How Is the Affordable Care Act Impacting Physician Employment Contracts?

Many of our clients are asking how the Affordable Care Act will affect physicians and their employment contracts. At this point, we are noticing the following trends:

1. Many private practices are unsure about the effects of Obamacare and are postponing new hires.

Initial surveys of private practices reveal that they have a lot of anxiety about Obamacare. According to the Medical Group Management Association (“MGMA”), two in five physician practices are unsure about whether they will participate on the government-sponsored marketplaces known as exchanges. Also, while physicians said they saw new opportunities to provide care to the uninsured and a medically underserved population, more than 80 percent of doctors worried about what they will be paid from the plans participating on the exchanges.

Since doctors see potential threats to their profit margins, they are hesitant to take on new hires (which increase the practice’s overhead). In addition, doctors are having to spend a lot of time figuring out how Obamacare will affect the structure of their practices, and they simply may be too busy to spend meaningful time in the hiring process.

2. Contract terms are shortening.

Since employers are unsure about how Obamacare will affect their practices, they want to maintain as much flexibility as possible. Maintaining such flexibility means, in part, subjecting themselves to as few long-term obligations as possible. And that includes long-term employment contracts. Whereas normally an employment contracts may last for a three to five year term, more and more last for shorter terms.

At first glance, this may appear troubling. However, the reality is that the “term” provision in an employment contract (the provision that states how long the contract lasts) is somewhat of an illusion that offers false security. This is because the “termination” provisions (the provisions that state how the contract can be ended) normally contain a termination “without cause” provision that enables either party to end the employment arrangement simply by giving 60 to 90 days written notice. With this right, it doesn’t really matter how long the term of a contract lasts.

3. Most contracts have the “Obamacare provision.”

Most contracts today have what we call the “Obamacare provision.” This provision states that in the event a new law or regulation threatens the legal enforceability of the contract, or the financial viability of the practice, the employer and physician will make good faith efforts to re-negotiate the contract so as to comply with the new law or regulation, or to make the relationship financial viable. If the contract is not successfully renegotiated, either party can terminate the contract fairly quickly.

Practically speaking, the Obamacare provision is basically a right to termination without cause, but on a slightly quicker timeframe. The provision normally sets forth a certain amount of time to negotiate a change to the contract (for example, 30 to 60 days), and then if a change isn’t agreed-upon, a certain amount of time to terminate the contract (for example, another 30 to 60 days from then). Since most contracts already have a 60 to 90 day termination without cause right, this only alters the contact in a minor way.

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Certainly, Obamacare will radically change the provision of medical care, compensation for doctors, and much more. However, just what these changes look like remain to be seen. Contact our team of industry-leading physician employment attorneys and compensation advisors to help guide you through your employment and partnership contracts.

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