Contracting with Healthcare Providers

By November 2, 2015Health

Once a medical practice has identified a healthcare provider to hire, it will usually want to sign a legal contract to formalize the relationship. This article briefly discusses some general considerations to keep in mind when negotiating such a contract. The most important advice is that the medical practice consult with a qualified lawyer before signing any contract. Legal language can seem deceptively straightforward but lead to counter-intuitive consequences; lay persons are therefore urged to seek expert counsel. Not doing so can lead to the contract being invalidated – or worse.

Parties to the contract

There will usually be two parties to the contract, the practice on the one hand and the provider (or some form of a representative of the provider) on the other hand. As a party to the contract, the medical practice should check that it has complied with legal and regulatory requirements. For example, a medical practice should verify that it is current with formalities, such as the filing of required reports with the local secretary of state and that it has complied with internal corporate requirements to be authorized to sign the agreement.

The counterpart to the practice in the contract will vary, depending on who found the provider. If a staffing agency presented the recruit to the practice, then the other party to the hiring contract will be the agency. If the medical practice identified the recruit on its own, that other party will be the provider herself (or an affiliated company of the provider).

Staffing agency placement vs. direct hire

Staffing agency placement

When a staffing agency introduces a healthcare provider to a practice, it will, broadly speaking, expect to be paid in one of two ways. Some agencies operate on a finder’s fee model and will ask for payment of a one-time, lump sum for pairing the provider with a practice. In industry terms, these payments are described as “permanent placement fees”, and can regularly exceed $10,000 for a single recruit. The other main compensation model is based on the amount of time spent by a provider in performing services. Here, the staffing agency will typically assign an hourly or daily rate to the recruit and invoice the practice for an amount equal to this rate multiplied by the time spent by the provider in performing services. With this model, practices should clarify early on whether related expenses such as provider malpractice insurance coverage or meal stipends are included in the rate. A medical practice should also resist cancellation clauses which impose unreasonable financial penalties if a practice must cancel scheduled coverage due to reasons beyond its control, such as patient cancellation or inclement weather.

Regardless of the compensation model, contract negotiation offers other opportunities to obtain favorable terms. For example, while staffing agencies typically expect settlement of invoices within 30 days or less, they will sometimes agree to extend this payment period to 45 – 60 days in exchange for the opportunity to develop a long-term relationship with the client practice.

Direct hire

Where it has found a provider on its own, a medical practice will enter into a contract directly with the provider. It can do so by hiring the provider either as an independent contractor or as an employee. Each option differs mainly around the control exerted over the healthcare provider and administrative burden placed on the medical practice, and must therefore be weighed carefully.

Independent contractor

Here, the practice hires the provider as an outside service contractor. Both the practice and the provider are independent entities contracting at arms’ length. Because the practice hires the provider as an independent contractor and not as an employee, it has less control over the performance of her duties and schedule. If the practice has an unexpected need for coverage, it may not be able to secure the services of the provider if that person has other obligations she prefers to attend to.

Despite this potential scheduling issue, many practices prefer to hire providers as independent contractors for administrative flexibility. Practices hiring an independent contractor do not have to comply with many labor requirements such as withholding payroll taxes or verifying employment eligibility. They also do not have to offer benefits. A practice choosing this route will execute with the provider (or an affiliated company of the provider) an independent contractor agreement, specifying issues such as the type, duration and frequency of services, compensation, protection of the practice’s confidential information, and malpractice insurance coverage.

Employee

Despite the higher administrative burden, many practices will hire providers as employees. Sometimes, a sought-after healthcare provider will insist on being hired as an employee to receive benefits. Also, a medical practice may prefer an employer-employee relationship to exert greater control over a provider’s performance of her duties and schedule.

To implement this option, the practice must follow applicable federal and state labor requirements. In some instances, this will mean executing an employment agreement with the provider. In other instances, signing such an agreement won’t be appropriate to preserve the practice’s ability to terminate employment at will. In hiring a healthcare provider as an employee, a provider will also have to address other material issues such as compensation and the protection of confidential information.

The preceding offers some general considerations which medical practices should keep in mind when contracting with healthcare providers. It is not intended to offer specific legal advice and readers are urged to consult with a qualified lawyer.

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