Physician Employment Agreement - Comprehensive Drafting Protocol

You are tasked with drafting a comprehensive Physician Employment Agreement that serves as a binding regulatory document governing the employment relationship between a healthcare employer and a licensed physician. This agreement must balance the interests of both parties while ensuring compliance with applicable healthcare regulations, employment laws, and professional standards.

Document Overview and Approach

Begin by understanding that a Physician Employment Agreement is a specialized employment contract that differs significantly from standard employment agreements due to the unique regulatory environment of healthcare, professional licensing requirements, and the clinical nature of medical practice. Your draft must reflect industry standards while being tailored to the specific circumstances of the parties involved. Ensure the agreement addresses all material terms of employment, complies with applicable state and federal healthcare laws including the Stark Law and Anti-Kickback Statute, and provides clear guidance on the rights and obligations of both parties throughout the employment relationship.

Parties and Recitals

Draft a comprehensive opening section that clearly identifies both parties to the agreement with complete legal names and addresses. For the employer, specify whether the entity is a professional corporation, limited liability company, hospital system, academic medical center, or other organizational structure, and include its principal place of business and state of incorporation or organization. For the physician, include their full legal name, medical license number, state(s) of licensure, board certification status, and principal residence address.

Craft recitals that establish the context and purpose of the agreement, including: the employer's desire to retain the physician's professional services in a specific medical specialty or practice area; the physician's qualifications, credentials, and willingness to provide such services; and the mutual intention to establish an employment relationship under the terms set forth in the agreement. Include the effective date of employment and any relevant background information about the practice setting, patient population, or strategic objectives that inform the employment arrangement. Reference any predecessor agreements being superseded or amended by this document.

Employment Position and Duties

Provide a detailed description of the physician's position, including their official title, medical specialty or subspecialty, and primary practice location(s). Specify whether the position is full-time or part-time, and define what constitutes full-time employment in terms of clinical hours, administrative time, and total work hours per week or month. Clearly delineate the physician's clinical responsibilities, including the types of patients to be treated, procedures to be performed, call coverage obligations, and any hospital privileges or affiliations required.

Address administrative and non-clinical duties such as participation in quality improvement initiatives, committee service, teaching or supervision of residents or medical students, research obligations, and administrative meetings. Specify the reporting structure, identifying to whom the physician reports and any supervisory responsibilities the physician may have over other clinical or administrative staff. Include expectations regarding maintenance of medical licensure, board certification, DEA registration, hospital privileges, and participation in required continuing medical education. Clarify whether the physician may engage in outside professional activities, moonlighting, or consulting arrangements, and under what conditions such activities are permitted or prohibited.

Compensation and Reimbursements

Establish a comprehensive compensation structure that complies with fair market value requirements under federal healthcare fraud and abuse laws. Specify the physician's base salary as an annual amount and the payment schedule (e.g., bi-weekly, semi-monthly). If applicable, detail any productivity-based compensation, quality incentives, or bonus structures, including the specific metrics, benchmarks, and calculation methodologies used to determine variable compensation. Ensure that any productivity-based compensation is structured to comply with the Stark Law and Anti-Kickback Statute by avoiding direct correlation to the volume or value of referrals.

Address the timing and process for salary reviews, cost-of-living adjustments, and merit increases. Specify how compensation may be modified during the term of the agreement and what approval processes are required. Detail all expense reimbursements to which the physician is entitled, including professional liability insurance tail coverage, licensing and certification fees, professional society dues, journal subscriptions, and continuing medical education expenses. Establish clear procedures for submitting expense reimbursement requests, required documentation, and reimbursement timelines. Include provisions addressing signing bonuses, relocation assistance, or loan repayment programs if applicable, along with any repayment obligations if employment terminates before a specified period.

Benefits and Perks

Comprehensively describe the employee benefits package available to the physician, beginning with health insurance coverage. Specify the types of coverage provided (medical, dental, vision), the employer's contribution toward premiums, coverage for dependents, and when coverage becomes effective. Detail retirement benefits, including participation in 401(k), 403(b), or pension plans, employer matching contributions, vesting schedules, and eligibility requirements.

Address professional liability insurance coverage, specifying whether the employer provides occurrence-based or claims-made coverage, coverage limits, and whether the employer will provide tail coverage upon termination of employment. This is a critical provision given the significant cost and importance of malpractice coverage for physicians. Outline paid time off policies, including vacation days, sick leave, personal days, and holidays, along with accrual rates, carryover provisions, and payout policies upon termination. Specify the continuing medical education (CME) allowance, including the annual dollar amount, permitted uses, and any requirements for approval or documentation. Include other benefits such as disability insurance, life insurance, parking, professional development opportunities, and any unique perks specific to the practice or institution.

Term and Termination

Define the employment term, specifying whether the agreement is for a definite period (e.g., one, two, or three years) or an indefinite at-will arrangement. If a definite term is specified, address whether the agreement automatically renews and under what conditions, or whether the parties must affirmatively agree to renewal. Establish clear notice requirements for non-renewal if the agreement has a definite term.

