COVID-19 Impacts on Physician Contracts

During the early stages of the COVID-19 response, hospitals, practices, and healthcare systems were hurt financially when clinics were closed, and most elective surgeries were halted. One response was to cut the salaries paid to employees. Physicians weren’t immune to the reductions in pay, despite many being under contract.

A September 2020 study by Medscape found that 62% of American doctors had experienced a cut in pay. One out of four responding physicians said the reduction was 50% or more (Kane L. Medscape U.S. and International Physicians’ COVID-19 Experience Report: Risk, Burnout, Loneliness  Accessed March 3, 2021.).

“I’ve received too many calls concerning physician contracts during COVID,” said Dennis Hursh, JD, a physicians’ attorney in practice with Physician Agreements Health Law in Middletown, Penn. “The calls generally have the same underlying issue: ‘My employer cut my pay by X% and I don’t see anything in my contract that allows them to do that.’”

The question then becomes, what can you do to remedy the situation?

Navigating Physician Contracts

According to the physicians’ attorneys interviewed for this article, the answer often is that the physician is right: There’s no legal way for an employer to unilaterally reduce the income of a physician who is under contract. However, as with many things legal, this finding is the easy part. The decision then is what you can actually do about it.

“A law student might say that this is breach of the contract and you don’t need to agree with that breach,” said Hursh. “In the real world, however, many employers will just cut a physician’s pay anyway, and leave it to the physician how to react. This will be a personal decision that each physician will have to make based on their very specific situation.”

“There are no easy answers,” said Benjamin J. Mayer, JD, MBA, head of the Mayer Law Firm, LLC, in Highlands Ranch, Colo., who specializes in physician rights. “Your response to a unilateral cut is very contextual depending on what the contract says, the extent to which the employer violated the contract, the amount of money in play, and the importance to the physician of maintaining a good relationship with the employer.”

There are also personal criteria to consider. For example, what amount of loyalty to do you feel you owe your employer? If they have been good to you and you’re happy there, you may feel it’s in your best interest to repay that loyalty by waiving the breach. If not, or if you’re near the renewal period for your current contract, then trying to enforce the contract might be your best course of action.

Another variable to consider is the amount of money at stake. Lawyers are paid by billable hours or contingency fees, rather than set rates as physicians are. That means taking an employer into court can be an expensive and long-term project.

Payment Structure

One of the first considerations is the payment structure of the agreement. This would include how much of a physician’s salary is based on performance statistics, such as seeing a certain number of patients, and how much is supposed to be paid as a guaranteed salary.

“If you’re largely paid by productivity measures and the clinic is closed down, there probably isn’t all that much you can do,” said James D. Kelso, JD, LLM (Health), head of the Kelso Health Law Firm in San Antonio, Texas, who specializes in physician contracts and legal services. “In that model, if the physicians aren’t working and producing work relative value units, they aren’t paying for themselves or the clinic’s overhead.”

It’s fairly unusual for an employer to simply implement a pay cut. Contracts almost always have sections specifying that neither side can change the terms of the agreement without the consent of the adversely affected party. To get around this, employers will present the physician with a contract waiver that’s essentially a take-it-or-leave-it mandate—agree to a change in the terms or find a new job.

Your response to a unilateral cut is very contextual depending on what the contract says, the extent to which the employer violated the contract, the amount of money in play, and the importance to the physician of maintaining a good relationship with the employer. —Benjamin J. Mayer, JD, MBA

If you’re given a take-it-or-leave it offer, your ability to negotiate may be limited. If an employer agrees to make additional changes to your contract to get your acceptance, then they have to make similar concessions to all physicians. Doing that would defeat the employer’s reason for making the cuts: conserving cash.

Most contracts also have a “termination without cause” section. This means that either side can terminate the contract with proper notification after a certain amount of time, usually 60 to 90 days. In practice, this gives the physician a certain amount of time to find a new position when the employer wants out of the agreement.

In post-COVID-19 reality, if you’re likely to be terminated or to leave, then you should take into consideration the possibility of unemployment extending past the time any reserve funds run out. “The length of time it takes to get a new job is one of the things that has really hurt some people during the pandemic,” said Kelso. “It’s been very difficult to find a job when no one is hiring, and if you do find a job opportunity, interviewing and becoming comfortable with the potential employer through Zoom meetings is really tough. In addition, state regulators have also reduced staffing, which means that even if you got an offer in a timely manner, you still may not get the paperwork completed before the start date.”

