The Law: Protect Yourself

September 1, 2007

If you think medical malpractice, Medicare fraud, and HIPAA noncompliance are the only legal pitfalls you have to worry about, think again.


When most physicians think of protecting themselves against claims and litigation, malpractice insurance immediately springs to mind. And why not? Rising malpractice premiums, the ongoing debate on capping compensatory damages awarded to aggrieved patients, and proposed legislation to remedy what many consider to be a healthcare crisis have been grabbing headlines for years. If you’re a physician, you’ve likely seen your malpractice premiums skyrocket during the past several years, adding to the ever-growing overhead required to run a private practice.

But lawsuits can come from the inside as well.

Physician employers face a plethora of potentially devastating legal pitfalls by virtue of simply being employers. Whether you hire two staffers or 200, you are subject to the same laws that apply to any other employer when it comes to meeting federal fair labor standards, adhering to worker protection laws, guarding against and responding to sexual harassment or discrimination claims, and implementing the latest occupational safety regulations.

The fact is that we live in a very litigious society, and business owners in particular must know how to protect themselves against frivolous and potentially not-so-frivolous claims.

A different type of business

“The biggest issue is that most small practices are not aware of what they don’t know,” says Michael Schaff, chair of the corporate and healthcare teams at the Woodbridge, N.J.-based law firm Wilentz, Goldman & Spitzer P.A. Schaff says that what sets small medical practices apart from other businesses is the casual nature with which many physicians approach their roles as employers.

“They become friendly with the staff,” says Schaff. “They talk with their employees like they would talk with someone they know very well, because it’s such a small, informal environment, and usually they don’t follow the formalities you find in a larger business. For example, if you work for IBM, it’s a very formal culture. Employees are aware of the law regarding certain things that are not acceptable within the workplace, and they have training with respect to that.”

Numerous physician employers and their employees greatly prefer the informal work culture that pervades many small practices to the stiff business environment that dominates some larger companies. That very culture, however, can also be fertile ground for harassment and discrimination claims should an employee become disgruntled and take offense.

“Problems arise when things occur in the workplace that may be inappropriate,” Schaff explains. “Even though physicians and their staff are friendly with one another and may tell a joke that may be off-color or deemed sexist, they may not realize it when they offend someone. To them, it’s like going out with their friends for a drink. But it can occur that a person who was not offended at one point may be offended in the future, and that creates the potential for legal exposure.”

Yes, Dr. Jones’ two-physician family medicine practice is subject to the same harassment and discrimination laws that apply to large professional employers like IBM. The difference is that IBM retains well-paid attorneys who draw up company policies that cover issues such as sexual harassment and discrimination, and then it trains employees to take appropriate action should a problem arise. This isn’t always the case in medical practices, regardless of their size.

Write it down

“The most frustrating thing I see in dealing with physician practices and their employees is that they tend to not document personnel actions,” says Beth Ann Jackson, a lawyer with the Pittsburgh-based firm Thorp, Reed & Armstrong. “They tend to want to deal with things on just a personal heart-to-heart basis, and that becomes problematic, especially when coupled with taking action too late.” Jackson encourages documenting unacceptable behavior whenever it comes to the attention of the physician employer or practice manager.

“My recommendation is to always, always document inappropriate behavior at the time it happens,” Jackson emphasizes. “Because often within medical practices, a termination decision isn’t made until there’s been an established pattern of behavior. And if you don’t have that documentation, you can potentially have some problems. Then the dismissed employee can allege pretext on some other basis that has nothing to do with the reason they were let go.”

Jackson has been practicing healthcare law exclusively for the past 10 years. Before studying law, she worked as the office manager for a neuropsychiatric practice in Texas. So she’s personally witnessed how employee or employer behavior that may seem innocuous on the surface can quickly spiral, leading to serious claims of harassment or discrimination. Physician employers can best protect themselves, she says, by having a policy in place that tells employees how to handle these issues should they arise. And simply spelling out policies in an employee manual that gathers dust on a bookshelf is not sufficient.

Jana Woelfel, an employment law attorney with the Dallas-based firm Strasburger & Price LLP, recommends that employers ask all employees to acknowledge receiving the office’s workplace harassment policies and procedures.


