Physician Employment Issues

Physician Employment Issues Tsai Center for Law Southern Methodist University

February 17, 2016

Martin Merritt , Esq.Partner: Health Law and Healthcare Litigation

[email protected]

Martin serves as the Executive Director of the Texas

Health Lawyers Association and a Partner at Friedman & Feiger. In the past few years , Martin has published several hundred articles in journals such as The Federal Lawyer, The Texas Bar Journal, Physicians Practice Magazine, Becker's Hospital Review, Diagnostic Imaging Magazine, Psychiatric Times and D Magazine Healthcare Daily. In 2014, Martin co-authored his second book, "The ABC's of ACOs," a book published by the Health Law Section of the American Bar Association. Martin is both a litigator and provides health law opinions and transactional services for physicians, pharmacies, laboratories, ASCs, entrepreneurs and other healthcare clients

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Karin Zaner,esq Kane Russell Coleman & Logan

[email protected]

Karin Zaner, is the immediate Past President of the Texas Health Lawyers Association, and a director of the Firm, Kane Russell, Coleman & Logan. Ms. Zaner has developed an extensive health law practice. Her experience in medical peer review began in 1999, when KRCL represented Dr. Lawrence Poliner in his federal court lawsuit against Presbyterian Hospital of Dallas and obtained a $366 million verdict, which was the ninth largest jury verdict in the country in 2004. She advises her clients on a wide variety of health law matters such as state and federal immunity laws and privilege issues, physician employment and non-compete issues, HIPAA issues, NPDB and self-reporting issues, privileging and credentialing issues, Texas Medical Board issues, and other state and federal healthcare regulations that apply to physicians (including those in training) and other health care providers. She practices extensively in Texas but also helps out-of-state physicians with the association of local counsel in that state.

Part I: Employment Non-Compete Clauses

Martin Merritt

A Good Place to StartVenice (Circa 1200’s)

Venice is one of two places with plenty of employment

At the other, working

conditions are not so good. 4th Crusade Sack of Constantinople (1204)

Constantinople employees had a skill. . . and No Jobs.

They needed somebody to provide the Capital and physical plant

And they could make this stuff . .. Which is hard to do, but isn’t really

“Trade Secret”

The Employees decided to motor West

looking for work

Employers created kind of a “UT Southwestern” workplace at Murano

200 years together on an island, and they created a “trade secret” . .

Employers wanted to monopolize and restrain trade

1500’s version of a Non-Compete and UTSA : Employees Could Never leave the island. Ever.

This illustrates a timeless struggle Employer :• has the leverage (power)• has all the business

connections• has all the customers• Assembled a valuable team of

coworkers • Has confidential information

and trade Secrets • Would actually prefer a

naked restraint on Employees

Employee:• Has very little leverage • Often running “from something,”

not “to something”• Just needs a paycheck/Will sign

anything• Oftentimes naïve and no

connections• Doesn’t know what a non-

compete actually means• Thinks nothing of taking customer

list, fellow workers, trade secrets , usurping opportunities

Texas’ Historical View:

“Texas Courts historically held that noncompetition covenants limit competition and are restraints of trade. Therefore, they are presumed to be invalid unless specifically authorized by a statute.”–

--Mark Shank ,Texas Litigators Guide to Departing Employee Litigation, Ch. 3., P. 41.

Codified at Texas Bus. & Com §15.05

(a) Every contract, combination, or conspiracy in restraint of trade or commerce is unlawful.

(b) It is unlawful for any person to monopolize, attempt to monopolize, or conspire to monopolize any part of trade or commerce.

On the Other Hand Freedom to Contract :

“Parties are free to contract in any manner which does not

violate a statute or public policy.”

RESTATEMENT (SECOND) OF CONTRACTS § 178(1)

Texas Covenant Not to Compete Act Bus. & Com §15.50 (1989-93)

“A covenant not to compete is enforceable if it is (1) ancillary to or part of an otherwise enforceable agreement at the time the agreement is made (2) to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and (3) do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promise.”

What this means in English:

• A covenant not to compete is a contract in which the employee is giving up a valuable right . The rules are:

• First: Must have “consideration.” “At will” contracts can’t be enforced (“illusory”).

• Second: Must be some “Justifiable business purpose.”

• Third: Must be reasonable in time, scope, and place.

“Justification” for the Non-Compete Clause:

Historically, courts were reluctant to accept this contractual waiver of rights. Courts tied the Consideration to the the Non-Compete (had to bear some relation to the promise not to compete), such as disclosure of confidential information in exchange for the promise not to compete.

Texas Supreme Court Lessens the Burden on Business.

