Article

Hiring an associate? Do the homework

Employment agreements drawn up before candidate interviews make legal sense.

A well-drafted agreement between employer and associate ophthalmologist is the basis for many long, productive professional relationships. On the flip side, a poorly drafted agreement can devastate a practice if the relationship dissolves. Therefore, to protect your practice it is critical you follow the below guidelines we’ve provided before you present an agreement to a prospective associate ophthalmologist.

YES, YOU NEED TO PUT IT IN WRITING

And here is why. Too often, both parties verbally negotiate terms of the employment relationship and then seal them with a handshake. But time passes and memories fade, so it is critical to memorialize the terms of the employment relationship in writing. Among other things, all agreements should delineate both parties’ expectations and the circumstances under which employment could end should the relationship deteriorate.

THE CONTENTS

The associate ophthalmologist employment agreement should include the following items:

Term and termination

Standard employment agreements run for a set period of time (typically 1 to 2 years) and renew automatically at the end of that initial term (usually in 1-year increments). This does not mean that the employment agreement is a “no-cut” contract for the full specified term since most employment agreements are terminable prior to renewal. Several types of termination provisions should be considered: nonrenewal, “for cause” and “not for cause.”

Termination for nonrenewal is just what it sounds like — a given contractual period approaches the end, and one party wants to end the relationship. A provision can be included in the agreement that allows for either party to notify the other of that party’s wish not to renew on a set amount of notice (typically 30 to 90 days).

Termination for cause is immediate termination, typically because of a specific act. “Cause” is a defined term and usually means:

  • Loss or suspension of license, privileges or malpractice insurance;
  • Abuse of drugs or alcohol;
  • Conviction of a felony, theft or other dishonesty; or
  • Exclusion from Medicare or other payer plans.

The practice should also include a “catch all” provision for material breach of the employment agreement, which gives the practice discretion to terminate “for cause.” Having said that, most terminations are “not for cause.”

Termination “not for cause” permits either party to terminate the employment relationship at any time during the term of the employment agreement, for any or no reason, on a given period of notice (usually 30 to 90 days). The practice needs to be sure that it isn’t “stuck” with the ophthalmologist if it is the terminating party (if it does not want to be). While the practice must continue to pay and provide benefits to the ophthalmologist during the notice period, the agreement can (and, in most cases, should) include language that allows the practice to immediately suspend the ophthalmologist’s services to patients.

Compensation

Compensation usually includes several components. First, the employment agreement should delineate the base salary for each year of employment, and subsequent raises. A $10,000 to $15,000 annual increase in base salary is common for subsequent years, assuming that practice finances allow it and employee performance warrants it.

Also, incentive bonuses are commonplace for ophthalmologists. Typically, the associate ophthalmologist receives a percentage (usually 25% to 30%) of the ophthalmologist’s collections in excess of a specific threshold (usually 2.5 to 3 times base salary) as a bonus. The practice must define what revenues will be “counted” when calculating the bonus provision. Only collections for services personally rendered by the ophthalmologist should count, and the practice should exclude from the calculation high-cost items (i.e., injectables) and ancillary services, including all (or at least the technical component of) Stark-designated health services.The practice may also pay its associate ophthalmologists discretionary bonuses (based on the practice’s ability to do so, financially) in combination with the practice’s subjective assessment of the associate’s contribution to the practice’s success.

The practice must carefully structure an associate ophthalmologist’s compensation package. The ophthalmologist should have some upward mobility in terms of compensation. If you pay the ophthalmologist too much at the onset, it may be hard to structure an attractive buy-in if/when the time comes.

Come prepared

Ideally, you should draft the employment agreement prior to interviewing candidates. While it is understandable that you’d rather wait to incur this expense until you find a candidate and make an offer, the employment agreement, when drafted in advance, benefits the practice by expediting the hiring process. Here’s how.

First, a good candidate might have multiple offers, so a prepared contract would let you avoid delaying the process. When you find a suitable candidate who meets your and the practice’s needs, you should provide an employment agreement as soon as possible. Also, preparing a written agreement in advance provides you time to consider your options and forces you to focus on key issues, like bonus structure and noncompete terms. This prevents you from rushing to present a document to the candidate.

Finally, please don’t think that the money spent on contract preparation was lost should the recruiting effort not work out; the employment agreement can be “recycled” for a future candidate, whether he or she is found the next week or next year.

