October 26, 2023

A new physician in a difficult to recruit specialty just fell into our laps.  When I asked my lawyer to prepare an Employment Agreement with a November 1, 2023 Starting Date, I was sent an agreement with a number of conditions that cannot possibly be completed in a week. Why must lawyers make these things so complicated?

Your lawyer is doing you a favor.

The beginning of an employment relationship is not a simple matter.  The Employer must staff and equip an office for the new physician.  Not something that can be typically done in a week.  However, even if there is sufficient space and personnel for the new physician’s practice, don’t forget that all new employees, including physicians, must complete all required pre-employment screens – that takes time.

But what is often overlooked at the beginning of the legal relationship between a physician and his/her Employer is that since the Employer will be legally obligated to begin to compensate the physician as of the starting date of the agreement, as of that date, the Employer needs to make sure that the physician can perform all of the duties that are set forth in the agreement and (most important to the Employer) that the Employer will begin to be paid for the professional services that are provided by the new physician.

Many commercial insurers take 60-90 days to “credential” a new physician.  They also typically take the position that they have no legal obligation to reimburse the Employer for the professional services that are provided by that physician to the third party’s enrollees until that credentialling process has been completed.  If this process is not timed correctly, the Employer could be on the hook for up to three months of the physician’s salary with no revenue to cover that cost.

But let’s now look at the fact that a physician in a needed specialty fell into your lap.  I am not saying that this can never happen – but it is more likely than not, that this physician found themself in a situation where they were terminated from their old job and needed a new one fast.

You won’t know whether you are lucky, or stuck with a problem physician, until the Employer and the hospital’s credentialling processes have been completed.  Again, this takes time – time that is well spent!

Just as the Employer wants to be paid for the new physician’s services on their first day of employment, the Employer will also want that physician to be able to exercise clinical privileges as of that date as well.  That cannot happen unless the Agreement states that the Agreement does not begin until the hospital credentialling process has been successfully completed.

That is why we advise our clients that hiring is a process.  It takes time.  While you must be flexible, most hires require 60-90 days’ advance notice to set up the physician’s practice, to complete pre-employment screens, to credential the physician with third-party payers, and to allow sufficient time to complete the medical staff credentialling process.  The Agreement should require all of this to be completed by a date-certain, which is also the “Starting Date” of the Agreement and the date that the Employer has the legal obligation to begin to compensate the physician.

The Agreement should also specifically provide the Employer with the right to cancel the Agreement if the physician fails to complete this process in a timely manner, especially if that delay is caused by a clinical or behavioral concern that is discovered during the medical staff credentialling process.

While it is lawful to pay a reasonable signing bonus to a physician as soon as the physician signs on the dotted line, it is preferable not to be obligated to make any kind of upfront payment until the physician is on site and has begun to provide services as your employee.  However, if a signing bonus is paid before the physician begins to provide services, then the Agreement should make it clear that that upfront money must be repaid if the physician fails to start when required by the Agreement.  It is also a good idea to pro-rate the signing bonus so that a portion of that payment must be repaid if the physician does not remain employed for a minimum period of time.

If you have a quick question about this, e-mail Henry Casale at hcasale@hortyspringer.com.  If you want an in-depth discussion of Hospital-Physician employment relationships, compensating physicians and APPs, the Fraud and Abuse laws, the False Claims Act and much more, join me, Dan Mulholland and Hala Mouzaffar in Phoenix from November 16-18, for our Hospital-Physician Contracts and Compliance Clinic.