• Light v. Centel Cellular Co. of Tex. 883 S.W.2d, 647 (Tex. 1994)

• Alex Sheshunoff Mgmt. Serv’s, L.P. v. Johnson, 209 S.W.3d 644 (Tex. 2006)

• Mann Frankfort Stein & Lipp Advisors v. Fielding, 289 S.W.3d 844 (Tex. 2009).

• Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011).

There is a reason for that...In California, employers feel are highly burdened.

There is a “job-creation” element to Texas Supreme Court Holdings

Practice Pointer: Be sure to check , the state chosen in the contract

The trial courts: contracts must appear to protect some legitimate business interest

Something other than “I don’t want employees as

competitors”

• Preserve business goodwill/connections

• Particularly in Sale of Business • Protect customer lists• Preserve valuable team of

coworkers • Protect confidential

information and trade Secrets

Some of the more clever provisions.

• “I agree that there is no

adequate remedy at law for my breach.”

• “ I agree that the noncompete will not harm my ability to earn a living.”

• “I agree that an ordinary medical procedure is a trade secret”

§ Sec. 15.52.PREEMPTION OF OTHER LAW.

“The criteria under 15.51 of this code are

exclusive and preempt any other criteria for enforceability of a covenant not to compete under common law or otherwise.”

Nacogdoches Heart Clinic vs. Vijay Poloka, MDNo. 12-11-00133-CV. (Tyler)

Physician argued that even if the non-compete contract fits squarely within the statute, it is unenforceable if Public interest would be adversely affected.

Citing Marsh USA, Inc., 354 S.W.3d at 772-73; DeSantis, 793 S.W.2d at 681; Matlock v. Data Processing Sec., Inc., 618 S.W.2d 327, 329 (Tex. 1981).


Held: Even if a physician non-compete contract fits squarely within the statute, it may be unenforceable if Public interest would be adversely affected



In other words “Public Policy” Arguments are not preempted


There are many Patient Safety and Health law reasons the contract might not be “otherwise enforceable “

• “Offensive use” of Stark law and the AKS: “The contract

is illegal” • Similar to “Offensive use” of Stark Law:

– Can’t delegate because “I don’t trust you with patient safety”

– HIPAA “I don’t trust you with PHI” • Corporate practice of Medicine • Fee Splitting

Part II:TOP 10 TIPS FOR PHYSICIAN

EMPLOYMENT RELATIONSHIPS

Tip No. 1—. READ YOUR AGREEMENT BEFORE YOU SIGN

READ

1. READ AND UNDERSTAND AGREEMENT BEFORE YOU SIGN

►Terms become enforceable once you sign;► and possibly before, when you act in compliance. ► Understand the substance thoroughly. ► Hire an experienced health care attorney to review

fully discuss; will allow you ask appropriate questions; and make your best decision; what about negotiation? Depends. . .

2. HOW MUCH LEVERAGE DO YOU HAVE?

►Typically depends on how muchthe employer needs you; the employer needs call coverage; the employer profits from your services.

► Greater ability to negotiate v. lesser ability Remote geographic location v. urban area Uncommon subspecialty v. common or general; Profitable subspecialty v. marginally profitable.

►Much is not negotiable.►Being too aggressive may label you a difficult physician, so PROCEED WITH CAUTION. . .


►Focus negotiations on— reduce the time period/geographic scope of a

non-compete; increase salary or bonus structure;

unfavorable terms that are practical (input by physician is essential, what really is untenable);

unfavorable terms that are legal (health care lawyer must distinguish between a perfect contract and an acceptable one and have a crystal ball); for example —


►Requirement that physician terminate hospital privileges when employment terminates (legal concerns due to curtailment of privileges and possible reporting effects)—

Hospital is employer (standard); Employer has a exclusive contract with hospital (pretty

standard); Employer has a strong relationship with hospital and

physician obtains privileges as a result (possibly negotiable); Physician already has privileges at a hospital but termination

required despite existing relationships (negotiable); Power of Attorney that requires physician to sign away power to resign privileges to Employer (run like the wind!!!).

3. NON-COMPETE OBLIGATIONS

►Will restrict you from practicing medicine— in your sub-specialty in a certain geographic location for a certain amount of time after the termination of the employment contract.

