One such recent hospital employment agreement I reviewed was for an otolaryngologist who had been an owner of his five-physician private practice for the past two decades. Historically, he had received a steady, competitive salary and bonus, and his practice had distributed a significant portion of its profits at year-end. He and his colleagues were approached by a hospital and asked to join the otolaryngology department. The hospital presented the doctors with seemingly attractive compensation packages, as well as identical proposed employment agreements.
In reviewing the contract, I agreed that the terms were fair and reflected the agreed upon business terms of the relationship, with one exception: Under the section “Salary,” the contract stated “Except as otherwise set forth herein, Physician will receive a base salary of X amount per year and a productivity bonus in accordance with this Section.” The base salary and productivity bonus amounts were greater than what my client had historically made as an owner of his private practice. However, the “except as otherwise set forth herein” caveat created substantial concern a few pages later. The contract contained a provision that stated, in short, that in the event that the physician’s share of the hospital’s expenses exceeded the revenue produced by his professional services, he would be responsible for payment of the deficit. Further, the definition of “hospital expenses” included his salary. In a poor financial year, this could mean that his seemingly guaranteed base salary would not only be reduced by his share of the loss amount incurred by the hospital, but that the loss could actually fall below zero, requiring him to personally pay the hospital above and beyond the amount he was compensated. Moreover, even in the event that he were to cover his compensation with collections, hospital-allocated expenses, including overhead well beyond his control, could result in a deficit.
In light of this clause, I advised my client against signing the contract as long as the monetary risk-shifting language remained. Hospitals are often amenable to modifications to this concept but will not identify the provision for a physician.