April 6, 2009

A number of the issues that our clients have been dealing with lately relate to time. Provisions relating to time periods or duration in hospital and employment contracts are a focus of occasional intense negotiations. There is also the ongoing stream of questions on applying the concept of “anesthesia” time to various clinical scenarios.

Time Terms in Contracts

Two- and three-year hospital contracts are typical. Some have a five-year term, and recently we have seen offers for a single year. Remember what you have heard in every lecture on contracts: the effective term of a written agreement for anesthesia or other continuing services is the amount of notice that the hospital must give you before it can terminate the contract. If the hospital can end the contract, with or without cause, in 90 days, what you have is really a renewable 90-day contract. Moreover, in addressing exclusive contracts with hospitals whose facilities are financed through tax exempt bonds, Revenue Procedure 97-13 provides certain limitations as to term and termination provisions depending upon the underlying compensation structure.

Although many hospitals tend to prefer shorter terms in order to retain flexibility, in our experience, anesthesia groups often have been able to counter the hospital’s position on this by arguing that the group’s stability, in particular, the group’s ability to successfully recruit and retain anesthesiologists, is dependent upon the group being able to offer employment to the group’s members for a sufficient period (i.e., to attract and keep a pool of quality physicians).

In a recent anesthesiology contract negotiation representing what we have observed to be an increasingly common trend, the hospital rejected a contractual term for employment for greater than one year. In these negotiations, the hospital offered to eliminate the “without cause” provision; legal counsel for the anesthesiologist recommended the client to decline that option because if the hospital were sufficiently motivated to replace the physician, it could claim that clinical quality, for example, created cause – and, under the Health Care Quality Improvement Act, quality issues (relating to competence or conduct) need to be reported to the state authorities and potentially to the National Practitioner Data Bank.

In this case, the parties ultimately agreed to the one-year term upon with automatic one-year renewals, albeit subject to a minimum of 180 days’ prior written notice if the hospital elected to terminate the contract without cause. This result enabled the hospital to limit the term to one year, while the anesthesiologist would, in turn, be afforded a six-month period in which to obtain new employment. Although in many markets anesthesiologists are finding that hospitals are more aggressive in negotiations, creativity in balancing the stated term of a contract with the notice period and requirements still plays an important role.

Time also enters into negotiations over covenants not to compete. Many contracts for anesthesiology services commit the group not to furnish such services at any other facility within a certain radius and for a certain period of time after termination of the hospital contract. The contracts may require the group to insert parallel restrictions into its employment contracts with individual physicians.

Non-compete agreements make more sense when the physicians whom they bind bring and admit patients to the hospital – which anesthesiologists normally do not do, unless they have pain practices. Still, non-competes that are “reasonable” in duration and geographical scope are very popular with hospitals, and not unpopular with many state courts. Very generally, restrictions of one or two years, that do not require the anesthesiologist to move his or her home to another city, will be considered “reasonable.” A number of states have statutes spelling out the “reasonableness” rule. Some of those statutes, such as Michigan’s, go so far as to allow the court to “reform” or rewrite the restrictions to conform to the judge’s own sense of equity and economics.

Non-compete clauses can severely limit anesthesiologists’ professional options and, like term and termination provisions, are among the most important issues for negotiation in anesthesiology contracts. One variation worth noting if you are entering into a contract with a health system that has multiple hospitals and/or ambulatory surgery centers is that restrictive radius should be linked to the site or principal site where the group works. If the health system encompasses facilities miles apart from each other, the radius may extend much farther than “reasonable.”

One test of the appropriateness of the restriction in time is the term of the underlying contract itself. A three-year non-compete clause in a contract with a term of just one year would appear disproportionate. There is also a very good argument that a hospital that terminates a contract without cause should not be able to enforce a covenant not to compete.

Anesthesia Time

In response to our article last week addressing anesthesia time, we have received a couple of inquiries and requests for additional information.

The following American Society of Anesthesiologists documents approved by the ASA House of Delegates may provide helpful guidance for you:

• Statement On Intravascular Catheterization Procedures: http://www.asahq.org/publicationsAndServices/standards/Intravascular.pdf
• Statement On Transesophageal Echocardiography: http://www.asahq.org/publicationsAndServices/standards/TEE.pdf
• Reporting Postoperative Pain Procedures In Conjunction With Anesthesia: http://www.asahq.org/publicationsAndServices/standards/43.pdf

The May 2007 Volume 17, Issue 5 of the CPT Assistant also contains an article that you may find helpful.

As always, we are happy to try to answer your questions. If there are particular subjects that you would like us to review in future e-blasts, we hope that you will let us know.

With best wishes,

Tony Mira
President and CEO