Prescription for Avoiding Conflict

by William Fleming, R.P.L.U., A.I.S., Director, Product Development

Bringing a new physician into a growing practice can be exciting and rewarding for both the group and the new hire. But even the best professional relationships can come to an end, and clarity at the beginning will serve all parties well, particularly if a departure is accompanied by hard feelings. For that reason, we strongly recommend that all groups make use of physician employment agreements. Even small groups, which are often the least able to absorb the cost of unexpected litigation, can benefit from using employment agreements.

When a physician’s contract does not specify rights and responsibilities regarding malpractice insurance coverage, the group and the physician might find themselves wasting money and time in a court battle over insurance issues.

Continuous Coverage Protects Doctor and Group

Most professional liability policies are written on a claims-made or claims-reported basis. When an employee is covered on a group’s claims-made policy, it means that the policy applies to claims that a) arise out of the employee’s actions on behalf of the group and b) are made within the policy period. When an employee leaves the group, he or she is not covered under the group’s policy for his or her work on behalf of the group unless an extended reporting period (or “tail”) endorsement is added to the policy. For most insurers, including The Doctors Company, an entity is covered for its vicarious liability for a physician who leaves the policy unless that physician fails to obtain applicable tail or prior acts (“nose”) coverage. The time lag between a patient encounter and the filing of an actual suit related to that encounter is often a period of years. For this reason, tail coverage is expensive—typically a multiple of the annual premium.

A health care business attorney is your best source for ensuring that your employment agreements have all of the necessary elements. When creating a contract with your attorney, you should consider the following:

Who Chooses, Who Pays

• Who selects the program features (policy limits, deductibles—including who pays the deductible—coverage for entities or a physician’s personal corporation, etc.)?
• Who can change the policy, including the right to cancel coverage for the physician?
• Who is responsible for purchasing coverage (not only active insurance but also nose and tail coverage)?

Policy Features

• Will the group allow the policy to provide coverage for prior acts unrelated to the group? What if the doctor is coming from another state?
• Will the policy cover the physician for moonlighting?
• If the policy contains a consent-to-settlement provision, does this right vest with the entity or with the physician?

Tail Coverage

• Who has the right to request tail coverage from the insurer?
• Does the physician pay in the event of resignation or termination with cause?
• Does the group pay a portion of the premium based on years of service?
• Is payment required when tail is selected, or is it deducted from the physician’s income?
• If the tail coverage is subject to a deductible, who is responsible for paying it?
• If the doctor can obtain prior acts coverage from his or her next insurer, does he or she have to provide proof of it to the group?

Spurned Physician v. Disgruntled Group, et al.

Numerous courts have weighed in on issues related to professional liability requirements in employment contracts.

Both physicians and group owners or administrators should note that many of these suits include allegations of breach of contract, specific performance, and declaratory relief. These types of allegations generally are not covered by any type of insurance, which means that the parties retain and pay their own attorneys, and that they personally pay any judgment that may result.

In Byrne v. Joliet Medical Group, Ltd., the U.S. District Court for the Northern District of Illinois heard a dispute between an ex-employee physician and his former employer. Dr. Byrne was required by his employment contract to purchase his own professional liability insurance. When he left Joliet Medical Group, he obtained prior acts coverage from his subsequent insurer. The court held that the contract required Dr. Byrne to specifically purchase tail coverage from Joliet’s insurer.

In an unpublished decision, Barton v. King, a California appellate court affirmed a judgment in favor of Kelly Barton, M.D., an employed physician who sued her physician-employer, John King, M.D., for the cost of tail coverage. The employment agreement provided that Dr. King would pay malpractice insurance premiums if Dr. Barton honored the employment agreement. At the end of the two-year agreement, Dr. Barton notified Dr. King that she did not plan to continue working because she wanted to spend more time with her children and was expecting the birth of another child. Dr. King refused to pay for tail coverage, claiming that Dr. Barton’s failure to become board certified prior to the end of the contract term was a violation of the contract or, alternatively, that he never agreed to pay for tail coverage in any circumstance. The employment agreement addressed tail coverage only by stating that Dr. Barton would be responsible for tail coverage if her employment terminated prior to the end of the two-year term. By failing to state who would be responsible for the cost of tail coverage in all situations, Dr. King was forced to pay for the tail coverage.

The Supreme Court of New York, Appellate Division, also found for an employed physician in Frederick v. W. Bruce Clark, et al.Dr. Frederick and Dr. Clark made an oral agreement, followed by a confirming letter that stated “insurance will be provided for you” without further specifics. Dr. Frederick’s employment was subsequently terminated by Dr. Clark, who advised Dr. Frederick that he would not pay for her tail coverage. A breach-of-contract lawsuit followed, and Dr. Frederick ultimately prevailed despite Dr. Clark’s arguments that 1) the letter was not an employment contract, and 2) he never intended to agree to pay for tail coverage.

In Meyer v. Superior Clinic, the Court of Appeals of Wisconsin reached a different result based on the Clinic’s bylaws, which provided malpractice insurance for “employees.” Since the bylaws do not mention “ex-employees,” the provision did not apply to tail coverage. Further, the court looked to the Clinic’s pattern of having provided tail coverage for only one of the 19 doctors who had left the Clinic.

Conclusion

Silence is anything but golden when it comes to professional liability terms in employment agreements. Medical groups and member physicians must invest in clear and specific contract terms regarding the purchase, maintenance, and termination of insurance coverage. Those that do can look forward to more amicable partings, with more time spent practicing medicine and less time in court. And that is a good prescription for avoiding unnecessary conflict.