“That can be very significant in litigation,” says Woelfel, “because it’s surprising how often people come forward and say, ‘I never knew there was such a policy. I never knew who to speak to about it,’ and use that to excuse the fact that they didn’t report [the harassment]. If you have an acknowledgment that someone was provided a copy of your sexual harassment policy and signed off on it on such-and-such a date, you’ve already eliminated a significant part of their claim, because now it’s a question of the employee not availing himself of the office’s procedures. Employees have to give their employers a chance to investigate and look into these claims and give them a chance to respond.”

Jackson says physician employers need to see that all employees - including physicians - undergo training to ensure they understand their office’s policies and the avenues available to them should they have reason to report a case of harassment or discrimination.

“Training can provide you with an affirmative defense if there is a claim later,” says Jackson. “Train about what is prohibited conduct; make sure that retaliation against the accuser is not tolerated. You have to have multiple avenues for someone to file a complaint, so if it’s their immediate supervisor who is the harasser, they can go around him or her. It’s going to be more informal in smaller practices. If there are two physicians, and one of them is the subject of the complaint, employees should be instructed to go to the other physician. Try to protect the confidentiality of individuals claiming harassment to the fullest extent possible, and reassure the accuser by taking appropriate corrective action. A lot of times, it’s really going to be a matter of educating and saying what is not appropriate and what is not tolerated.”

Typically, Jackson says, the aggrieved party with a valid complaint against a physician partner in a small practice ends up leaving the practice on his or her terms, possibly with a small settlement. In larger practices, she says, it’s common for employers to put distance between the employee filing the complaint and the physician accused of harassment. “Unfortunately, there are a lot of authority-type figures who repeatedly do these things,” she says.

Running afoul of labor laws

While most physician employers have at least some knowledge of the issues surrounding sexual harassment and discrimination, they are often unaware of fair compensation laws when they hire employees, exposing themselves to significant risk that, in the worst-case scenario, could bankrupt their practice.

Woelfel saw it happen to a physician who ran an ambulatory clinic. Due to the nature of the care he and his staff provided, he wanted his employees to be flexible regarding when and how long they worked. So he paid his staff members on an exempt, salaried basis rather than on a nonexempt, hourly basis, allowing them a greater degree of certainty as to the amount they would take home each week. Woelfel says the physician’s staff of 10 employees earned salaries that worked out to roughly $15 an hour; had they been retained as hourly workers, she says, the prevailing wage was about $11 an hour. “The employer was actually trying to do something right by his employees,” explains Woelfel, “trying to provide them stability, certainty of income, and pay them over market [rate].”

So what went wrong? Woelfel says a disgruntled employee terminated for performance-related reasons told the Equal Employment Opportunity Commission (EEOC) that he had been fired on the basis of his ethnicity. He then contacted the U.S. Department of Labor about the physician’s employment practices. While looking into the complaint, the department determined that the practice was in violation of the Fair Labor Standards Act (FLSA) in that the physician employer had classified as exempt (or salaried) a staff that under federal law should be classified as nonexempt (or hourly). Under federal guidelines, hourly employees who work more than 40 hours a week are entitled to overtime pay.

Woelfel says the FLSA requires employers found guilty of this offense to calculate all overtime pay accumulated during the past two years for employees wrongly categorized and then pay them that amount in addition to damages and, if they are being sued, the plaintiff’s attorney fees.

“When you take the $15 an hour each employee was earning as a salaried worker … and calculate all overtime worked over the past two years for all employees in that class, [that physician] was looking at over $600,000 in damages, and he simply didn’t have that sort of profit margin to be able to pay that and continue to operate,” says Woelfel.

These cases are very attractive to plaintiffs’ attorneys, she adds, as they are “very cut and dry.”

“It doesn’t matter if you’ve paid your office staff and your nursing staff on a salaried basis, and that’s the basis they want to be paid on, and it doesn’t matter if they are getting paid more than they would get paid if they were hourly workers,” Woelfel explains. “If under the FSLA, they should have been characterized as a nonexempt employee, which means they should have been paid on an hourly basis, there’s no gray area. They are entitled to overtime pay for any hours that they worked in excess of 40 hours a week.”

