3 malignant retention strategies in health care contracts

Establishing a medical career inevitably requires signing a number of contracts along the way that we are not trained to evaluate, leaving us at risk for malignant retention strategies. At the beginnings of our careers, we were obligated to sign all contracts offered to us without question. The medical school match did not leave much choice, and salary negotiations were nonexistent. This lack of choice later changed, as most of us can keenly recall receiving our first confusing offer letter while completing the last few months of training. Some of us try to sift through the legalese alone, while others will start the daunting process of procuring a lawyer. Regardless of your approach, be sure to look out for the following three common retention strategies in health care, designed to increase the burden — and thus decrease the freedom — of leaving your position.

1. Exiling restrictive covenants (a.k.a the non-compete)

The general purpose of a restrictive covenant is to ensure medical providers do not take patients from a practice upon leaving. The equity in a medical practice is in its patient panel, and they have every right to guard that asset when a staff member changes their employer. To that goal, a balanced restrictive covenant is generally limited to the catchment area of the provider’s main established site(s). By restricting the area where an ex-employee can work, a medical practice is at less risk of losing patients, most of whom prefer to maintain care at a convenient nearby site rather than re-establish care somewhere new and farther away. A medical office in New York City, for example, might require a physician changing employers to work outside of a 10-block radius from their established site. That distance would understandably increase to a few miles in a suburban setting where car travel prevails. The expected time frame for a good faith restriction is usually 6 to 12 months.

Contrast that requirement to the malignant adaptation, which ensures that employees are unable to work without moving their home, sometimes out of the state, due to a radius that creates a preposterously long commute. Large health systems often accomplish this by requiring a relatively short radius around every facility within their system, which effectively blocks out a significantly larger territory that could span multiple states. Similarly, the time frame can last years. Signing such contracts could represent career suicide in that region, as medical providers would essentially be unemployable in a large area for a significant period of time.

2. Expensive malpractice insurance

It is standard practice for health care organizations to offer their providers malpractice insurance, yet not all policies are equal. There are two general types: occurrence and claims-made. Occurrence-based malpractice insurance covers all claims indefinitely as long as they are generated on a patient encounter that occurred when the policy was active. Changing insurers or employers does not negate coverage from prior encounters. However, it is usually the more expensive variety of malpractice insurance as it is more comprehensive.

Contrast that to the (sometimes unintentional) malignant retention tactic of claims-made malpractice insurance. While cheaper than the above, this insurance only provides coverage while the policy is active. If a medical provider leaves their job and the policy ends, there are no protections against any subsequent claims brought on a prior patient encounter, and that provider is personally liable. This can be dangerous and financially devastating if such a claim is successful. As a result, physicians are encouraged to purchase “tail coverage,” which, as the name implies, is a policy purchased by the individual, not the practice, that covers those subsequent claims from a prior malpractice insurance policy. This can prove exceedingly costly, ranging from 1.5 to 2 times the yearly claims-made malpractice insurance rate. For physicians in lower risk specialties, this could be under $10,000, but surgeons and other higher risk specialties could easily spend tens of thousands of dollars just for changing jobs. There are countless horror stories of physicians needing to pay over $100,000 for this service, although that is not the norm.

3. Timely vesting

Retirement vesting schedules are perhaps the most benign strategy of the three on this list, and should not be confused with ownership, partnership or stock vesting. Most health care companies will offer 401k/403b options to their employees, and a majority of those will have some form of matching contributions. The idea is that the company will contribute additional funds (in addition to the negotiated salary) into their employees’ retirement if the employee allocates a portion of their salary their as well. It is important to read the fine print, as one common practice is to restrict access to those matching contributions based on time. For example, it may take five years before that money fully belongs to the employee — whereas, leaving the company before that time yields only a percentage of the total. Employers can thus promise seemingly higher than average matching percentages that are in reality only available to employees who remain for several years in potentially undesirable work environments. Leaving before being fully vested can cost the employee tens of thousands of dollars.

Next steps: negotiations

Of these three retention strategies found in contracts, retirement vesting schedules have the least room for negotiation. In general, companies have a set standard for all employees where exceptions cannot be made. However, restrictive covenants and malpractice insurance should be discussed further if these malignant retention strategies make it into a contract.

Jonathan Zipkin is an urgent care physician.

Image credit: Shutterstock.com

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