► Be sure to understand what this means in reality. ► Certain statutory requirements for a non-compete to be enforceable against physicians in your state►Texas requires–

3. NON-COMPETE OBLIGATIONSPhysician non-compete statute in Texas (Section 15.50(b) of the Texas Business Code)—

(1) the covenant must:(A) not deny the physician access to a list of his patients whom he had seen or treated within one year of termination of the contract or employment;(B) provide access to medical records of the physician’s patients upon authorization of the patient and any copies of medical records for a reasonable fee as established by the Texas State Board of Medical Examiners under Section 159.008, Occupations Code; and(C) provide that any access to a list of patients or to patients’ medical records after termination of the contract or employment shall not require such list or records to be provided in a format different than that by which such records are maintained except by mutual consent of the parties to the contract;

3. NON-COMPETE OBLIGATIONSPhysician non-compete statute in Texas (Section 15.50(b) of the Texas Business Code)(contd.)—

(2) the covenant must provide for a buy out of the covenant by the physician at a reasonable price or, at the option of either party, as determined by a mutually agreed upon arbitrator or, in the case of an inability to agree, an arbitrator of the court whose decision shall be binding on the parties;

(3) the covenant must provide that the physician will not be prohibited from providing continuing care and treatment to a specific patient or patients during the course of an acute illness even after the contract or employment has been terminated.


►But unless these requirements are facially deficient;► Physicians should presume enforceable as part of the employment arrangement;► Physicians should presume that employer will actually enforce it; ► Prevents physician from quitting and opening up shop across the street (arguably fair);► Even if employer terminates without cause;► Texas statute was designed to protect physicians.► But now has become a road map to enforceable non-competes for employer?

3. NON-COMPETE OBLIGATIONS► Comprehensive resource– Mike Kreager, The Physician's Right in S 15.50(b) to Buy Out A Covenant Not to Compete in Texas, 61 Baylor L. Rev. 357, 409-11 (2009). ►Example– “after acquired” locations

Physician employee for 5+ years; Physician given notice of non-renewal; Employer 6 mos ago acquires additional locations; Contract written in present terms as to non-compete (“any

practice location”); Contract on its face appears to recite all the statutory

requirements needed in Texas;


►Indefinite description of a geographical area should render non-compete an unenforceable as written—

Butts Retail, Inc. v. Diversifoods, Inc., 840 S.W.2d 770, 774 (Tex. App. 1992) (language “‘metropolitan area’ of the Parkdale Mall store in Beaumont, Texas” indefinite and unenforceable);

Gomez v. Zamora, 814 S.W.2d 114, 117-18 (Tex. App. 1991) (language “existing marketing area” and “future marketing area of the employer begun during employment” indefinite and unenforceable).

3. NON-COMPETE OBLIGATIONS► A reasonable area consists of the territory in which the employee worked while employed–

Zep Mfg. Co. v. Harthcock, 824 S.W.2d 654, 660 (Tex. App. 1992); Diversified Human Res. Group, Inc. v. Levinson-Polakoff, 752 S.W.2d 8, 12 (Tex. App. 1988);

Martin v. Linen Sys. for Hosps., Inc., 671 S.W.2d 706, 709 (Tex. App. 1984); Cross v. Chem-Air S., Inc., 648 S.W.2d 754, 757 (Tex. App. 1983);

Evan's World Travel, Inc. v. Adams, 978 S.W.2d 225, 232–33 (Tex.App.-Texarkana 1998, no pet.) (finding that a covenant not to compete that restricted the employee from working in any State in which the employer had conducted its business during the employee's term of employment was “greater than necessary” to protect the employer's legitimate business interest).

3. NON-COMPETE OBLIGATIONS► If a covenant is determined overbroad, the court will reform its terms to make it reasonable. Butler v. Arrow Mirror & Glass, Inc., 51 S.W.3d 787, 793 (Tex. App.—Houston [1st Dist.] 2001, no pet.) ► Other jurisdictions have held that expansion of the geographic scope should not be enforced if vague or unreasonable (see me for specific case cites).► Davis v. Albany Area Primary Health Care, Inc., 503 S.E.2d 909, 911 (Ga. App. 1998)—

A non-compete prohibited a physician from practicing medicine within a 20 air-mile radius of any of the non-physician group's centers for a period of two years upon termination of the employment agreement; The non-compete barred her from working within 20 miles of the existing clinics where she never worked or even the new clinic opened during her tenure. Georgia court observed that group could open a clinic within scope and require the physician to move pursuant to the non-compete agreement.

3. NON-COMPETE OBLIGATIONS► Public policy issues but may only help areas “in need”—

One Texas appellate court refused to enforce a covenant not to compete due to limited access to cardiologists. Nacogdoches Heart Clinic, P.A. v. Pokala, No. 12-11-00133-CV, 2013 WL 451810, at *4 (Tex. App.—Tyler Feb. 6, 2013, pet. denied).

