Economic pressures have since encouraged some hospitals to use the exclusive contract as a vehicle for economic leverage over radiologists. Because of those economic issues, the radiologist presented with a proposal by a hospital to sign an exclusive contract faces three fundamental issues:

• Should I sign an exclusive contract with the hospital?
• Does the contract place me in a better or worse position than a member of the hospital medical staff with no professional services agreement?
• If the choice is made not to sign a contract, what is the impact on medical staff membership and clinical privileges if the hospital later signs an exclusive contract with another radiologist?

Besides these fundamental issues, other questions are frequently asked concerning the most important contractual relationship in the professional lives of many radiologists. I will address these 15 questions here:

What are the issues associated with signing an exclusive contract to provide services at a hospital?

The contract should state explicitly whether it is an exclusive agreement. If exclusive, it should recite the basis for determining that exclusivity is in the best interest of the hospital, patients, and medical staff. This clause should address whether the physicians provide all contracted services at all existing and future facilities established or operated by the hospital.

Courts that have upheld exclusive arrangements have accepted the explanation that the exclusive agreement facilitates the administration of the contracted department, the supervision and training of department personnel, interrelationship within the department, and the interrelationship between the department and the rest of the hospital.

Exclusive radiology agreements provide assurance of immediate availability of physicians for both operating and emergency rooms and assurance of required coverage by physicians at night and on weekends. Exclusive agreements can simplify the problem of scheduling patients and can permit the needs of patients to take precedence over the convenience of the physician. Exclusive agreements can provide continuous availability of physicians for consultation with referring physicians.

Exclusive radiology agreements provide assurance of immediate availability of physicians for both operating and emergency rooms assurance of required coverage by physicians at night and on weekends. Exclusive agreements can simplify the problem of scheduling patients and can permit the needs of patients to take precedence over the convenience of the physician. Exclusive agreements can provide continuous availability of physicians for consultation with referring physicians.

Why is it that a physician may choose not to have an exclusive arrangement with the hospital and actually choose to reject the exclusive contract?

Too often, doctors may be worse off after signing a contract-with waiver of fair hearing rights, for example-than when they were part of an open department and had no special status other than membership on the medical staff. Contracting groups should ensure that an exclusive contract will not be breached by a hospital's granting of privileges to physicians outside the contracting group for services that the group is entitled to render on an exclusive basis. The awarding of such privileges may be disruptive to the efficient operations of a department and may expose the contracting group to potential liability for the acts of outside physicians.

Contract language could state that the hospital shall not award privileges to any physician outside of the contracting group during the term of the exclusive contract. Should erroneous credentialing occur, the hospital should be responsible for a breach of contract or other monetary claims and should be subject to an injunction preventing such credentialing.

Are hospital-based radiologists members of a medical staff like other physicians?

Advocates for physicians believe that medical staff appointment and privileges include the right of access to hospital resources, including hospital equipment, facilities, and personnel necessary to effectively exercise those privileges. Any member of the medical staff who has gone through the credentialing process and obtained medical staff privileges should be entitled to a fair hearing conducted by the medical staff before clinical staff privileges are restricted or terminated.

A physician who is accorded fair hearing rights should have the right to a hearing before his or her peers on the medical staff, for which adequate notice has been given, and an opportunity for appellate review before any decision is made to curtail, restrict, or terminate medical staff appointment or clinical privileges. Because these rights are essential, hospitals should not force a physician to have his or her privileges curtailed automatically without any input from the medical staff via the bylaws' fair hearing procedures.

What are the responsibilities of the medical director?

The director is responsible for seeing that the department operates in such a manner that it conforms to standards generally accepted within the medical community, in such a way as to maintain Joint Commission on Accreditation of Healthcare Organizations (JCAHO) accreditation and certification by the state hospital licensing authority. The contracting group should retain the right to choose which member of the group will serve as department director. The medical staff bylaws should be reviewed to assure that the director's duties conform with those spelled out in the bylaws for department heads.

The contract could discuss participation by the director in the selection of equipment and personnel and allocate responsibility between the director and the hospital for recruitment, hiring, staffing, termination, discipline, salary review, and benefit selection for department employees, as well as for personnel policies.

What are the hospital's responsibilities under an exclusive contract with a hospital-based group of physicians?

During the term of the contract, the hospital should provide specific space designated for the department and adequate qualified personnel. The hospital should also provide sufficient clerical support and office facilities, including furniture, files, and other equipment necessary for the proper operation of the department. Of particular importance, the contract should state that the hospital will provide the necessary scientific equipment required to provide high-quality services to inpatients and outpatients.

The equipment, space, and personnel should be sufficient to permit the contracting physician to fulfill all commitments he or she must make concerning the operation of the department in accordance with standards for JCAHO accreditation, state licensure, and the duty of reasonable care to patients. The hospital should assume the cost of any and all maintenance, repairs, inspections, accreditation, and licensure of the equipment. The hospital should also furnish electricity, heating, air conditioning, water, sewerage, telephone service, and other utilities required for the proper operation of the department.

What does the contract provide for determining how hospital based physicians are compensated for their services?

