During due diligence of an acquisition target, buyers should review physician contracts for potential risk.[1] This checklist was prepared by PYA. Contact Kristen Davidson, a senior manager at PYA, at kdavidson@pyapc.com.
Physician Contract Review Checklist
1. Acquire the physician’s contract. | |
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Establish how the physician is classified – employee, independent contractor, other. |
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Determine all of the duties the physician is providing – clinical services, medical director, professional services, on-call, administrative, teaching. |
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Confirm that the physician and hospital/health system authority have both signed the contract in accordance with authority limits and applicable policies and procedures. |
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Verify that hospital/health system legal counsel approves all contracts. |
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2. Review the process and controls for payment. | |
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Establish that the contract describes the methodology for compensation. |
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Determine whether a fair market value assessment has been completed for the arrangement and that it includes all sources of payment. |
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Evaluate all types of supplemental compensation included in the contract. Loans o Practice Support (equipment, staffing, stipend, etc.) o Sign-On Bonus o Grants o Relocation Expenses o Miscellaneous o | |
Determine whether a commercial reasonableness analysis (including a needs assessment) has been completed for the arrangement and documented in the file. |
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3. Identify the physician’s duties. | |
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Confirm that the contract defines the specific duties of the physician based on the type of arrangement, including any and/or all limitations for the provision of outside services or employment. |
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Examine all contracts for each physician to determine whether there are duplicative duties for which the physician will be compensated. |
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Determine whether the term of the contract is for at least one year, and whether it can be terminated without notice within one year. |
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Review the contract for supervisory duties and the method for allocating compensation for supervised services. |
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4. Identify a performance evaluation process. | |
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Verify that the contract includes an annual performance evaluation to validate the physician’s professional capabilities and productivity. |
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Determine if the contract includes functional metrics to ensure that care, treatment, and services provided through the contractual agreement are administered safely and effectively. |
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Identify the frequency of the performance evaluation and the functional metrics review. |
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5. Review contract documentation. | |
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Determine whether the contract requires the physician to provide documentation of delivered services and hours spent performing duties as applicable. |
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Review documentation of time spent, and compare to contract and payment terms. On-Call Coverage – Document on-call response and that the response was consistent with contract requirements. Medical Directorship – Document time spent for required duties. Compare submitted documentation to contract and payment terms. All Contracts – Document fair market value assessment, commercial reasonableness, and needs assessment. |
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6. Review all forms of supplemental compensation. | |
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Evaluate supplemental compensation to determine if the compensation is provided within the terms of the agreement (e.g., compensation terminated on the appropriate date as defined by the contract). |
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Determine whether there is a forgiveness or repayment plan included in the contract. |
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Evaluate the documentation utilized to track the schedule of forgiveness or repayment. |
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7. Review the payment rate. | |
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Determine if payment to the physician aligns with the contract: Review payroll information for employed physician, including hours and payments. Review accounts payable (A/P) information for contracted physicians, including invoices, check requests, and A/P entries. Review non-monetary compensation for all physicians, including gifts, gratuities, entertainment, meals, etc. |
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8. Identify and prioritize physician compensation risks, including, but not limited to: | |
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Stacked agreements – one physician with multiple agreements that provide compensation |
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Unsigned contracts or contracts that do not define accountability for monitoring the terms and conditions |
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Contracts for services that are performed by another physician or employee |
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Any implication the physician is compensated for volume or value of referrals |
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Longstanding evergreen contracts |
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Compensation rates which may be inconsistent with fair market value |
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Agreements that do not include an assessment of fair market value |
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Questionable timesheets – e.g., multiple timesheets completed and provided on the same date, timesheets with the same work performed during the same hours each month |
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Missing physician signature and executive approval on timesheets |
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Hours worked less than or greater than the terms of the contract |
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Duties submitted for compensation not included in the contract |
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