Negotiating as a Group

The old adage about there being strength in numbers is true in contract negotiations. “You may have more leverage if you band together with others,” said Hursh. “Generally, there’s a department full of physicians under contract, and if an employer loses one, especially during down times, it isn’t as big of a deal as having their entire otolaryngology staff head for the door.”

That may be easier said than done, however. There are personal concerns that could make some of your colleagues unwilling to risk a few months of unemployment to get a better deal, such as having children in school or trying to pay off student loans.

Mayer suggests that physician groups may have some ability to negotiate certain compromises, especially when those compromises are non-monetary in nature. If you’re with an employer that allows you to become a shareholder or partner, ask for a shorter time period before you qualify or use some percentage of your losses for the buy-in when you’re eligible. Because clinical traffic may be lower, your employer might be amenable to lowering your work hours to meet the cut in pay. 

Stick It Out

Hursh stresses that even if you think your contract has been breached, you shouldn’t just walk out the door. It’s important that you work through the notice period required in your agreement—otherwise, you could be liable for monetary damages for your own breach of contract. At best, this would further complicate matters and probably prolong and make more expensive any legal action you might want to take. In a worst-case scenario, you could be held liable for employer expenses to replace you, such as paying for a locum tenens position.

When you take a new position, your last employer will probably be contacted as part of credentialing, and anything less than a full endorsement could be considered a red flag. This might result in a longer than usual credentialing period, a loss of income, or even a withdrawal of the offer.

You may have more leverage if you band together with others. Generally, there’s a department full of physicians under contract, and if an employer loses one, it isn’t as big of a deal as having their entire otolaryngology staff head for the door. —Dennis Hursh, JD

Other possible downsides could include your employer sending a less-than-glowing notification of your leave-taking to your patients and refusing to pay accrued vacation time, accrued bonuses, and other benefits. There have been instances when employers have refused to pay tail malpractice coverage to a physician leaving a practice, even when required to do so by the (breached) contract.

“It’s always my recommendation that a physician stick out the required notice period,” said Hursh. “It’s almost always better to leave on the best terms possible, both professionally and personally.”

Changes for Your Next Contract

The COVID-19 pandemic and employers’ response to it will probably continue to resonate even after the emergency is over. All of the legal experts expect to see changes in new or renewed contracts going forward.

Among these changes is the inclusion of what are called “force majeure provisions.” These provisions are used to free both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, epidemic, sudden legal changes, or an event described by the legal term “act of God,” prevents one or both parties from fulfilling their obligations under the contract.

Few physician contracts had force majeure provisions prior to COVID-19; it has been the standard that physicians were required to show up even during floods, natural disasters, or pandemics. Medical employers have never wanted force majeure clauses as part of their agreements because someone has to treat the patients—medical facilities needed the ability to make physicians come to work.

“When you see a force majeure clause, the first thing you want to do is to make sure that the clause goes both ways, covering both the employee and employer” said Kelso. “Either party should be able to decide if they want to comply based on a force majeure event. For example, you might not want to come to the hospital and bring COVID-19 home to your kids, spouse, or parents.”

During contract negotiations, try to get any force majeure provisions limited as much as possible. Negotiate what constitutes a force majeure event and limit it to acts of God as outlined by common and case law. Make sure your responsibilities to the employer and their responsibilities to you in return are spelled out. Attempt to get a limit on how long a force majeure event can continue and/or a reevaluation at specified intervals of whether the force majeure conditions still exist. If possible, include wording that automatically ends the event if the reevaluation isn’t completed.

“For those physicians who have contracts already in force that are coming up for renewal, force majeure provisions may be less of a concern,” said Kelso. “Most contracts automatically renew. If the employer wants to insert a force majeure provision, that will open up the language of the entire contract for renegotiation.”

During your current contract and any new ones going forward, don’t just sign whatever is placed in front of you. Contact an attorney who specializes in physician contracts when you need information.

“It’s a tough situation for doctors to be caught between a rock and a hard place in contract law, an area they aren’t trained in,” said Mayer. “Physicians should consider their individual situation, consult with otolaryngology colleagues when feasible, and talk to an attorney when necessary. They shouldn’t feel forced into blindly doing whatever the employer requests—physicians should have some say as well.”

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Kurt Ullman is a freelance medical writer based in Indiana.