Most hospitals and physicians who enter into contracts agree that the physician will act at all times as an independent contractor and not as a partner or agent of the hospital. Physicians further agree not to represent themselves to third parties as partners, employees, or agents of the hospital, and the hospital states that it does not exercise control over the manner in which the medical duties of the physicians are performed.

Hospitals typically do not withhold income tax or Social Security on behalf of contract physicians and their employees. In addition, the physicians and their employees make no claim against the hospital for vacation pay, sick leave, unemployment insurance, workers' compensation, retirement benefits, disability benefits, or employee benefits of any kind.

These contracts generally specify that the physicians are free to establish their charges for professional services rendered in the department to identifiable patients. Concurrently, the contract could specify that such charges will be billed and collected by the physicians. Many contracts proposed by hospitals contain clauses wherein the hospital will determine the fees patients will be charged for their professional services. These clauses also usually provide that the amount the hospital charges for its services may be determined at the sole discretion of the hospital. Most physicians resist control over their prerogative to set their own professional fees.

What is the duration of most exclusive contracts?

To reduce the risk of an antitrust challenge to an exclusive contract, the contract should be for a reasonable period of time rather than for an unspecified or indefinite period. Some contracts are written with a one-year term with automatic annual one-year extensions (an "evergreen" clause).

The Internal Revenue Service has certain rules regarding tax-exempt hospitals that may influence the term of a contract with hospital-based physicians. On Jan. 10, 1997, the IRS issued Revenue Procedure 97-13 on qualified tax-exempt bonds that sets term lengths for certain management, service, or incentive payment contracts with tax-exempt hospitals in order to safeguard against the private use of tax-exempt property. The rules mandate certain term lengths, depending on the percentage periodic fixed fee arrangement and the percentage of compensation for services on an annual basis.

For purposes of these rules, separate billing arrangements between physicians and hospitals are treated generally as per-unit fee arrangements. (A "per-unit fee" is based on a unit of service provided specifically in the contract or otherwise determined specifically by an independent third party, such as the administrator of the Medicare program.) The term of such contract, including all renewal options, must not exceed three years, and the contract must be terminable by the hospital on reasonable notice, without penalty or cause, at the end of the second year of the contract term. Although excluded from the original three-year term, a contract can include a provision allowing automatic renewal for one-year periods absent cancellation by either party.

What do the contracts provide regarding termination of the agreements?

Most physicians will seek a contract that permits the hospital to cancel the contract only with "cause" for proven breach of contract by the physician group. If this is not possible, an enumeration of the specific circumstances under which the contract can be terminated before the expiration of its term could be provided. Many contracts have been negotiated to provide that termination of the contract would be subject to the same "fair hearing" guarantees provided in the medical staff bylaws.

These procedures could either be spelled out in the contract, or the procedures contained in the bylaws could be incorporated by reference. This is particularly important if the hospital insists that medical staff privileges terminate with the contract. If a physician accepts a contract that permits termination "without cause," it is vital that the contract state that such termination will not automatically affect the physician's medical staff membership and/or clinical privileges. The contract language should allow continued full access to all hospital equipment, personnel, and other resources necessary to exercise a physician's privileges.

I had a contract with a clause asking me to make my books and records available to government audit. What is this all about?

This requirement, like the obligation to enter into a written allocation agreement, applies only to those physicians receiving cost reimbursement from the hospital for administrative or supervisory services to the hospital. However, those contracts between hospitals and physician groups who provide services to the hospital-as opposed to compensation solely for service to individual patients-valued at $10,000 or more over a 12-month period must contain a clause allowing the secretary of Health and Human Services and the comptroller general to have access to the contract and to the group's "books, documents, and records" necessary to verify the nature and extent of the cost of services provided to the hospital.

HCFA defines "books, documents, and records" to mean all writings, recordings, transcriptions, and tapes of any description necessary to verify the nature and extent of the cost of services provided by the subcontractor.

Is it a good idea to accept an arbitration clause in a contract?

Some physicians may wish to consider methods of alternative dispute resolution other than legal redress in the court system. One alternative to legal action is for the parties to agree to binding arbitration of any future disputes. Simply stated, arbitration is an agreement to let an impartial third party hear each side and make a binding decision. This differs from mediation or conciliation, where the third party attempts to encourage the opponents to settle their differences. Thus, unlike the arbitrator, the mediator and conciliator do not make decisions. Arbitration is voluntary upon the agreement of the parties to arbitrate, and a clause in the contract will allow for its use to resolve disputes. Arbitration is not to everyone's liking. Arbitrators' decisions tend to seek compromise rather than decide completely in favor of one party. The process can also be as lengthy as some court proceedings. More important, an arbitration clause can, in many states, preclude either party from seeking relief only a court can provide (preliminary or permanent injunction) until the arbitration process has been fully completed.

Should the contract permit change following a change in regulations?

