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Preparing to leave a medical practice

By Jeffrey B. Sansweet, Esq.

In an ideal world, a doctor completes his or her residency or fellowship, joins a private practice, becomes a partner after a few years, and retires 35 years later. Unfortunately, especially in the greater Philadelphia area, this dream is becoming less of a reality. As reimbursements decline or stagnate, malpractice premiums and other overhead expenses rise and work hours and call increase, local doctors are exploring more lucrative opportunities.

As soon as you get that feeling that you may want to leave the practice, you should review all applicable documents. If you are not yet a partner, this would typically just be your employment agreement. Hopefully, you have kept and sent to your attorney a copy of the executed agreement. If not, and you are sure that an unsigned draft is the same as the one you signed, that might be enough. If, however, there were several drafts and you are not sure which one you have signed, you may want to discretely ask the office manager for a copy of the executed agreement. If you were also a party to a recruitment agreement pursuant to which a hospital provided the practice with funds to support your first year or two, that must be looked at as well, as you might have to pay back some of the advanced funds if you leave the area. If you are a partner, you also need to examine the Buy-Sell or Shareholders Agreement if the practice is a corporation, the Operating Agreement if the practice is a limited liability company, or the Partnership Agreement if the practice is a partnership.

The first item to look at is the notice provision. This will be important when you interview for other positions as to the timing of your start date with a new practice. Most contracts require written notice of between 30 and 90 days at any time. However, some contracts allow for termination only as of the end of the contract year, which might be June 30 if you started July 1. Others may have two or three year terms without a provision allowing for early termination without cause. In that case, you can still leave a practice prior to fulfilling your obligation for the entire term, but the practice could sue you for breach of contract, claiming damages and lost profits, although such lawsuits are rare.

The contract may also allow the practice to terminate your employment immediately once you give notice as long as the practice pays you your full salary and benefits for the duration of the notice period. If you are a partner, the required termination notice might be as long as six to twelve months, and your buy-out may be reduced to the extent you do not give the required notice. The contract may require personal delivery of the notice or transmission by certified or registered mail.

Another important item to be addressed is the malpractice insurance situation. If the practice maintains “occurrence” coverage, either the coverage will simply end when you leave or it will be maintained by you if you stay in the area with any prepayments paid to the practice by you. However, it is much more common to have “claims-made” insurance. If the policy will not be able to be maintained either because you are leaving the area and the company does not write insurance in your new location or the new practice requires all its doctors to have the same coverage, a “tail” must be purchased to cover any claims that are made after you leave for alleged malpractice that occurred during your employment.

Many contracts provide that it is the departing doctor’s obligation to pay the tail, which can be as expensive as two times a regular annual premium. If that is the case, you may want to try to negotiate a “signing bonus” at your new job to help cover that expense. Other contracts provide that the practice will cover the tail, and others require the doctor to pay if he or she quits. Yet other contracts are silent as to this obligation. This can lead to litigation and this should be discussed with your attorney prior to giving notice. In addition, if you are leaving Pennsylvania, you may also be required, unless your employment contract provides otherwise, to pay an assessment of the MCARE abatement the practice received due to your promise to stay in the state until the end of the year.

Another important provision to examine with your attorney is the restrictive covenant. Almost every contract contains a prohibition against you practicing within a certain area of the current practice for a certain period of time. Note that such restrictive covenants are not allowed if there is a Recruitment Agreement among you, the practice and the local hospital. Although many doctors believe these covenants will not be enforceable, this is not necessarily the case as long as the limitations are reasonable to legitimately protect the practice. If you are contemplating leaving your practice and staying in practice within the prohibited area, be sure to discuss your strategy with your attorney, as you may be able to negotiate a buy-out of the covenant to avoid expensive, lengthy litigation.

You also need to check if the contract has a non-solicitation clause prohibiting you from soliciting patients, referral sources and/or employees. The non-solicitation clause may prohibit direct mailings and phone calls, but typically would not prohibit advertisements of your new location in local newspapers or general zip code mailings. Even if such a clause does not exist, you should not copy or use the practice’s patient list as that is property of the practice and could be a basis for a lawsuit. The charts also belong to the practice and can only be transferred to you or the patient upon a written request by the patient.

Once you give notice, you can typically begin telling patients as you see them of your plans but be sure to clear that with the practice first. You should also leave your new practice address and phone number with the current practice.

Prior to deciding on the timing of your departure, you should look carefully at the retirement plan. Many plans require you to be employed as the end of the plan year (typically the calendar year, but it may not be) to receive a contribution for that year. Also, many plans have vesting schedules whereby you may forfeit some of your account if you have been employed less than six years.

If you are a partner, there usually are buy-out valuation issues that may be impacted by the timing of your departure. You would need to engage your own individual attorney to represent you. Typically, a Separation Agreement would be negotiated with mutual releases so all parties know their arrangement is officially over without potential litigation. The Agreement should include the financial aspects of the departure, including the valuation of the stock if incorporated and payment terms, the valuation of any deferred compensation, the division of any “profits,” reimbursement for any prepaid items such as society dues and insurances, and your removal as a guarantor or surety on any practice loans or lines of credit. It should also provide for your resignation as an officer and director, retirement plan trustee and signatory on the bank account. Patient notification details should also be addressed.

Leaving a practice is not easy. However, if your contract is fair and complete, you diligently prepare for your departure well in advance with the assistance of your attorney, and the other doctors are reasonable, leaving need not be a nightmare.

Jeffrey B. Sansweet, Esq., is a shareholder with the health care law firm of Kalogredis, Sansweet, Dearden and Burke, Ltd. in Wayne, Pennsylvania.

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