Entering Into Contracts: Proceed With Caution Before You Sign

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For years APA’s Practice Management HelpLine has been hearing from APA members who have encountered problems because the contracts they had signed—whether with employers or insurers—contained clauses that turned out to be disadvantageous to them. Examples of problems with employer contracts included a contract for a medical director position that committed the psychiatrist to signing off on other employees’ work regardless of whether she had supervised their work, which put her at risk of personal liability if problems arose with those patients. Other contracts had productivity requirements that would have precluded providing an acceptable standard of care to each patient. We’ve also heard of contractual obligations to code according to the company’s rules rather than according to the care the psychiatrist provided, a practice that could be unethical and perhaps fraudulent. Some psychiatrists who are contracted with insurers through their work in hospital settings discovered that they were unintentionally contracted in all the insurers’ settings by virtue of their employer’s agreement to participate in the network. This limited their ability to have an out-of-network private practice. We often hear from our members that they did not read a contract before signing it or they lost it and are not aware of its terms.

Contracts with insurers may present a different set of problems. Sometimes they limit the CPT codes an insurer will reimburse and have very specific time frames for submitting a bill for payment. These contracts also typically have a very specific means of terminating the agreement, which, if not followed precisely, allows the contract to automatically renew year after year. Another issue is that insurers can change the fee schedule with only 30 days’ notice, and if no objection is made within that period, it is deemed accepted.

Contracts are binding legal documents and should be treated as such. They need to be carefully negotiated, reviewed, and understood before they are signed, and they should be stored in a safe place.

Some very basic principles to understand and follow when you are dealing with contracts are set out below:

• A contract for services must be in writing. Handshakes, conversations, and notes between the parties do not count. If something is not in the final written contract, it does not exist.

• Everything is negotiable. While you may not get everything you want, you can usually get much of what you need. Negotiate for what you need in the contract.

• Never sign a contract unless you are certain that you understand everything in it—that includes the fine print. Don’t be afraid to ask questions, and be sure to ask them in writing so you have a record of the response. And don’t be afraid to ask repeatedly for explanations of how a contract provision will work in the real world if the responses don’t make sense to you.

• Have your malpractice carrier review the contract to be sure no provision requires you to take risks that may not be covered by your insurance.

• Have an attorney licensed in the relevant state review the contract before signing, and preferably someone who is familiar with health care. Ask for a summary of your responsibilities as well as what you should expect from the other party. Litigation over contracts is very expensive, so it is well worth a small upfront investment for an attorney to prevent litigation or other problems.

Here are some points to consider before entering into a contract:

• Salary, benefits, and bonus payments: Make sure you understand not only the method of payment but also how it will be calculated. Put specific examples of the calculation in the contract so there is no ambiguity. Are there escalators for longer-term contracts and a timetable for periodic renegotiations?

• Termination provisions: The contract contains language to explain whether it is terminable with or without cause. A no-cause termination means no reason is required for terminating the agreement. In this case, you may want to include a severance payment for yourself. A for-cause termination clause means someone must have breached the agreement in order to terminate it. You may want to consider a notice period before a no-cause termination and specify in the contract what conduct would be “cause” for termination.

• Noncompete provisions: Noncompete clauses prohibit you from practicing in a certain area for a specific time if you leave your job. The Federal Trade Commission is considering making these illegal, but as of now they are legal if they comply with the relevant state laws. Most states will enforce noncompetes if they are reasonable with regard to time and place (for example, 12 months and 50 miles from where you work). Every state’s rules vary, so you need to be familiar with yours if a contract includes such a provision.

• Limitations on care: Are there any limitations on the care you may provide and how you code for that care? Are there any justification requirements for the level of care you provide?

• Notice requirements: Be aware of the required means of communicating intent to terminate an agreement.

• Requirements to sign off on care provided by other providers whom you don’t supervise: Never agree to such requirements.

• Malpractice insurance coverage: Who is paying for it? Is it for a claims-made or an occurrence policy? A claims-made policy provides coverage only if the claim is brought during the policy term, in which case you also need “tail” insurance; an occurrence-based policy provides coverage at any time so long as the event that caused the claim occurred during the policy period.

• Choice of forum/choice of law provisions: These tell you where your disputes will be resolved and under what state law. Do not agree to a forum for dispute resolution that is very far from where you live or practice or in a state that is not where you live or work.

• Statements that are not definitive: Sentences containing such words or phrases as “may,” “to the extent possible,” and “under certain circumstances” have no set meaning and are ripe for disputes.

If you have any questions about contracts, send an email to the Practice Management HelpLine at [email protected] or call 800-343-4671. ■