Emergency Physician Contracts: Terms to Ponder, Part II
by William Sullivan, DO, JD, FACEP, FCLM, Contributing Editor
In the September issue of ED Legal Letter, two common contract clauses – malpractice insurance and restrictive covenants—that can be harmful to the interests of an emergency physician. This issue focuses on indemnification clauses, "for cause" termination clauses, and integration clauses.
Indemnification or "hold harmless" clauses are dangerous additions to any contract. When you think of indemnification, think of an insurance policy – which is another company indemnifying you for your losses. Motor vehicle insurance reimburses an insured for any losses related to driving a motor vehicle (that are not excluded in the policy and are not above the policy limits). If a physician agrees to an indemnification clause in a contract, the physician is promising to reimburse the other party for any losses related to the contract terms.
In Chehval v. St. John's Mercy Medical Center, a medical center entered into a contract with a physician and agreed to "indemnify and hold harmless" the physician for "all sums … arising out of the rendering of or failure to render professional services … described in [the contract]."1 When the physician was sued in a wrongful death action, the medical center refused to pay, alleging that the physician should have purchased medical malpractice insurance to cover him for such events. The physician then filed a lawsuit to force the medical center to defend him. The trial and appellate courts both agreed that the wrongful death lawsuit "arose out of" the physician rendering professional services under the contract. Because the medical center agreed to indemnify the physician, it was required to pay for all costs of the wrongful death lawsuit, including attorney's fees and any judgments against the physician.
When indemnification clauses are broadly worded, they can result in unexpected legal liability. For example, in Records v. Aetna Life & Casualty Insurance, an insurance company was forced to pay for a judgment against a physician who physically assaulted a nurse.2 In this case, the physician became angry because a nurse transferred his patient from a nursing home without his permission. The physician grabbed the nurse by the arm, led her into another room, shouted at her, and pointed his finger in her face. While the nurse was backing away from the physician, she fell over a table, injuring her back. In a subsequent lawsuit to enforce coverage, both courts believed that the altercation between nurse and physician would not have taken place absent the physician providing professional services to patients in the nursing home. The assault and battery therefore, "arose out of" professional services the physician was providing to the patient. The insurance company was required to defend the assault and battery action against the physician and could be held responsible for paying any judgment against the physician on the assault and battery claim.
A physician who agrees to an indemnification clause relating to provision of medical services may be responsible for paying a hospital for lost profits, malpractice settlements, attorney's fees, costs in recruiting new physicians, and other tangential costs. With few exceptions, indemnification clauses in contracts should be deal-breakers. Most contracts don't have indemnification clauses, and the benefits in any contract containing an indemnification clause will not justify the substantial added legal risk. If the other party will not delete or substantially limit an indemnification clause, find another contract.
While it may seem odd to consider your exit strategy before you even sign a contract, most physicians will eventually decide to leave their job. In the absence of a contract, employment positions are generally terminable "at will." If a contract is present, the terms of the agreement govern the circumstances under which either party may terminate the contract.
Termination clauses either occur without cause or for cause. Parties may terminate a contract without cause either unilaterally or by agreement. A mutual agreement to terminate a contract may take place at any time – the parties just have to agree to the terms. A decision to unilaterally terminate a contract without cause requires a notice period, which can be as short as 30 days or long as 180 days (or more), but is typically 60 to 90 days. This notice period gives the physician time to obtain staff privileges at another hospital and gives the hospital time to find another physician.
Physicians may find their stream of income jeopardized when hospitals or contract groups invoke for cause termination clauses. Many contracts contain unilateral clauses allowing the physician to be immediately terminated under certain circumstances. Some for cause clauses make sense. For example, allowing the physician to be immediately terminated if the physician's medical license is revoked or if the physician dies. Other clauses may be very vague, essentially allowing the physician to be terminated for any reason. For example, a contract may contain language that allows the physician to be terminated for cause if the physician does not meet "anticipated patient volumes" or if hospital staff "requests that the physician be removed from the schedule." The problem with immediate for cause terminations is that before the physician can begin earning a salary at another hospital, the physician has to find an opening and then obtain staff privileges. With credentialing committees sometimes meeting only every three months, a physician may have no income for several months.
In Miranda v. Wesley Health System, an emergency physician signed an employment contract containing 14 provisions under which the hospital could immediately terminate the physician "for cause."3 Many of these provisions were vague, including a violation of the hospital's "rules, policies, and/or procedures," failing to meet "utilization performance efficiency," and behavior deemed "unethical, unprofessional, fraudulent, unlawful, or adverse to the interest, reputation or business of Hospital." The contract made the hospital the sole judge of when these provisions would apply.
When the physician reported to the hospital for work one day, he was called into the hospital CEO's office and fired for multiple complaints alleging "rude and obnoxious" behavior toward patients. The physician then brought a lawsuit against the hospital for wrongful termination, stating that the real reasons for his termination were his refusal to overprescribe antibiotics and refusal to prescribe narcotics to drug-seekers. The trial court dismissed the physician's lawsuit against the hospital, and the appellate court agreed, stating that the terms of the contract made the physician an at-will employee. The vague for cause termination provisions cited above allowed the hospital to terminate the physician for any reason or for no reason at all.
Protecting oneself from for cause terminations can be difficult. One thing that will help is to have staff privileges at more than one hospital. Doing so will prevent the delay in obtaining other hospital privileges if you are fired. Removing the vague for cause provisions or modifying them so that they are made in good faith also can lessen the physician's risk. Finally, requiring an employer to notify the physician of any events that may cause the termination clauses to be invoked may give the physician a "heads up" that he/she needs to start looking for another job. As with indemnification clauses, if a hospital will not remove or significantly change vague for cause provisions, strongly consider looking for a different position.
These clauses usually contain language to the effect that the contract "constitutes the entire agreement of the parties" and that no other agreements or understandings are enforceable. While seemingly innocuous, integration clauses can result in a situation similar to a 'bait and switch.' If a group offers to pay you a $25/hour weekend shift differential on your interview, but this differential is not expressly stated in your contract, an integration clause might prevent you from receiving this differential. Similarly, an integration clause might prevent you from receiving the paid vacation you were verbally promised, but that did not show up in the explicit language of the contract.
Get all verbal promises in writing before you sign a contract. If you are offered a contract that does not contain terms you verbally agreed upon, write the terms in the margin and have the other party initial them.
1. Chehval v. St. John's Mercy Medical Center, 958 S.W.2d 36 (1997).
2. Records v. Aetna Life & Casualty Insurance, 683 A.2d 834 (1996).
3. Miranda v. Wesley Health System, 2005-CA-00925-COA (Miss. 2006).