By Darren M. Sharp |
Four earlier posts on the Schaefer Halleen website provided:
- An introductory discussion of why legal counsel is important when a doctor is negotiating a contract
- A brief discussion of contract law fundamentals and basic provisions that appear in almost all physician contracts
- The promises doctors are typically asked to make when they enter into a contract, and the kinds of benefits and compensation they typically receive in return
- Provisions governing termination and severance pay
This post covers malpractice insurance, non-compete and non-solicitation provisions, and confidentiality and intellectual property rights. The final post in this series on Minnesota physician contracts will discuss various miscellaneous provisions, such as legal rights and remedies if disagreements arise.
Malpractice Insurance for MN Doctors
Malpractice insurance is typically (but not always) provided by medical employers in contracts with physicians. How much will be paid for a single claim, and how much in aggregate will vary from employer to employer. One issue that often arises is whether the employer will pay for “tail” insurance after a doctor leaves. Most insurance coverage is on what’s called a “claims made” basis. That is, if there’s insurance for 2019, it will cover only claims made in 2019, and the coverage likely will not apply even then if the event leading to the claim occurred in a prior year when the carrier was not “on the risk.” So what’s covered and what’s not covered can be tricky.
If the doctor is insured from day one with the employer, then any claim arising from practice with that employer likely will be covered, up to the departure of the doctor. Separate coverage (the tail) then has to be purchased for claims that surface after departure, and who pays for the tail is something typically addressed in contracts. One can argue that if the employer terminates a doctor not for cause (an issue discussed in a prior blog), or simply decides not to renew a contract, then the cost for the tail should not fall on the employee. As a fallback, in some cases it may be possible to negotiate a split in who pays the cost.
Indemnification Provisions for Doctors
There may also be indemnification provisions, under which the employer agrees, apart from insurance, to take care of claims relating to work the doctor did while employed. In some contracts that presumption is reversed, and the doctor is required to indemnify the employer. If there are concerns about the extent of insurance coverage, a doctor may want to look at a prospective employer’s policy to be clear about potential personal liability, or speak with the employer’s coverage administrator or the insurance company itself.
Another issue that arises upon a doctor’s departure from a medical practice is the extent to which she or he can compete with the soon to be former employer. Medical employers don’t want a doctor to establish a local reputation and then depart to take a more lucrative offer or to establish a new practice nearby. Thus most physician contracts include provisions prohibiting competition for a designated period of time and within a designated geographical area. They also prohibit solicitation of former patients or former co-workers.
Non-Compete Provisions for Minnesota Physicians
The non-compete provisions can get rather complex, especially if the employer operates several facilities. For example, if there are five clinics spread across a large metropolitan area, and competition is forbidden within a twenty mile radius of any one of them, the net result is likely that a departing doctor would have to move in order to continue practicing during the non-compete period, which is typically a year, or perhaps two years. Sometimes the geographical radius will be based only on the facility where the doctor worked. If he or she worked at multiple locations, the radius may be based on the one where the most time was spent, or any location where a significant percentage of time was spent.
Non-competes also may be limited to specific practice areas. For example, an eye surgeon could be forbidden from doing surgeries for a year within the designated area, but might be allowed to open an ophthalmology practice. Sometimes the time period or geographical limitation will vary depending on just what the departing doctor wants to do.
The enforceability of non-compete provisions varies from state to state. California for the most part does not allow them, but courts in other states typically will enforce them if they are reasonable and designed solely to protect the legitimate interests of the employer. If a non-compete is of concern to a doctor, he or she should be certain about what state’s law applies and what that law allows.
Contracts also sometimes allow a doctor to “buy out” the non-compete provision. The cost can be steep, but the buyout amount may go down over time. If there is a buyout clause in a contract with a prior employer, and a doctor is negotiating a contract with a new employer, it may be possible to have the new employer pay the prior employer. Such arrangements may be in the form of a loan that is forgiven over time. Many buyout provisions, however, require payment before the doctor departs, which could well mean the money has to be paid before the doctor has a new job or otherwise has the resources to pay. That kind of language should be avoided if at all possible.
What About Non-Solicit Clauses?
Non-solicit clauses may not always run for the same time frame as non-competes, and they can be different for former patients than for former co-workers. Some contracts that forbid soliciting patients nonetheless include provisions requiring the old employer to provide contact information for the departed doctor if a patient asks. The transfer of medical records may also be addressed.
Still another departure issue (and one that may arise even before departure, relates to confidentiality and intellectual property rights. Apart from their contracts, doctors have both an ethical and legal obligation to keep information about patients confidential, but some contracts make these obligations explicit. Further, an obligation to keep the employer’s business information confidential may be included as well. Often there’s no definition of what constitutes protected business information, beyond perhaps a statement that any “non-public” information is included. If possible, a less nebulous and more limited definition should be sought.
Most medical practices don’t have intellectual property that would be patentable or subject to trade secret protection, but if an employer is involved in research, or has developed things like proprietary software, such concerns may arise and the contract may address them. If a doctor is involved in research or development of patentable drugs, devices, or treatments the contract may spell out who holds the patent rights. It is important that the contract specify that a doctor who develops intellectual property on his or her own time using his or her own resources has exclusive ownership of and the ability to profit from such property.