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Will I Still Be Able to Practice My Way as a Hospital Employee?


Switching from private practice to hospital employment will be a significant life event for any physician.

The thought of working for a hospital represents a seismic shift for most physicians. The nearly-universal primary concern is what level of control they would retain as employed physicians. The concern often also extends from “my” way of practice to “our” way of practice - will the legacy group as a whole be allowed to function as it has in the past?

The level of control hospitals give employed physicians is consistent across specialties and regions of the country. This is so because the level of control is largely governed by principles of federal law related to the hospitals’ tax-exempt status.

The structure of physician “governance” can vary based on the scope of the hospital group practice and the circumstances under which a physician joins that practice. A hospital group practice will have a Board of Directors (if it is a corporation) or a Board of Managers (if it is an LLC). Physicians will typically appoint a majority of the board members. If a hospital integrates with a private practice of more than a few physicians, then those physicians typically form a “pod” within the hospital group that is permitted to govern some elements of its day-to-day practice and to pool and distribute compensation, if the pod members desire. An individual physician or two who join an established hospital group will likely have to integrate into the existing governance arrangement.

Below are matters that physicians typically control:

• Clinical Decisions
• Day-to-Day Management of Office Locations
• Physician Recruitment/Termination
• Staff Employment Decisions
• Call Coverage (including Slow Down Policies)

Physicians want to continue to make clinical decisions and to manage their office locations in their customary efficient and effective manner. The good news is that they nearly always can. As long as their decisions are consistent with the hospital’s mission and applicable budgets, employed physicians typically control these clinical and office practice matters. These matters are frequently delegated to the pod level regarding the pod physicians’ legacy office locations, staff, etc. This delegation permits a hospital to employ physicians from several legacy groups in the same hospital group and yet to permit those physicians to form pods or councils within the hospital group and to retain, for example, their differing legacy call coverage/slow down policies.

Hospitals typically have the ultimate say regarding the following hospital group practice matters:

• Budgets
• Fee Schedule
• Billing & Collection Policies
• Staff Compensation
• Physician Compensation, Benefits, and Expense Reimbursement
• New Office Locations, Equipment, Services

The common theme here is money - IRS rules (and, often state rules for non-profits) preclude hospitals from granting employed physicians control to spend/allocate hospital resources. In addition, a hospital must assure that the physicians’ employment and hospital resources used that are related to employment further the hospital’s charitable mission. Considering that physicians are better at running group practices, hospitals nearly always seek and typically adopt physicians’ recommendations regarding these financial matters. My experience is that hospitals have the same desire for integrated practices to thrive and, therefore, hospitals and employed physicians are on the same page when it comes to budgets, etc.

Although employed physicians cannot contractually obligate hospitals to certain budgets or expenditures, they can build in a safeguard against potential future financial decisions that adversely affect their practice. A physician can negotiate terms in his/her employment agreement that the hospital’s failure to maintain budgets, facilities, staffing, etc. at historical or prescribed levels will permit the physician to terminate his/her employment for cause. Indeed, physicians should consider including in their employment agreements all of governance terms that are material to their decision to become employed.

Switching from private practice to hospital employment will be a significant life event for any physician. Contemplating that switch might be eased by knowing that employment will likely permit the physician to continue to control many of the matters that made his/her practice special in the first place.

For more on John C. Erickson and our other Practice Notes bloggers, click here.

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