Welcome back to Part 4 of our 6-part series,
Physician Contracting 101. In today’s part, we will look at the Buy-In provisions as well
as Professional Liability Insurance. What is significant about Buy-In provisions?
Typically you will not see these provisions in an employment contract with a hospital
or a large physician group. Where you will typically see these types of provisions is
in groups of two to perhaps ten physicians. What happens in those cases, in addition to
the compensation that you are receiving, is you will actually have an opportunity to buy
into the physician group and become part of the ownership of that physician group. What
is key and instrumental in regard to the decisions concerning this, is that you make sure you
understand the stability of the physician group and how it actually operates. Typically
you will receive an employment agreement that outlines whether it will be automatic, whether
you will be up for review after three, or five, or seven years, and what actual qualifications
or requirements you need to meet in order to be considered to become a partner, or owner,
of the physician group. What is unusual about some of these situations,
however, is that you never see the By-Laws, or the Operating Agreement, or the Partnership
Agreement, into which you would be entering. When I advise my clients, I always like to
make sure that they have those documents to review, before they enter into the actual
contract. Unfortunately, a lot of times physicians will enter employment agreements that have
these types of provisions without having reviewed those documents, and then when it comes time
to become an owner, they don’t fully understand what that means, or what they are going to
have to do in order to become an owner, or what capital contribution they may have to
make. Or whether they have to buy into part of a building. I mention that because, in
these smaller physician groups when you are going to become a partner, typically these
physician groups may own a building. It is important for you to understand whether you
want to become a part of that ownership, not only of the practice, but of the building
in which the practice actually operates. Sometimes this can be beneficial, but sometimes this
can be a burden. Typically, what you need to make sure of is the location of the building,
and whether it has value standing on its own outside of the practice. In my experience,
I have worked with some groups where their building is located right next to the hospital,
and so long as the building is used as a physician group office, it will be fine and have value.
But in the instance that the physicians would actually become employees of the hospital,
or work at the hospital, or leave, the building itself, without having its ties to the hospital,
actually does not have a great amount of value. You need to make sure that you understand
what your buy-in is going to be in regard to the building, in regard to the practice,
and what it means to be an owner. So when you are considering the Buy-In Provision and
whether it is a positive or a negative in your contract, there’s a number of things
you must consider. Similarly, a second important provision in
the contract that we are going to look at today deals with malpractice or professional
liability insurance. Again, there are a number of things to consider when reviewing these
types of provisions. The first is to look at whether the hospital is providing it or
whether you need to. In almost all instances, the hospital will provide the coverage so
long as you are working there. The question arises in regard to “tail” coverage, or after
you have left the practice, who is going to pick up the insurance at that point? A number
of times, it can be negotiated, and the hospital or your physician group will pick up the “tail”
coverage, but many contracts today provide, unless negotiated differently, that the “tail”
coverage will be provided and paid for by the physician upon their leaving. We need
to make sure we understand what the contract requires, and whether it is negotiable as
to whether those terms can be changed. Similarly, you need to look at the limits
of the malpractice insurance. Many limits today are at one million per occurrence, and
three million dollar sort of overall coverage, and that is typical. I have recently seen
some contracts moving to a two million and a four million. Why is this important? Well,
unfortunately in today’s world, many of the malpractice cases coming against doctors are
for values higher than that. So you need to look at whether you are sufficiently covered,
whether your employer has additional coverage that is going to cover them, and if not, making
sure that you have insurance that is going to provide protection for you against any
and all malpractice cases. These are important provisions, and you must
understand how they play into your contract. A lot of times these provisions may not be
looked at that carefully, because you are thinking about, “I just want to start work,”
rather than how these play out. But again, you need to make sure you understand these.
My warning to you today is: Go through these contracts, make sure your attorney explains
them to you, and make sure you understand what you are buying into.
Thank you for joining. I hope you join us again for Part 5 of our series.