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Hospital-Doctor Clawback Provisions in Employment Contracts


Watch out for aggressive language in hospital employment agreements requiring physicians to recoup all payments to insurance companies.

Increasingly, physicians is solo or small practices are giving up entrepreneurship in favor of becoming hospital employees. The first legal step, usually involves negotiating an entering into an employment agreement with the hospital.

One of the more significant provisions in a hospital/physician employment agreement is the treatment of "clawbacks," or recoupment of moneys paid by an insurance company.  Typically, there will be two agreements, one between the physician and insurance companies, which existed prior to the contemplated hospital employment. The second will be between the hospital and the various insurance companies. These two agreements will always call for a clawback in the event payments need to be reversed for some reason such as medical necessity, or a coding discrepancy. Either the provider can write a check or have the money deducted from further payments. 

The trouble begins when the physician becomes an employee of the hospital.  The recoupment which will be "deducted from future payments," no longer involves only the physician, but the hospital as well.   

Most physician-hospital agreements will contain language assigning the physician's income to the hospital, and which calls for cooperation in recoupment audits, as follows:

"Physician hereby agrees to cooperate in good faith with any post-service review, utilization review, post-payment review, audit or investigation of healthcare services rendered by physician during the term of this Agreement.  In furtherance thereof, Physician shall make himself or herself available at no additional cost to Hospital, and shall assist and cooperate in good faith with Hospital in responding to questions and inquiries concerning healthcare services rendered by Physician." 

The important language to watch is that which immediately follows, the part dealing with the allocation of the clawed back amount.   In fairness, the physician should bear responsibility for any recoupment occurring prior to employment with the hospital. This is fair because the hospital didn't receive any of this income. If the recoupment relates to post-employment services, then a fair allocation would require the physician to only pay back the portion of the recoupment that he received as compensation from the hospital - not the entire amount of the recoupment.

More aggressive language will require the physician to indemnify the hospital for any claims, regardless of when the claim arose and without recognizing the compensation formula, such as the following: 

Physician hereby indemnifies Hospital for any costs, including legal fees, incurred by the Hospital in responding to or refunding amounts to a payor based on any audit or recoupment action against Hospital related to Physician's services.

Provisions such as this must be negotiated to prevent the physician paying back the entire amount of the recoupment, when the physician only received a portion of the payment. 

As with any contract, it is important to seek the help of an experienced healthcare attorney in negotiating hospital employment contracts.

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