By FlexMedStaff and reviewed by Aimee Lowe, JD
Each practitioner should educate themselves about how to read and understand a contract. Why? Because ultimately, it is you signing the agreement, so it is your BUTT on the line. At times, you may find more comfort in having an attorney review the contract for you. There is no problem with this, but don’t trust them to understand what is important to you unless you express your concerns and goals with them. In the end, you are responsible for knowing and understanding what you agree to in a contract, not the attorney.
Too often, medical practitioners do not read their contracts with hospitals or other healthcare entities. If you are signing a contract, you should understand it. This is not an Apple iPhone User Agreement that we sign without question. We must read and understand every contract we sign to provide professional services for a healthcare entity.
Many in the healthcare profession refer to the contract between the facility and the practitioner as a “Professional Services Agreement,” or PSA. This term describes a contract between a facility and a business or individual. When contracting directly for locums-type work, a facility may have a templated PSA to use with practitioners, while others may not. In some instances, the facilities may allow you to provide your own templated PSA.
Once executed by both parties, a PSA is a legally binding agreement. It provides an overview and structure to your agreed-upon terms with a facility. As with most things in life, the devils are in the details. The details of any agreement are found in the PSA. If something you discussed with a facility is not in the Agreement, it does not exist. Never take what the other party says in an email or a phone call as a guarantee. If the terms are not discussed in the PSA, they don’t exist.
This article briefly reviews some standard clauses and provisions found in most PSAs when practitioners attempt to contract directly for locum-type work. This is meant only as an overview and not legal advice. Each practitioner should research these items further or consult legal counsel to understand better what’s in a PSA.
Relationship of Parties. Usually, two parties are involved, which include you, the practitioner, and the facility when contracting directly. A practitioner can contract directly as themselves or thru their own entity (LLC or PLLC). The practitioner may be employed or independently contracted by the facility for locums-type work. The PSA must state if the facility is to hire the practitioner as a W2 employee or as a 1099 independent contractor. The practitioner must weigh the pros and cons of being contracted as an employee or independent contractor as this will have tax implications and factor in how one negotiates other terms in the agreement. The relationship between the parties also impacts the liabilities the practitioner faces. Whereas a W2 employee will typically not bear personal liability unless conduct was willful or intentional, a 1099 independent contractor typically bears all the liability for their actions unless that liability is shifted via a malpractice policy provision in the agreement, as further explained in the paragraph below.
Professional Liability Insurance. Most facilities will require practitioners to have malpractice insurance. The PSA will state if the practitioner is responsible for obtaining malpractice insurance or if the facility will provide it. If the facility provides malpractice insurance, it should detail the type of policy offered (i.e., claims-made or occurrence-based). If the facility provides a claims-made policy, the practitioner will not have insurance coverage for any claims brought after the contractual relationship ends and will require “tail insurance” to ensure coverage. Therefore, the PSA must expressly state how tail insurance is dealt with and who should pay. In addition, the clinician should ensure that the facility does not insert a clause into the PSA that allows the facility to settle a malpractice suit without the practitioner’s acknowledgment. On the other hand, if a practitioner must get their own malpractice policy, they should negotiate for the facility to reimburse for the premium. This must be detailed in the PSA. Carefully consider the cost implications of malpractice and tail insurance as these can be significant unexpected expenses if not carefully weighed before entering into the contractual relationship.
Indemnification Provision. Indemnification is a fancy legal term for “hold-harmless” and liability shifting when a third party brings an action against the first party for something the second party actually did. For example, a facility (the indemnified party) could indemnify itself from any action against them by a third party that results from negligent or willful actions taken or not taken by the contracted practitioner (the indemnifying party). In these cases, the practitioner could be on the hook for the facility’s legal fees and financial losses from a demand, claim, or legal action brought against the facility by a third party resulting from something the practitioner did or should not have done. Although you may sometimes see an “Indemnification Provision” in an employee/employer contract, you should not agree to any such provision because the employer should bear the responsibility for the employee’s actions. However, an indemnification provision is much more common and standard in an independent contractor agreement. These provisions can be wordy and complicated, so always ensure you understand them or obtain legal advice on their implications. Conversely, for independent contractors, an indemnification provision should also protect the practitioner from liability caused to the practitioner due to the facility. Thus, reviewing these clauses carefully ensures that the practitioner understands the legal implications of liability shifting and that the provisions are fair to independent contracting practitioners.
Work Schedule and Scope of Services. The PSA should state your specialty, the type of services you are to perform [not just “medical services” or something similar], and the agreed-upon working arrangement. If you have agreed to cover “X” number of shifts per month or take so many days of call per month, make sure it is in the PSA, including the rate of pay. Nothing should be at the facility’s sole “discretion.” The PSA should also include the site at which you are to provide services, so there is no confusion about which facility to cover. Also, if working as an independent contractor, there should not be a non-compete agreement that comes into play after the contract is terminated. While the facility can restrict you from competing with them while working for them, it cannot restrict you from competing post termination of the contract.
Compensation. Each PSA should have a paragraph, exhibit, or addendum on compensation. It should be clear how much you will get paid for your services. This might include your hourly rate, overtime rate, and call rate. You don’t want any confusion about how much you will be paid for your services. You should also make sure there is language that addresses how and when you will be paid and what deductions if any, are authorized. At a minimum, ensure that there is a provision about the facility having to compensate for your service within “X” business days just in case they choose not to pay you. And most of all, when you are comparing the rate of pay for W2 work versus 1099 independent contractor work, take into consideration the benefits that are given to employees. For example, as an employee, your employer will cover the employer side of payroll taxes, and you’ll get compensation (typically a month) for vacation, health care assistance, retirement plan contributions, malpractice, etc. These benefits often add an additional $75,000 or more to the value of any employment contract. But as a 1099 independent contractor, you’ll likely not receive other benefits beyond contract pay. You’ll be responsible for paying self-employment tax or the employer side of payroll tax if you pay yourself a salary. So make sure that you consider apples to apples when reviewing contract pay.
This is only the start. There is much more to understand about your PSA with a facility. It would benefit practitioners to educate themselves about the details of a contract and what to look for. Knowing what you want in a PSA will help when it comes to negotiating with facilities for an opportunity to contract directly. In any event, take the time to review and understand your PSA. If you don’t, what’s the purpose of signing something you don’t understand?
***Aimee Lowe is an attorney specializing in healthcare contract law. Ms. Lowe has an extensive background in the healthcare industry as an executive advisor, general counsel, defender, litigator, and strategist. She is the founder of Lowe Legal Group, PC LLO, a boutique law firm that provides legal services for physicians, businesses, executives, and entrepreneurs. Please connect with Aimee Lowe at https://www.lowelegalgroup.com/.