People don't like uncertainty. Sociologists teach us that structural ambiguity motivates individuals to seek security and certainty. Well, it's difficult to imagine an industry with a more uncertain future than healthcare. Congress passes laws and regulations by the ream. Third party payers behave more and more like slot machines in the Las Vegas Airport. Patients misinterpret the complexity of medical care by Google searches. What a mess... Who won't want to hit the Staples "Easy Button?"

The sea change in healthcare has resulted in many physicians wishing to trade the risks and rewards of private practice for the 'safety' of hospital or salaried employment. Better the devil you know, right? There is no universally correct answer to the question of which career path you choose. Lifestyle, finances, and maybe most importantly legal considerations must all be factored into the analyses. I cannot speak to lifestyle choice and others have addressed financial implications of transitioning to the status of a 'salaried' employee. Here I want to look at the legal consequences of trading private practice for hospital employment.

The first and most obvious relinquishment of legal rights comes from the "Non-Compete Clause." This contractual term prohibits physicians from going back into private practice in their community served by the hospital employer. The idea is that the hospital provides patients and helps develop the physicians' practices within the hospital system. The hospital insures physicians don't depart from the facility with patients, which the hospital views as its property." Hospitals and insurance companies often act as though they "own" the patients... which, of course, they do not.

Non-Compete clauses have three parts; 1) description of services covered; 2) duration; and 3) geographic area. The description of services is rarely an issue. Most non-compete clauses define services as "the practice of medicine." This means that a physician cannot claim a different specialty and move across town to open up a private practice. Next is the length of time a physician must wait to practice after leaving employment at the hospital. Typically, a physician must agree not to practice for one to two years after terminating employment. Finally, the geographic area is usually determined to be a radius around the hospital of a certain amount of miles. It is not uncommon for the radius around the hospital to be set at twenty five to fifty miles.

Typical non-compete clauses prevent physicians from practicing medicine for a given length of time and within a fifty mile radius of the hospital the physician had previously been employed by. This effectively means that the physician will be forced to relocate to another community to continue practicing medicine. The non-compete clause is a major downside to becoming a hospital employee. Non-compete clauses intentionally foreclose opportunities which may arise for the physician to leave the hospital-based practice. The trading away of potential future opportunities and benefits for near term certainty could well be a bad deal.

A word of caution: do not discount the likelihood of a hospital enforcing a non-compete clause. Some physicians wrongly assume that they will be able to negotiate their way out of a non-compete clause when exiting employment from a hospital. Physicians sometime have a myopic analysis of the non-compete clause. "The hospital won't fight me on this because I will continue to refer some cases to the hospital." The problem from the hospital's perspective is they are a party to dozens of non-compete clauses. If one physicians leaves without consequences it could encourage others to do the same. The financial implications for the hospital are larger than any one individual contract. Further, typically non-compete clauses used by a hospital have boiler plate language. Should one individual void the non-compete clause through litigation, others will have a strong argument that the clause in their contract is also not valid. This puts the hospital in the position of having to litigate fiercely to defend the validity of any one individual non-compete clause. All this means that physicians hoping to get out of a non-compete clause either voluntarily or through litigation should prepare for a long, expensive fight. During the fight, the physician should also be prepared to be court ordered (enjoined) not to practice in violation of the contested non-compete clause. This means the physician will be legally prohibited from practicing medicine pursuant to the terms of the non-compete clause, even while he or she is challenging the non-compete clause in court. As one physician in a non-compete clause fight put it, "this is a total disaster. Even if I win, I still lose."

Often times physician / hospital employment contracts do not specify where the physician will see patients. With many hospitals having satellite facilities; a physician may be surprised to learn that he or she can be legally assigned to treat patients at satellite locations. The physician, who has for some years been on staff at a hospital, may reasonably assume that his or her employment at that hospital would mean a practice based in a familiar setting. Imagine that physician's surprise when he's informed that he will be seeing patients twice a week at a satellite facility thirty five miles away in a community that he has never been to. This is symptomatic of the general loss of autonomy physicians experience when trading their private practice for employment status with a hospital. It is telling that the law formerly refers to the employee / employer relationship as a "master, server" relationship.