Court declined to enforce a non-compete on public policy grounds and explained, “the public interest [in having access to cardiac care] would be adversely affected” if the cardiologist was restricted from practicing in the same community as his former employer;

In small communities like Nacogdoches, the court reasoned, “for one doctor to be taken out of the equation hurts the medical care of the people.”

3. NON-COMPETE OBLIGATIONS►Attack consideration (ALSO for non-solicitation and other obligations)

Must be given in the otherwise-enforceable agreement; Must give rise to the interest being restrained; Covenant must be designed to enforce the promise's

consideration or return promise in the otherwise enforceable agreement; See Curtis v. Ziff Energy Group, 12 S.W.3d 114, 118 (Tex.App.

—Houston [14th Dist.] 1999, no pet.); Donahue v. Bowles, Troy, Donahue, Johnson Inc., 949 S.W.2d 746,751(Tex.App.—Dallas 1997, writ denied).

Sources of professional services (referral physicians and patient lists/contact) are not protectable interests. See Philip H. Hunke v. Wilcox, 815 S.W.2d 855, 858 (Tex. App.—Corpus Christi 1991, writ denied).

►BUT TO WHAT END?

https://a.next.westlaw.com/Link/Document/FullText?findType=Y&serNum=1999269136&pubNum=4644&originatingDoc=Id6a7bdd7ea7911d9b386b232635db992&refType=RP&fi=co_pp_sp_4644_118&originationContext=document&transitionType=DocumentItem&contextData=(sc.Keycite)






3. NON-COMPETE OBLIGATIONS►Practical realties limit physician’s options–

Physician has terminated or (worse) been terminated; Physician needs specificity, but contract will be broad; Next employer will inquire; physician best disclose; Next employer (no matter how enthusiastic) does not want to be

Defendant No. 2 in a non-compete litigation, which usually will involve immediate injunctive relief;

Presume that employer will enforce as they have resources (David v. Goliath) and if they do not, other physician employees will assume that theirs won’t be enforced either.

Last option– File a lawsuit for declaratory judgment as to enforceability. But is this is viable option to a physician who is now out of a job?

►All this makes front end discussions with an attorney CRUCIAL (Tip No. 1).

3. NON-COMPETE OBLIGATIONS► Physician may use arbitration process to determine whether price of buyout is reasonable (is 2X yearly salary? Just saw one that is 3X= $1M?);► But beware of turning an buy-out “option” into a requirement to pay. See Sadler Clinic Ass'n, P.A. v. Hart, 403 S.W.3d 891, 898 (Tex. App—Beaumont 2013, pet. denied)—

Court upheld a buyout provision of a non-compete agreement that required physician to pay 12-months' salary or not compete in designated area;

Reasoning was that if the physician elects to compete despite signing a valid noncompetition covenant with a buyout provision, the physician must pay the agreed amount or elect to have a reasonable price determined by an arbitrator.

Beware of using this as a venue to determine enforceability (litigation may be a better option, if allowed; what if arbitration is mandated?).

4. NON-SOLICITATION AND NON-OWNERSHIP OBLIGATIONS

► Not per se prohibition from practicing medicine;►But may impact allowable ownership interests during contract as well as upon termination of the employment contract–

the patients or referral sources to whom you can market; the patients you can treat; the employees whom you can hire; the ownership interests that can be maintained; the clinical privileges that can be maintained;

► Employers draft these to be broad and indirect;► Depending on leverage, could negotiate these to be more narrow –

prohibit solicitation of current patients referral sources, and employees rather than potential;

prohibit ownership only where directly conflicting; clarify that restrictions do not apply to after-acquired locations.

4. NON-SOLICITATION AND NON-OWNERSHIP OBLIGATIONS

► Any radiuses (keep in mind for non-competes as well) — Specify that distance measured by “driving distances”; Otherwise, it will likely be “as the crow flies”

► Determine if any ownership interest is actually implicated— Does physician has ownership interests that need to be disclosed

and excepted? Required to perform a certain number of cases at the facility? What other requirements to maintain “Qualified Physician” status

as to the ownership interest? ►Determine if clinical privileges at other facility are implicated—

Does physician have clinical privileges at other facilities? Is there a reason to maintain? Are cases required to maintain privileges?

Determine how to resolve (narrow or resign?).

5. HIPAA, PRIVACY, AND TRADESECRET CONFIDENTIALITY

► Observe all employment policies, including HIPAA and patient privacy laws, at the outset of the employment relationship.

