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One Florida based hospital management company (Hospital Managers) owns or operates many hospitals and has devised a way to improve its financials (and presumably satisfy shareholders). Unfortunately, the strategy exposes hospital-based physician groups that provide services inside Hospital Managers hospitals to huge risk. Here’s the background: Many hospital based groups receive subsidies or revenue guarantees to compensate the group for providing care to indigent patients. The subsidy is used for one thing: paying the salaries and benefits of physicians and their assistants (e.g. CRNAs). As such, once the subsidy is paid to the group, the group then pays salaries and benefits, and the employees use the money to pay bills! Unlike many other kinds of businesses, there is usually no profit in these hospital based practices. The trouble, as Hospital Managers seems to see it, is that the subsidy payment may fluctuate each month and, according to Hospital Managers, may not be written off as an “asset.” Their solution: have the groups sign an amendment to their contract wherein the group must repay the Hospital Managers hospital all of the subsidy money if the hospital terminates the contract for cause! Here’s the problem: how can a group repay anything if the money it received just goes to pay salaries and benefits? The money is gone. Mortgages and grocery bills are paid. That’s it. Physicians faced with such a prospect need to be informed and prepared. To the issue of “Hey, we’re nice people and a nice company and would never really terminate for cause and require repayment,” the response is clear: Then why do I have to sign this? Why would I? Why agree to an agreement that will never be implemented? To the issue of “We would never trigger repayment unless we terminate for cause, and you have 30 days to fix any for cause event,” the response is clear: contracts are wrongfully terminated every day for financial reasons. A Hospital Managers hospital (or some successor hospital company) could simply decide it makes good financial sense to terminate a contract for cause. And you don’t have to be right in order to “win” a lawsuit, since many suits are won simply by one party outspending the other. In short, a Hospital Managers hospital (or some other successor hospital company) probably has a lot more money than a hospital based practice to fund a lawsuit about whether a contract was rightfully or wrongfully terminated. The ground is certainly not level. What then can a hospital based group do when faced with such a prospect? Two things: negotiate and prepare. Negotiation would entail exploring ways to meet the Hospital Managers hospital’s concerns and also the group’s. Preparation would entail, at least, making sure the group has restrictive covenants with all employees. Otherwise, the Hospital Managers hospital (and any other hospital) can terminate the group and then rehire many of the employees. If a hospital based group cannot act together and work together for the common good of the group, they are likely to lose ground when dealing with a hospital or hospital system. Submit your comments at our healthcare legal blog
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