Perhaps one of the more problematic areas which is rarely, if ever, discussed in an employment contract deals with medical malpractice. Physicians becoming employed by a hospital can expect to receive professional liability coverage as a part of their employment benefits. This looks great on the surface. Who wouldn't want to have others worry about the future premium increases for liability coverage? But, not all policies are the same. Most physicians in private practice have a "consent to settlement" provision in their liability policy. This provision states that a medical malpractice claim pending against the physician may not settled without the physician's consent. This prevents a liability carrier from settling a claim at low dollars to avoid costly defense expenses. Not all policies provided by hospital employers contain the "consent to settle" provision. Meaning should an employee physician be sued for medical malpractice, the claim against that physician could be settled without that physicians consent or even prior knowledge. There are even some policies that require a common defense - i.e. for the hospital and physician to be represented by the same law firm (so as to save costs = cheaper premium). If both hospital and physician are sued, and the hospital decides to "throw the physician under the bus," there may be little the physician can do to prevent this disaster.

So, what's the big deal? Does it really matter if a medical malpractice claim is settled without the physician's consent? It does. Settlement of a medical malpractice action against a physician must be reported to National Practitioner's Data Bank. This means that there will be a permanent record of the physician being sued along with the settlement awarded as a result of the suit. The National Practitioner's Data Bank can be accessed by a number of different organizations including potential future employers and accreditation committees. Also note that anytime the physician applies for privileges, new liability coverage or for a medical license in a new state, the settlement will have to be disclosed and explained. The whole idea of "consent to settle" clause in a liability policy is to allow the physician to have some control over his or her permanent record. Hospital employment may strip away this right.

There are additional liability considerations with being a hospital employee. Some argue that hospital employment increases the likelihood of being named in medical malpractice actions. Depending upon the type of liability coverage a physician has prior to hospital employment, he or she may need to purchase "tail coverage." If the policy is "occurrence based," no additional coverage will be needed when transitioning to hospital employment. However, most liability policies are "claims made" which means that coverage must be in place at the time the malpractice claim is filed (not as of the date of the alleged malpractice). Therefore Physicians should be aware that moving from private practice to status of an employee of a hospital means that they may well need to purchase "tail" coverage. This is insurance for actions that may arise after the physician has left his or her private practice. Should a physician become dissatisfied with employment at the hospital, he or she will again need to purchase "tail" coverage after terminating hospital employment. All of this equates to large expense which many physicians do not calculate into the cost benefit analysis of transitioning from private practice to hospital employment.

The legal concerns don't end with liability issue. Here is another contractual pitfall of hospital employment that has occurred to some physicians:

A surgical specialist is recruited to a hospital and provided with a lucrative contract. The hospital has a need for that specific surgical specialty and looks forward to expanding its services and revenue. Upon gaining privileges in the department of surgery, the physician is informed that he will be expected to take general surgery back up call in the Emergency Department. The hospital administration put pressure on the physician to accept general surgery back up call, and when the physician expressed that he was not comfortable treating general surgical emergencies that he had not treated since residency, and the physician failed to bring in the anticipated revenue, the hospital initiated a sham peer review and terminated the surgeon. That surgeon's career is now over.

Here is yet another potential pitfall of physician employment:

Some physician employment contracts require the physician to waive any due process (i.e. peer review) should the hospital decide to terminate the physician's employment contract based on quality care concerns or professional conduct. This can result in an adverse action report to the National Practitioner Data Bank, which can end a physician's career.

For the legal reasons listed above and others, physicians should take careful consideration before becoming salaried employees. For many physicians it is seductive to think of transferring administrative duties and financial risks to a hospital - the downsides to private practice are known to physicians. What is unknown are some of the risks and potential lost opportunities that are triggered for a physician upon signing an employment contract. Remember your father's advice, "If it sounds too good to be true, it probably is."


Jeffrey Segal, MD, JD, is founder and CEO of Medical Justice Services. Mike Sacopulos, JD, is general counsel for the organization. Run by physicians for physicians, Medical Justice is a membership-based organization that offers proven services and proprietary methods to protect physicians' most valuable assets - their practice and reputation. The company offers proactive services to deter frivolous medical malpractice lawsuits, prevent Internet defamation and provide proven strategies for successful counterclaim prosecution. Medical Justice works as a supplement to conventional professional liability insurance.