Provide detailed termination provisions addressing multiple scenarios. For termination without cause, specify the notice period required by each party (commonly 90 to 180 days for physicians) and whether the employer must provide severance pay or continuation of benefits during the notice period. For termination with cause, enumerate specific grounds that constitute cause, which typically include: loss of medical license or DEA registration; exclusion from federal healthcare programs; conviction of a felony or crime involving moral turpitude; material breach of the agreement; gross negligence or willful misconduct; violation of employer policies; and failure to maintain required credentials or privileges. Specify the notice and cure period, if any, for breaches that may be remedied.

Address immediate termination circumstances such as death or permanent disability of the physician, defining disability with reference to the inability to perform essential job functions for a specified period. Include provisions for the employer's obligations upon termination, such as payment of accrued but unused vacation, expense reimbursements, and final compensation. Clarify the physician's post-termination obligations regarding patient care transition, medical records, return of employer property, and cooperation with the employer's operations.

Non-Compete and Confidentiality

Draft restrictive covenant provisions that protect the employer's legitimate business interests while remaining reasonable and enforceable under applicable state law. Recognize that non-compete enforceability varies significantly by jurisdiction, with some states prohibiting or severely limiting physician non-competes. Structure the non-compete clause to specify the restricted geographic area (defined by radius from practice locations or specific counties/municipalities), the duration of the restriction (typically one to two years post-termination), and the scope of restricted activities (practicing medicine in the same specialty, soliciting the employer's patients).

Include a non-solicitation provision prohibiting the physician from soliciting the employer's patients, employees, or referral sources for a specified period following termination. This is often more enforceable than a complete non-compete and may be sufficient to protect the employer's interests. Consider including a liquidated damages provision or buyout option that allows the physician to practice in the restricted area upon payment of a specified sum, providing flexibility while compensating the employer for competitive harm.

Establish comprehensive confidentiality obligations protecting the employer's proprietary and confidential information, including patient lists, referral sources, financial information, business strategies, and trade secrets. Specify that these obligations survive termination of employment and continue indefinitely or for a specified extended period. Ensure confidentiality provisions comply with HIPAA and other healthcare privacy regulations, clarifying that the physician's obligations extend beyond general HIPAA requirements to protect employer-specific business information.

Intellectual Property and Records

Address ownership of intellectual property created by the physician during the employment relationship, including research, publications, inventions, patents, protocols, and other work product. Typically, the employer will claim ownership of work product created within the scope of employment using employer resources, while the physician may retain rights to scholarly publications and presentations. Clarify the process for determining ownership of specific intellectual property and any revenue-sharing arrangements for commercialized inventions or discoveries.

Establish that all patient medical records, whether in paper or electronic form, are the property of the employer and must be maintained in accordance with applicable laws and regulations. Specify the physician's obligations regarding documentation, record-keeping, and timely completion of medical records. Address what happens to patient records upon termination, including the employer's right to retain all records and the physician's right to access records for continuity of care, defense of malpractice claims, or other legitimate purposes. Ensure all provisions comply with HIPAA, state medical record laws, and medical board regulations regarding record retention and patient access.

Governing Law and Dispute Resolution

Specify the state law that will govern the interpretation and enforcement of the agreement, typically the state where the physician will primarily practice or where the employer is headquartered. Acknowledge that certain provisions, particularly restrictive covenants, may be subject to state-specific enforceability standards and include severability language to preserve the agreement if any provision is found unenforceable.

Establish a dispute resolution mechanism appropriate for healthcare employment disputes. Consider whether disputes will be resolved through litigation in state or federal court, arbitration, or mediation. If arbitration is required, specify the arbitration rules (such as AAA or JAMS), the location of arbitration, the number of arbitrators, and how arbitration costs will be allocated. Address whether certain disputes (such as requests for injunctive relief regarding restrictive covenants or confidentiality breaches) may be brought in court despite a general arbitration requirement.

Include a provision requiring the parties to attempt good faith negotiation or mediation before pursuing formal dispute resolution, which can preserve the employment relationship and reduce costs. Specify the process for initiating dispute resolution and any notice requirements. Address attorney's fees, specifying whether the prevailing party in a dispute is entitled to recover fees and costs, or whether each party bears its own expenses.

General Provisions

Include standard boilerplate provisions essential to a complete and enforceable agreement. Draft a severability clause providing that if any provision is found invalid or unenforceable, the remaining provisions continue in full force and effect, and any invalid provision will be modified to the minimum extent necessary to make it enforceable. Include an entire agreement clause stating that this document constitutes the complete agreement between the parties and supersedes all prior negotiations, understandings, and agreements, whether written or oral.

Specify the process for amending the agreement, typically requiring written amendments signed by both parties. Include a waiver provision clarifying that failure to enforce any provision does not constitute a waiver of that provision or any other provision. Address assignment, generally prohibiting the physician from assigning the agreement while allowing the employer to assign it to a successor entity in connection with a merger, acquisition, or sale of the practice.

Establish notice procedures, specifying the addresses to which formal notices must be sent and acceptable delivery methods (personal delivery, certified mail, overnight courier). Include a counterparts clause allowing the agreement to be executed in multiple counterparts, each constituting an original. Add a survival clause identifying which provisions continue beyond termination, such as confidentiality, non-compete, indemnification, and dispute resolution provisions.

Conclude with signature blocks for authorized representatives of both parties, including printed names, titles, and dates of execution. For the employer, ensure the signatory has authority to bind the entity. Consider whether the agreement requires board approval or other internal authorizations before execution.