Printed in the Chester County Medicine Magazine, Spring 2017 Edition. By: Lamb McErlane PC partner Vasilios J. Kalogredis, Esquire*

In today’s ever changing health care environment, I have seen many physicians struggling over the direction they should be pursuing as they map out the next several years of their professional careers.

Many doctors have already gone the route of becoming employees of hospitals or other larger institutions.  All of the regulatory, reimbursement, and other market-based changes in the health care world are causing many of my clients to critically evaluate what the next best move would be for them.  For many, receipts are down and expenses are up.  The sophisticated IT needed can put a real strain on the budget of smaller practices.

In some cases, a knee jerk reaction has taken place and physicians have decided to go the hospital employment route.  In some circumstances, that move was made without critically evaluating in a rational and full basis whether it truly was the right move for that particular doctor.  Hospitals are often motivated to go this route so that they will be more in control of things by having the employed doctors as opposed to other collaborations.

Even forgetting all of the legal aspects of such a move, one needs to look at what it would mean to the doctor and the doctor’s practice activities.  An employed physician would have less control over practice operations and management.  This move, if taken, causes the doctor to no longer be the owner/decision maker and to become an employee with a “boss.”  This can be a difficult transition for many physicians.  In some circumstances, we are able to create a situation where the physician will have an important administrative role.  However, this is not the norm.  It could be a very difficult adjustment in many circumstances.

When I talk to physicians, one of the reasons often given for going the hospital employment route is “security.”  But, what does security mean?  Working for a large institution is not necessarily more secure than other options.

Back in the 1990’s, hospitals were aggressively looking to buy practices, often times with more than one bidder aggressively going after the more attractive practices.  That often ended up with very good purchase prices and favorable employment arrangements.  Many of the hospital deals I see today do not entail large purchase prices and/or generous long term guaranteed compensation arrangements.  Some do.  But the percentages of those that do are less than in the past.  Some of this is a result of the doctor approaching the Institution, hat in hand, about a sale and subsequent employment arrangement.

Obviously, each deal is different.  But as a general rule, I am seeing lesser purchase price valuations and more incentive laden compensation arrangements in the deals that are out there today.  It is a matter of supply and demand and who has the leverage.

I am often engaged to advise as to the careful structuring of things from a regulatory standpoint so that the arrangement does not fly in the face of Anti-kickback and Stark Issues.  This includes looking at what is “fair market value” for the purchase and the compensation aspects.

One has to look carefully at for how long any guaranteed compensation arrangement would be.  In some of the arrangements I see, there may be a guarantee for a couple of years, with the latter years being linked to a more performance-based paradigm.  If so, is one’s remuneration any more secure than if one remained in private practice?

Once again, depending upon the terms of the Agreement, there is no guarantee that the physician will be even employed after the initial employment term.  Even worse than that, I have seen some onerous non-solicitation and non-competition provisions which could be very damaging to the physician if and when it is time to negotiate the “next contract.”   The doctor’s leverage may be severely compromised.  They physician may have to “leave town” if an acceptable new contract is not attainable.

Words do matter.  Clearly understanding what the Institution is proposing is important.  Crafting the language to fit what the deal is becomes very important.  Compensation is one major area.  Clearly defining it all, including guarantees and incentives, is key.  Be sure to compare “apples-to-apples.”  Most doctors I know who have owned their own private practices before becoming part of a larger institution, had generous tax favorable perks (business expenses, retirement plan benefits, insurance, etc.).  One should look critically at what the potential new employer is offering (being sure to factor in the tax impact as part of that analysis).  The term of the arrangement also needs to be addressed.  How easily may the contract be terminated during the term?  Does the contract “expire” at some point or does it automatically renew?

Restrictive covenants also need to be critically evaluated.  Are there non-solicitation provisions?  What are the noncompetition provisions?  When do they apply?  What is the Restricted Area?  What is precluded?  Are there exceptions?  What are the remedies if violated?  There are also “nitty gritty” items which many do not focus on.  These include things like work hours, call responsibilities, locations of work, with whom call would be shared and paid time off.  After clearly understanding all of the proposal, one needs to compare it to his/her goals and determine whether there are any “deal breakers.”  Then negotiations may take place.

For many physicians, going with a model which provides a doctor with more control over his/her destiny is a more attractive way to go.  The options are limitless.  It is certainly not a one size fits all situation.  Pragmatic, economic, legal, personality-based, and other factors should be considered.  I really enjoy advising physicians and helping them evaluate which of the myriad of options best suits their needs and is attainable.

Mr. Kalogredis has been advising physicians, dentists, and other health care professionals and their businesses for over 40 years.  He recently joined Lamb McErlane PC as Chairman of is Health Law Department.  He may be contacted by email at bkalogredis@lambmcerlane.com; by phone, 610-701-4402; or fax, 610-692-6210.

Link to article: http://www.chestercms.org/chester-county-medicine.html

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