Keep it simple by using the phone, pager, laptop, computer tablet supplied to you by your employer; Avoid forwarding information to personal devices; Always use proper mobile device protocols (see HHS handout for guidance); Avoid taking hard copy information that is not secured to non-office locations.

► Just because you have access to confidential materials (such as the EHR, with its e-trail), does not mean you should access them. ► Limit access to patient treatment or other proper purposes as specifically authorized by your employer (avoid EHR “trolling” allegations as they can turn into HIPAA violations).

5. HIPAA, PRIVACY, AND TRADESECRET CONFIDENTIALITY

► Use the trade secrets of your employer for employment purposes only.► What are trade secrets (aka “consideration” for non-competes)

Confidential information; affirmatively maintained and protected by employer as secret;

Specialized training and knowledge, more than at-will duties; Specific proprietary processes of practice (clinical assessment date,

EHR software, billing software). Remember that employer can assert no proprietary interest sources of professional services (referral physicians and patient lists/contact). See Philip H. Hunke v. Wilcox, 815 S.W.2d at 858, supra. In fact, TMB Rule 165.5 requires employer to not interfere with access to patient lists/contact information for all patients “seen” in the last 2 years when the physician separates from employer (physician must meet patient notification requirements).

6. IS THERE AN INCOME GUARANTY OR RECRUITMENT COMPONENT?

► Funds offered that enable support for salary payments as physician builds practice (triad between physician, employer, and hospital). ►Federally-regulated requirements allow such amounts to be forgiven as long as physician practices in certain service area for certain period of time. ► But an income guaranty greatly complicates matters–

if physician’s employment is terminated (e.g., economics of practice fail, peer review issue surfaces, other unforeseen factor arises)

otherwise need to relocate. ► Physician will usually hold the proverbial bag in the triad.► Physicians must understand the risks and benefits before you accept. ►Again, front end discussions with an attorney are CRUCIAL (Tip No. 1). ► And certainly legal help needed if a decision made to leave the practice area or otherwise not meet forgiveness obligations.

7. ENVISION LOGISTICS

► Logistics are a crucial part of a physician’s practice, ► Control over them ceded when employed, so clarify—

Actual locations of clinical practice; Which hospital or health care facilities expected; Call coverage requirements/how scheduled; Holidays and vacation amounts and expectations. ►

Many employers now measure clinical “quality”– Understand algorithms and formulas; What is measured/how it is measured; OUTLIER is an ugly word/avoid it all costs.

8. MAKE A GOOD MATCH► Be realistic about your decision to become employed. ► Compelling reasons will have tradeoffs— salary/bonus structure v. how much actually paid;

benefits v. how much are these actually worth; call coverage v. actual working and call coverages schedules; shifting of overhead/admin (lease, EHR, employee costs, billing

costs) v. unreasonable and unaccounted for charges/expenses; clinical quality expectations v. physician independence;

► Look for an employer with reputation of treating physicians right;► Spend time conducting thorough due diligence before you take the plunge.► And if you are an employer, treat physicians right;

9. RECOGNIZE RED FLAGS

► Once the employment relationship starts— don’t be blind to signals that not working; Economics, personalities, politics, etc.

► Address red flags early to allow a jump on addressing concerning issues, before there is a crisis with limited options, an experienced health care attorney will help.

10. RESIST THE URGE TO RESIGN

► If actual crisis arises— DO NOT RESIGN EMPLOYMENT (please, please); seek guidance of an experienced health care attorney; will help with best decision; will guide physician through the process.

► Reporting obligations exist for all physicians— Interwoven state and federal reporting requirements; Coupled with self-reporting obligations; Must not unwittingly trigger affirmative report; Risk in resigning when there is an “investigation.”

10. RESIST THE URGE TO RESIGN

► Even if employer is not a hospital or health care entity (reporting entity), tread carefully--

clinical privileges may be contractually tied to continued employment;

A Power of Attorney makes it really risky;► Determine a strategic legal plan to—

resolve issue and continue employment; OR if continued employment not feasible, extricate from

employment ; top priority is minimizing damage to professional record; legal help is crucial to ensure best result!

► If you are “on the other side”– BE FAIR AND DO WHAT IS RIGHT!

Questions? Comments?Thank you for this opportunity!

Karin M. Zaner, J.D.KANE RUSSELL COLEMAN & LOGAN PC

1601 Elm Street, Suite 3700Dallas, Texas 75201

(214) 777-4203E-mail: [email protected]

Questions? Comments?Thank you for this opportunity!

Martin Merritt Friedman & Feiger

5301 Spring Valley RoadSuite 200

Dallas Texas 75254214.952.1279

[email protected]

Documents

Physician Employment Issues