An anesthesia group must understand contracts because they are the key to business relationships. This blog will assist with grasping some of the common features of contracts and how to deal with them is of the upmost importance for the survival of an anesthesia department. It must be noted that no contract is “iron-clad” because there is nothing in the practice of law is so a contract is only as strong as the will of the parties to comply with it. The fact that a document states that something must be done does not mean that the terms of the contract will be fulfilled. Who has the will and means to enforce is the real test of a contract’s terms. A good contract is written to anticipate things going wrong between the different parties.
What do contracts do?
Contracts are the foundations on which the parties forge their interactions. The basic value of a contract is to make sure that all parties have a mutual agreement and see the transaction in a similar way. There are many different kinds of contracts that an anesthesia group might need such as: employment agreements for providers, shareholders agreements, buy sell agreements, exclusive contract with facility where anesthesia is being provided, malpractice insurance, managed care and insurance participation agreements.
Due Diligence is necessary for every single contract that an anesthesia practice enter into because they have to know who the contracting partner is in the business world. It is especially important with the increase in fraud and abuse cases that the potential partner has not been excluded from participation in any federal Medicare or Medicaid programs. The OIG has an easily accessible list of excluded and debarred parties. The State Department of Insurance can provide the financial rating and stability of any insurance company that the group is thinking about being in their network.
Here is a quick description of the important parts of an anesthesia contracts.
1) The Term of the contracts means the time the contract is in force. It states the starting and ending date for when the contract will begins and expires if it is not renegotiated. There can be an “evergreen” clause which means there is no termination date because the contract automatically renews itself unless it is terminated by one of the parties.
2) An indemnification is an agreement between the parties that one party will make the other whole if that party gets sued on account of something the indemnifying party has done. There is a practical matter associated with indemnification clauses in that they are usually linked to a hold harmless provision which says that the anesthesia provider will pay for any damages, losses, costs, liabilities or claims that their contract partner experiences as a result of the anesthesiologists’ relationship with them.
3) Restrictive Covenants is an agreement that extends beyond the termination of the agreement and is enforceable not just by damages but by an injunction forcing the other side to stop its competitive behavior. The enforceability of restrictive covenants is controlled by state law. In states where restrictive covenants are enforceable there are three critical issues: (1) are they supported by adequate consideration; (2) is the duration that they are in effect reasonable; and (3) is the geographic scope reasonable? The geographic scope and length of time of the restrictions have to be reasonable. Usually these provisional are combined with a clause that says that if a court finds that they are unreasonable as written the court should reform them so that they can be enforced. In the absence of this of that clause if the preclusion of activity is deemed too broad in its scope it will fail completely.
4) The third type of protection is a confidentiality provision that deals with business confidentiality rather than protected health information. There are many types of financial information that contribute to the business aspect of an anesthesia practice including the sources of referrals, fee schedules and managed care contracts etc.
5) Termination can occur with or without cause. The contracts that can be terminated without cause usually have a longer notice provisions because of the impact will have on the other party. Some contracts are terminable without cause but only at a specified time before the annual renewal date. A contract can be terminated with cause however often there is an opportunity to cure the problem within a specified time period. A period of 30 days to tell the other party to fix the problem is usually fair and give the parties some opportunity to repair mistakes.