Breach of Contract Litigation in Healthcare

Breaches of contract can happen in any industry, and healthcare is no exception. However, when these breaches occur in healthcare, disputes can be especially complex due to the parties involved and the services contracted. When one party fails to meet its contractual obligations in the healthcare industry, the consequences can extend beyond financial losses, potentially disrupting patient care. Therefore, it is important to protect against breaches and ensure swift remedies when breaches do occur. Here is what to know about breach-of-contract litigation in healthcare.

What Is A Breach of Contract?

A breach of contract occurs when one party fails to perform their obligations under a valid and enforceable agreement without a legal excuse. Breaches can vary, from minor breaches such as a small delay in performance, to material breaches, where the breach significantly harms the other party. Another type of breach is an anticipatory breach. An anticipatory breach occurs when one party clearly signals, through words or actions, that they will not fulfill their future contractual obligations.

To prove a breach of contract, a party generally must show four key elements. There must be a valid contract, meaning an offer, acceptance, consideration, and mutual agreement. The plaintiff must show that they performed their obligations under the contract or had a legally valid reason not to. They must also show that the other party failed to perform their duties as required under the contract. The plaintiff must demonstrate that they suffered damages as a result of the breach, such as financial loss or other measurable harm. 

Examples of Breaches in the Healthcare Industry 

In the healthcare industry, breaches of contract can take various forms. Here are a few common examples of breaches in healthcare.

One example of a breach is a breach in physician employment contracts. Physician employment contracts typically cover compensation, performance-based bonuses, and other financial terms, as well as work schedules, call coverage, and patient care expectations. They also address benefits, malpractice insurance, non-compete clauses, and termination provisions.  Breaches of physician employment contracts may occur when either the employer or the physician fails to meet agreed-upon obligations. For example, disputes can arise if a hospital improperly terminates a physician without following contractual procedures, or if a physician fails to meet productivity benchmarks or call coverage commitments. Additional conflicts may involve delayed compensation, miscalculation of bonus payments, or unilateral changes to compensation formulas.

Another type of breach might occur under medical equipment or technology vendor contracts. Hospitals, clinics, and private practices often rely on vendors to provide critical services such as electronic health record (EHR) systems, maintenance of diagnostic equipment, billing software, laboratory support, or medical supply delivery. A breach may occur when the vendor fails to meet required performance standards, misses delivery deadlines, or provides defective products that interfere with treatment. For example, if a vendor fails to properly maintain imaging equipment, a facility may experience delays in patient testing, increased costs due to emergency repairs, or the need to outsource services to other providers. 

One other example of a breach in the healthcare industry involves medical billing agreements. Healthcare providers often contract with third-party billing companies to handle coding, claim submission, posting payments, and follow-up on denied claims. A breach may occur when the billing company fails to accurately code services, submits claims incorrectly, or misses filing deadlines, resulting in delayed or reduced reimbursement. For example, if a billing contractor consistently codes procedures at a lower reimbursement level than appropriate, the healthcare provider may experience significant revenue loss over time. 

What Can We Do If A Breach Occurs?

When a breach of contract occurs in a healthcare setting, the impact can be significant, often resulting in financial losses, operational disruption, and potential harm to patient services. Fortunately, there are remedies available if it is found that a breach occurred. Here is what to expect. 

Though less common, one option is specific performance. Specific performance is an equitable remedy in contract law that requires a party to fulfill their contractual obligations rather than simply paying monetary damages. Courts grant this remedy when damages are inadequate to compensate the injured party. Because it is an extraordinary remedy, it is not awarded as a matter of right. Generally, courts exercise discretion and consider the fairness, feasibility, and practicality of enforcement. Depending on the parties, specific performance is unlikely to be used. Specific performance could be used if a healthcare provider contracts to buy a unique medical facility, such as a specially designed outpatient surgery center. If the seller tries to back out, a court may order them to complete the sale because real estate is considered unique and money may not be an adequate remedy.

Generally, if a breach is found, damages will be awarded. The purpose of damages is to compensate the non-breaching party and place them, as much as possible, in the position they would have been in if the contract had been properly performed.

There are different types of damages that can be awarded. The most common type is compensatory damages. These cover the actual loss resulting from the breach. They are usually divided into two parts: direct damages and consequential damages. Direct damages flow naturally from the breach itself. For example, if a supplier fails to deliver medical equipment, the direct damages would be the extra cost of buying the equipment from another supplier at a higher price. Consequential damages go beyond the immediate breach and cover losses that were reasonably foreseeable at the time the contract was made, such as lost profits from being unable to use the equipment in a clinic.

Another type of damages that could be awarded is liquidated damages. Liquidated damages are a predetermined amount of money or a formula written into a contract that specifies what a party must pay if it breaches the agreement. They must be clearly stated in the contract and agreed upon by both parties before the contract is formed. These damages are used when actual losses are difficult to calculate or prove. A healthcare example of liquidated damages would be a contract between a hospital and a medical equipment supplier for MRI machines. The contract might include a clause stating that if the supplier fails to deliver and install the equipment by a certain date, they must pay the hospital $2,000 for each day of delay. This amount is agreed upon in advance because delays could disrupt patient scheduling and diagnostic services, but the exact financial loss would be difficult to calculate. 

Courts or juries could also award punitive damages. Punitive damages are a type of monetary award that may be granted in civil cases when a party’s conduct is especially harmful, reckless, or intentionally wrongful. Unlike compensatory damages, punitive damages are intended to punish the wrongdoer and deter similar conduct in the future. If the breach occurred due to fraud, bad faith, or intentional misconduct, this might be available. The amount awarded varies.

Contact An Experienced Healthcare Litigation Attorney 

Breach-of-contract litigation in healthcare is a complex and high-stakes area of law. Whether arising from non-payment, improper termination, or violation of restrictive covenants, these cases require careful legal analysis and a deep understanding of both contract law and the healthcare industry. Given the complexity and potential impact of these disputes, early legal intervention is often critical. Contact an experienced healthcare business litigation attorney early to evaluate claims and enforce contractual rights, or to pursue a fair resolution.