Business expenses

The practice generally pays for business expenses, including cost of licensure, malpractice insurance, hospital/ASC staff fees, journal subscriptions, society dues, CME and other professional costs. Often, there is a dollar limit (typically $2,000 to $3,000) on the more discretionary items such as journal subscriptions, society dues, CME and other professional costs. The critical point is that there be a clear understanding of which business expenses the practice will, and will not, pay for.

One frequent question: who pays for the “tail” premium for the associate’s malpractice insurance policy. While occurrence-based policies do not require a tail, claims-made policies do, and claims-made policies have become the norm. Thus, the treatment of the tail has become a heavily negotiated item. The practice, the departing ophthalmologist, or a combination of the two can pay the tail. If the practice pays, it should consider a provision to alleviate itself of that duty if the associate resigns voluntarily or is terminated with cause.

Fringe benefits

The typical package of fringe benefits includes health insurance (usually individual coverage, today) and participation in the practice’s retirement plan, if applicable. Often the exact extent of the fringe benefits depends on what the practice provides for its other providers and employees. As with business expenses, the critical component here is to clearly understand the benefits and to what extent the associate ophthalmologist is eligible to participate.

Paid time off

Typically, the practice provides a vacation package of two to three weeks and five sick days plus one week for continuing medical education courses. Instead of structuring it this way, the practice can simply offer four to five weeks of paid time off, which the physician can use for any absence.

Questions sometimes arise about pregnancy-related absences. At the least, the practice must treat pregnancy-related absences as it would treat any other disability under its sick and disability leave policies. Note that state and local law as well as the size of your practice may impact such policies.

Restrictive covenants

No one goes into an employment relationship expecting it to end; however, the practice must prepare for that by including restrictive covenants in the agreement from the outset.

While some states are starting to make changes to limit the applicability of noncompete provisions to physicians, by limiting the allowable duration and geographic scope of such provisions or prohibiting them in some contexts altogether, noncompete provisions have long been standard in the medical profession. They prohibit an employee from working within a certain area during and after the term of employment for the protection of the employer’s legitimate business interests.

For the practice’s greatest protection, a noncompete should apply whether the practice terminates the associate ophthalmologist “for cause” or “not for cause.” Generally, to be enforceable, noncompete provisions must be reasonable as to geographic scope and time duration. Reasonableness as it relates to geographic scope depends on the area and its population in which the practice is located. As a general rule, the more populated an area, the smaller the noncompete geographic area.

Conversely, less populated areas, where people typically travel farther for services, allow for larger noncompete areas. No matter the practice location’s population, the geographic scope should be limited to the actual drawing area of the practice. This avoids it being deemed “unreasonable” and, therefore, unenforceable.

As for temporal restrictions, a noncompete of two years is typically deemed reasonable; a noncompete provision longer than that is subject to greater scrutiny.

There are no guarantees that a court will uphold a noncompete provision, but a well-drafted, conservative provision increases the likelihood of success. Because statutes and common law vary from state to state, a competent health-care attorney should review this provision to maximize protection for the practice.

The agreement should also include a nonsolicitation provision. This provision prohibits an associate ophthalmologist who is leaving the practice from “poaching” patients or employees or interfering with referral and contractual relationships for a set timeframe. Finally, the practice should consider a confidentiality provision. This would prohibit the departing ophthalmologist from disclosing to anyone outside of the practice any and all business and other information of the practice. This provision should be effective during the term of the employment agreement and indefinitely thereafter, regardless of the reason that the employment relationship ends.

Co-ownership

Though not a necessity, many associate ophthalmologist agreements leave open the possibility for a future buy-in. It is advisable to include a brief discussion on this topic in the initial agreement. Oftentimes, this provision includes the timeline for co-ownership discussions and criteria. Some agreements go further and discuss details of the buy-in, such as how it will be calculated. Most importantly, the agreement should never promise or guarantee co-ownership.

CONCLUSION

Knowledgeable legal counsel could help you draft or review the agreement to ensure that it complies with applicable laws, rules and regulations — and that its terms are in the practice’s best interests. When choosing an attorney, the practice should consider a specialist who is familiar with the health-care industry’s nuances, such as those discussed above. Also, the attorney should be familiar with the “norms” of ophthalmologist employment, including starting base salaries, structure of incentive bonus provisions and buy-ins. OM

About the Authors