Red flags to look for in employment contracts

Red flags to look for in employment contracts

May 2008

Published in the May 2008 issue of Today’s Hospitalist

Editor’s note: Joan Roediger, JD, LLM, is a partner with the Philadelphia law firm Obermayer Rebmann Maxwell & Hippel LLP. She has 17 years of legal experience negotiating hospital and practice management issues and physician contracts, and her national practice increasingly represents hospitalist clients.

Although the following does not constitute legal advice, here are recent contract issues that cropped up for hospitalists whom Ms. Roediger represents:

I am considering an employed position with a hospital in a small city in the South. However, the contract contains a restrictive covenant that would prevent me from working as a physician within a 25-mile radius for a period of two years should we part ways. Does this strike you as excessive?

I have a tough time buying into the need for any type of restrictive covenant for a hospitalist because hospitalists really don’t have patients.

I have heard the argument that hospitalists might be able to bring a referring physician network with them if they jump from one hospital to another. But a hospitalist is only one person in a referring relationship, one that includes pulmonologists, infectious disease physicians and all the other specialists who wouldn’t be moving to a new hospital. Because hospitalists are only one piece of that medical puzzle, that argument doesn’t seem logical to me.

I would assume that this is a standard covenant that the hospital presents to all physicians, including internists with an outpatient practice “which may make sense. But hospitalists shouldn’t sign this kind of a boilerplate covenant.

The first thing I’d do is try to strike the clause out. If that’s not possible, I’d try to reduce the scope so that it pertained to practicing only as a hospitalist. Right now, this physician wouldn’t be able to work in other settings, including an internal medicine outpatient practice or an urgent care clinic.

As for the 25-mile radius, I suspect it is excessive. This is one area where many facilities or practices implement a “reactionary” restrictive covenant rather than one based on actual practice logistics.

You should back into a restrictive covenant by looking at the hospital’s service area and figuring out where 80% of its patients come from. I tell all my clients when they’re out doing interviews to ask, “Where do your patients come from?” and to ask for service-area data from the hospital’s billing software. That software should be able to spit out a list of zip codes.

If the hospital is in a city, a restrictive covenant should cover blocks, not miles. For a suburban hospital, a two-, five- or 10-mile area might be reasonable.
In rural areas, that area could be even larger. But again, keep in mind the likely harm that you, as a the hospitalist, would do if you left and competed with the hospital, as opposed to being another employed physician who has a full-time outpatient practice.

I also tell physicians to remember that if a restrictive covenant covers a radius, you can’t determine its reach by getting in your car and driving a certain number of miles from the hospital. You need to get a local map, borrow your kid’s protractor and draw a circle.

A hospital recently offered me a contract that includes something called a “deportment clause.” That clause states that the hospital will be able to reduce my base and incentive compensation by 10% “even retroactively “if I consistently violate the hospital’s policies and procedures.

This is the first time I’ve run across this kind of language in a hospitalist’s contract. Any time you see talk about withholding compensation, you should be concerned.

The first problem is that the contract doesn’t spell out what the specific policies and procedures are that this clause would pertain to, so I don’t know what due process you would have as a physician.

This kind of clause might make sense if the policy pertained to charting and applied to physicians who consistently don’t complete their charts, meaning that the hospital can’t bill for their services. In that case, the hospital could take action after repeatedly notifying physicians in writing that they need to improve.

But the contract language you describe doesn’t spell that out. Nor does it spell out the incentives that would be affected, nor how any amounts that might be withheld would be paid back if you completed your charts.

I would try to have the clause removed. If I couldn’t, I’d want to see specific policies included in the contract to which this clause would pertain.

Joan Roediger, JD, LLM, is a partner with the Philadelphia law firm Obermayer Rebmann Maxwell & Hippel LLP. Please e-mail her questions you’d like to see addressed in a future column to