Check fine print before selling your practice

Pittsburgh geriatrician Alan Steckel, MD, and his three partners were shocked in early November 2008 when their hospital employer forced them to vacate their offices as security stood guard.

One day earlier, the practice had informed West Penn Allegheny Health System, which had owned the office and practice for 10 years, that it was severing ties as of Dec. 1, 2008. The practice had signed a contract with a competitor, University of Pittsburgh Medical Center. West Penn responded by terminating the relationship the next day and orchestrating a speedy removal of the doctors. It was only with much cajoling, Dr. Steckel said, that he and his partners were allowed to stay until the end of the day to treat patients.

Experts say a messy break-up can be avoided if practices know what an employer will do immediately after they give notice. And, experts say, knowing how the party will act when they become your former employer is something best learned before it becomes your new employer.

That means having a discussion before you sell your practice. Include topics such as giving notice, and what happens after you give it; informing patients of your change of employer, and any financial considerations that have to be settled upon departure.

Experts say if negotiating those clauses is rebuffed, it might be worth reconsidering the sale.

"Hospitals often have many practices wanting to join their group. They don't have to negotiate. In that case, practices need to decide if the benefits of employment outweigh the drawbacks that could come at its termination," said attorney Stanley Lehman, director of Sherrard German & Kelly in Pittsburgh. He is representing Dr. Steckel in this case.

Before selling your practice

When interviewing with a potential employer, practices need to look for a contract that clearly defines the termination procedure. Most contracts have a 90-day termination clause on either side, said Martin Osinski, board member of the National Assn. of Physician Recruiters and president of American Medical Consultants, a national health care consulting firm in Miami.

Osinski said practices should avoid restrictive covenants that limit the doctors' ability to compete during the course of their relationship with the hospital, and for a period after leaving. Some hospitals limit a doctor's ability to solicit their patients for a period after termination, as well. However, experts say that contracts cannot prevent physicians from notifying their patients after they start with a new employer.

Contracts are legally binding and followed by most courts, but health care consultants say an employer can change the contract and shut down a practice without notice.

Dr. Steckel maintains he and his partners had followed their portion of the contract with West Penn when they were terminated. They gave West Penn a year's notice that they wouldn't renew their contract as written, and three weeks' notice when they couldn't reach an agreement after a year of negotiating. That took them to the date their contract said they could begin practicing with another company. Their three new offices are all at least five miles away from their old location, as stipulated in their contract, Dr. Steckel said.

West Penn officials did not return several phone calls for comment, and Lehman would not divulge wording in the practice's contract, but health care attorneys and recruiters say West Penn was probably following terms of the pact.

The required notice portion of the contract actually determines when doctors will stop being paid, not when they will stop practicing, Osinski said

Another health care attorney said practices should be careful not to misinterpret contracts or infer something that is not in writing.

"One would hope the contract would leave less to question. ... But I'm sure in this case the contract does not specifically say the physicians can stay on an extra three weeks after announcing their decision to leave. That would create havoc for the hospital," said Michael Callahan, a partner with Katten Muchin Rosenman in Chicago and a vice chair for the American Health Lawyers Assn.

Reworking a deal

If you've reviewed your contract and are not happy with the wording, Osinski said you can ask to renegotiate, but added the chances are slim. "It all depends on how important you are to the hospital and how easily you can be replaced."

Another option is the courts, which have modified contracts they deemed to be too restrictive, Callahan said. For instance, in metropolitan areas, it is reasonable to demand the new practice be at least five miles away from the old location; 10 miles is considered too much. And, a standard covenant is for one year, he added.

Ten days after beginning a new chapter in his more than 25-year medical career, Dr. Steckel describes his working life as "the middle of bedlam." Since he and his associates began practicing out of their three new offices with UPMC, he has had hundreds of calls from patients who found them and wanted their records switched to the new offices.

"It's been rewarding. Patients have gone through a lot of effort to find us. Our schedule has been filled since the first day we opened," Dr. Steckel said.

Dr. Steckel said the practice tried to negotiate its new contract with UPMC so it wouldn't go through the same scenario again, but he wasn't hopeful. "The reality for all of us physicians who enter into an employed contract is there is always a risk of this happening."

Caffarini covered practice management issues during 2008-09. If you have any questions or comments, please contact Business Editor Bob Cook at 312-464-4434 or by e-mail (bob.cook@ama-assn.org).

The print version of this content appeared in the Jan. 5, 2009 issue of American Medical News.

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