and (vi) payment agreements.

  • Conflicts of Interest -The Principles recognize that an employed physician has a duty of loyalty to the hospital employer.  That duty, however, cannot trump the physician’s “paramount responsibility” to patients.  Typically, a physician employment agreement might document that the physician must exercise his or her independent professional judgment on behalf of the patient, and that the hospital employer will not interfere with the exercise of that judgment.  However, the Principles go further, suggesting that other contract provisions  be included to reinforce this concept.  For example, “(e)mployed physicians should not be deemed to be in breach of their employment agreements, nor be retaliated against by their employers,” for speaking or advocating on patient care issues or otherwise exercising their independent professional judgment.  Similarly, given that patient welfare must come first, the Principles suggest that any “agreements or understandings (explicit or implicit) restricting, discouraging, or encouraging particular treatment or referral options are disclosed to patients.”
  • Patient Advocacy – According to the Principles, employed physicians should be free to engage in volunteer work or teach, outside of their duties as employees, so long as it does not interfere with their job responsibilities.  This is sometimes a hotly negotiated aspect of the employer/physician relationship, but the AMA believes that a physician’s patient advocacy obligations, including volunteer work and teaching, should not be sacrificed when the physician becomes an employee of the hospital.
  • Contracting – Most of the AMA’s contracting principles are fairly benign and should not cause any heartburn for hospital employers; examples would include the observation that employment agreements should be negotiated in good faith, with the factors upon which compensation will be based clearly established.  Conversely, the Principles discourage employed physicians from “entering into agreements that restrict the physician’s right to practice medicine for a specified period of time or in a specific area upon termination of employment.”  This is consistent with Section 9.02 of the Code of Medical Ethics adopted by the AMA Council on Ethical and Judicial Affairs, which provides:

 ”Covenants not-to-compete restrict competition, disrupt continuity of care, and potentially deprive the public of medical services.  The Council on Ethical and Judicial Affairs discourages any agreement which restricts the right of a physician to practice medicine for a specified period of time or in a specified area upon termination of an employment … agreement.  Restrictive covenants are unethical if they are excessive in geographic scope or duration in the circumstances presented, or if they fail to make reasonable accommodation of patients’ choice of physician.”

While this is the AMA’s stated position, it should be noted that virtually all hospital/physician employment agreements will contain a typical set of covenants (covenant not to compete, non-solicitation of payments, no pirating of employees, confidentiality and nondisclosure provisions), which are designed to meet the legitimate business needs of the hospital.

  • Hospital Medical Staff Relations – The Principles state that hospitals “should seek the input of the medical staff prior to the initiation, renewal, or termination of exclusive employment contracts.”  While most heady hospital CEOs know that obtaining input from the medical staff often represents an expedient way to make decisions which will not alienate the physicians on the staff, it is unusual for the hospital employer to agree to document in the employment agreement a process providing for medical staff involvement in decisions such as terminating a physician employment agreement.
  • Peer Review and Performance Evaluations – The Principles advocate that “peer review of employed physicians should be conducted independently of and without interference from any human resources activities of the employer.” While this is a noble goal, it may not jive with the manner in which most hospital employers carry out physician employee evaluations.  Similarly, the suggestion in the Principles that the employed physicians should be provided with “regular performance evaluations, which should be presented in writing and accompanied by an oral discussion with the employed physician,” may be a best practice, but not necessarily in line with the current structure of most hospital/employed physician relationships.
  • Payment Agreements – The Principles recommend that employed physicians “be prospectively involved” in the hospital’s contract and fee negotiations, and be informed about the actual payment amount allocated to the professional fee component.  This may or not happen in practice, but should not be highly controversial.  What may be much more hotly debated, however, is the recommendation that “(e)mployers should indemnify and defend, and save harmless, employed physicians with respect to any violation of law or regulation or breach of contract in connection with the employer’s billing for physician services, which violation is not the fault of the employee.”  Most hospital/physician employment agreements contain the mirror provision, where the physician indemnifies the hospital for coding and billing errors resulting from the physician’s actions or omissions, but it is rare to see a provision such as the one suggested by the Principles included.

The Principles state in the preface that they are not intended to be a comprehensive listing of all of the professional and ethical issues arising out of the relationship between the hospital, as employer, and the physician, as employee.  Nonetheless, the Principles do provide a good starting place, in terms of understanding that the employment relationship between hospital and physician is a unique one, requiring care in dealing not only with the traditional terms of employment, such as compensation, benefits and the like, but also in terms of the difficult professional and ethical issues involved.