It may be in the interest of both parties to allow a contract to be renegotiated when changes occur in federal or state regulations affecting reimbursement for a hospital's or a physician's services. In the event that the parties cannot agree to new terms, termination of the agreement could be effectuated upon a previously agreed number of days' notice. Physicians should be careful, however, to avoid a scenario in which a change in regulations results in contract termination and automatic waiver of staff privileges without a fair hearing.

Is there any downside to accepting an agreement with a confidentiality clause?

As a general proposition, confidentiality between contract parties is routine. In order to increase physicians' negotiating power and flexibility, however, the contract should not restrict physicians' ability to discuss the contract terms, including the effect of the potential contract on the physicians' staff privileges, with other members of the hospital medical staff. And, of course, as with any contract, physicians should be able to discuss the terms and restrictions with their accountants and attorneys.

Do I need to be concerned about hold harmless/indemnification clauses in the contract with the hospital?

Most hospitals ask the contract physicians to agree to indemnify, defend, and hold harmless the hospital against any claims or causes of action arising out of acts of malpractice of the contracting group or its agents. Such indemnification clauses may create difficulty for the contract physicians because most physicians' professional liability insurance policies contain an exclusion for any contractually assumed liability. Even if the hospital suggests a so-called cross-indemnification agreement, whereby the hospital also agrees to indemnify and hold the professional group harmless from any cause of action arising as a result of the negligence of the hospital or its agents, a lack of insurance coverage could still result for many physicians. In short, physicians should avoid exposure to liability for which they cannot obtain adequate insurance and avoid agreements that jeopardize existing liability coverage.

The hospital has asked me to sign away my fair hearing rights contained in the medical staff bylaws. Is that required legally for the contract to be valid?

Many hospitals seek agreement that upon termination or expiration of the contract, each physician's medical staff appointment and clinical privileges automatically terminate without the necessity of the procedures set forth in the medical staff bylaws for such termination. These contracts provide that the physician expressly waives any right to challenge or review such termination, pursuant to the hearing and appeal provisions of the medical staff bylaws. Further, hospitals frequently seek language providing that, should the medical staff bylaws or other relevant documents be amended to provide for hearing or other procedures inconsistent with the provisions of the hospital-physician contract, the provisions of the contractual agreement take precedence and control over the other documents.

Physicians and their representatives consistently resist these contract proposals. In their view, the contract should provide that termination or nonrenewal of the contractual agreement will not work to automatically deny contract physicians the right to medical staff appointment and clinical privileges, including the right of access to all hospital equipment, personnel, and other resources necessary to exercise these privileges. Medical staff privileges should be suspended, curtailed, terminated, or otherwise restricted only by following the fair hearing procedures contained in the medical staff bylaws.

Some states regard the hearing rights under medical staff bylaws as contractual in nature and a necessary protection of existing clinical privileges through procedural and substantive due process. Sometimes, a state's statute will mandate certain substantive and procedural requirements to be employed by all hospitals regarding medical staff privileges. In these states, physicians' clinical privileges cannot be terminated without exercising hearing rights as specified in the medical staff bylaws, even if a hospital executes an exclusive contract with a few other physicians. For instance, Florida case law regards a physician's clinical privileges as a valuable and protected property interest that may not be revoked or otherwise impaired absent procedural and substantive due process of law. A Florida appellate court ruled that while an exclusive contract is legal, it may not be used by a Florida hospital to constructively revoke or impair existing clinical privileges. See Columbia/JFK Med Ctr v Spunberg, 719 So 2d 298 (Fla Dist Ct App 4th Dist 1998).

Requiring hospitals to follow the fair procedures found in the medical staff bylaws allows medical staff members to give input regarding patient-care issues and helps ensure that the hospital's ultimate action is rational, intelligent, and undertaken with due regard for the interests of affected physicians and their patients. Despite these strong public policy arguments, not every state recognizes the contractual nature of medical staff bylaws. In these states, a physician with existing clinical privileges may not be entitled to fair hearing procedures upon a hospital's execution of an exclusive contract with other physicians. Physicians in these jurisdictions should particularly guard against agreeing to any contract with a "clean-sweep" provision (that is, a provision that effectuates the simultaneous termination of staff privileges with the termination of the contract).

Are any legal issues raised if the hospital asks the hospital based group to provide free services to hospital employees?

Occasionally, a contract will require physicians to render free care to other members of the medical staff or hospital employees. Such "professional courtesy" has been a common and accepted feature of medicine for quite some time. The Office of Inspector General of HHS views hospitals as sources of referral to hospital-based physicians, and the definition of "remuneration" under the fraud and abuse laws means the provision of something of value for free or for less than fair market value (see the OIG Management Report: Financial Relationships Between Hospitals and Hospital-Based Physicians). Consequently, courtesy arrangements built into an agreement could be construed by the fraud and abuse enforcement agency as being in place, in part, for the purpose of inducing the hospital to award the contract, and therefore to induce the hospital to arrange for the referral of Medicare patients and those covered by other payers. Any remuneration to a referral source for Medicare business would violate the anti-kickback statute. See 42 USC 1320a-7b(b).

Copyright (c) 2001 Bell & Howell Information and Learning Company. All rights reserved. Copyright Miller Freeman Inc. Feb 2001