So how can physician employers prevent this disastrous scenario from happening to them?

Talk to your lawyer, advises Woelfel. Review with your counsel the job descriptions of the employees you retain, and confirm whether each is properly classified as exempt or nonexempt. Adjust the compensation status of anyone who is misclassified, so that you are in compliance with federal law. “It’s truly one of those areas in which if you invest a little bit of time and money on the front end, you can avoid risking enormous liability on the back end,” says Woelfel.

Are you covered?


Other legal pitfalls physician employers should be aware of include employee rights under worker protection laws. The Occupational Safety and Health Administration (OSHA) dictates the regulations all employers should follow to keep their employees safe in the workplace. In medical practices, this means taking the necessary precautions to protect both clinical and nonclinical workers from contamination by properly disposing of medical waste, properly handling soiled linens, and using precautionary measures to avoid contact with bodily fluids.

But OSHA regulations aren’t static. As we learn more about existing diseases and as new viruses emerge, so too do the regulations that clinicians must follow to protect themselves and their employees. If for any reason OSHA visits your practice to check your compliance with regulations, you could sustain penalties if your workers are not adequately protected. Woelfel recommends that busy physicians have their counsel conduct compliance reviews. Schaff advises physicians to keep their office managers trained and updated on the latest OSHA requirements. One good resource for managers can be newsletters disseminated by professional societies and related conferences.

Given the magnitude of the risks that physician employers assume regarding everything from sexual harassment claims to labor law violations to worker safety laws, can they purchase an insurance policy that, like malpractice insurance, can protect them from bankruptcy should they wittingly or unwittingly run afoul of the law?

Sort of, say the experts.

Jackson says that physician employers should make decisions about which types of insurance policies to purchase based on the coverage that’s available to them and current market conditions, which can vary from state to state. “Different states have different agendas regarding what laws they’re going to enforce,” she explains. And every insurance policy contains exceptions. Jackson recommends that physicians examine their options with the experts: “They’re going to be dealing with an insurance broker anyway for general liability, commercial liability, and professional liability.” Jackson says that in general, it’s not feasible for small practices to purchase insurance coverage beyond the basics, although large, multispecialty practices may want to explore further protection options.

Woelfel says that larger physician practices may want to consider employment practice liability insurance, or EPLI. “Sometimes people can experience sticker shock when they see the premiums associated with it,” she says. “But it can cover a variety of claims, including discrimination and harassment claims, both in terms of an employee making a complaint to the EEOC or Department of Labor.” Of course, like all insurance policies, EPLI doesn’t cover every potential claim, including those involving compensation.

Woelfel says smaller employers with low turnover and a standing relationship with an attorney who can advise them on employment law and other legal issues aren’t going to need to purchase EPLI. But she emphasizes that regardless of size, investing in legal counsel before problems arise should be a given for any practice. “Speaking with a lawyer can be a small investment that can save you a lot of money on the back end,” says Woelfel, “because the things that you say and the positions you take [if a claim is filed] can lock you into certain legal positions that eliminate defenses that you otherwise might have had if you aren’t sophisticated in how you respond to such claims.”

Ultimately, most legal experts agree that the best defense physician employers can adopt against nonmedical lawsuits is the counsel of attorneys, accountants, and consultants who can help them take preventive measures before they are tripped up by legal pitfalls they never saw coming.

“I see physician practices like islands,” says Schaff. “They run alone until they know that there’s a bridge from the mainland to those islands. And some physicians cross that bridge to find out what’s going on, and they have good lawyers and good advisers, they do their own research, and they know what’s happening. Other practices don’t do that. They remain an island, and they miss out, not realizing things they should be aware of, and sometimes because they stay an island, they don’t know what’s going on in the world, so they emerge isolated.”

Such self-imposed isolation, says Schaff, can sometimes have disastrous consequences. Like man, no medical practice is an island.

Barbara A. Gabriel holds an MA in English literature and is the associate editor of Physicians Practice. She has served as editor and writer for numerous healthcare publications over the past 10 years. Barbara can be reached at bgabriel@physicianspractice.com.

This article originally appeared in the September 2007 issue of Physicians Practice.