Contract Disputes Between Hospitals and Physicians

Contracts between hospitals and physicians establish the terms of employment, responsibilities, and compensation. Despite careful drafting, disputes can arise over issues such as payments, duties, performance metrics, or regulatory compliance. Understanding the common causes of these conflicts, their potential consequences, and strategies for resolution can help the parties resolve or avoid disputes altogether. Here is what physicians and hospitals should think about when entering into contracts. 

Why Contractual Disputes Occur

Contract disputes arise for many reasons. These are some of the most common:

Ambiguous Duties and Responsibilities

Physician contracts typically outline a wide range of obligations, including patient care responsibilities, administrative tasks, participation in hospital committees, and on-call coverage. However, when the language in these contracts is vague or overly general, it can create differing interpretations between the physician and the hospital. What one party views as a suggested or optional task, the other may consider a mandatory duty. For example, a contract may state that a physician is expected to attend departmental meetings or participate in quality improvement initiatives, but without clear definitions of frequency or scope, disagreements can arise. These ambiguities can lead to misunderstandings and disputes that affect workplace relationships and patient care. 

Changes in Hospital Operations or Policy

Hospital operations and policies are continuously evolving to respond to financial pressures, regulatory requirements, patient needs, and advancements in medical care. These changes can take many forms, including mergers and acquisitions, organizational restructuring, expansion or reduction of service lines, implementation of new technologies, or updates to clinical protocols and administrative procedures. These changes can directly impact physicians by altering their workloads, responsibilities, work schedules, staffing support, or access to essential resources and equipment. When physician contracts or agreements do not explicitly define how these operational changes will be addressed, interpreted, or compensated, it can create ambiguity and potential conflict between the hospital and its medical staff. Without clear contractual guidance, these operational changes may lead to disputes over duties, compensation, or job security. Clearly outlining how hospital policy and operational changes are managed in physician agreements is essential to minimize misunderstandings.

Compensation Disagreements

Compensation arrangements between hospitals and physicians in employment agreements can be complex, often combining base salaries, productivity bonuses, profit-sharing, and other incentive programs. These layered structures can lead to confusion or disputes if the terms are not clearly defined or if expectations differ between the parties. Conflicts frequently arise when physicians believe they have not received payments in accordance with the contract or when hospitals modify incentive programs without obtaining mutual consent. Even small discrepancies in calculating productivity bonuses or profit-sharing percentages can escalate into significant disagreements. Differences in interpreting performance metrics, such as patient volume targets, procedural counts, or quality measures, can further complicate matters, as each party may have a different understanding of what constitutes meeting contractual expectations.

Termination and Non-Compete Disagreements

Physician contracts typically include clauses addressing both termination and post-employment restrictions, such as non-compete, non-solicitation, and confidentiality provisions. Termination clauses define the conditions under which either party may end the employment relationship, including voluntary resignation, retirement, performance-related termination, or termination for cause. Disagreements often arise over whether proper notice was provided, whether the termination was justified, or whether contractual obligations, such as severance, bonus payouts, or repayment of signing or relocation incentives, are enforceable. Non-compete clauses are another common source of conflict.

These provisions restrict a physician’s ability to practice within a certain geographic area, for a defined period, or with certain competing organizations after leaving the hospital or practice. Disputes frequently focus on the scope, duration, geographic reach, and overall enforceability of these restrictions. Physicians may argue that overly broad or restrictive non-compete clauses unfairly limit their ability to continue practicing medicine, pursue career advancement, or serve patients in their community. Conversely, hospitals and medical groups seek to protect their legitimate business interests, including established patient relationships, proprietary information, trade secrets, and investment in physician recruitment and training. These disagreements can lead to legal challenges, negotiation of settlement terms, or arbitration, depending on the language of the contract and applicable state laws.

Preventing Contract Disputes

Disputes stemming from contracts cannot be completely avoided. However, here are some tips to be proactive:

Use Clear, Unambiguous Language Whenever Possible

Often, disputes arise over the language used in contracts. It is never a bad idea to be very specific about what terms mean. Contracts should clearly define:

• Compensation formulas
• Call schedules
• Duties and administrative expectations
• Termination rights
• Renewal processes
• Performance metrics
• Malpractice coverage
• Billing and coding responsibilities

Frequently Review the Contracts

Periodic contract reviews are essential to ensure that agreements between hospitals and physicians remain aligned with each party’s expectations. This includes:

• Clarification of roles and responsibilities: Over time, duties and expectations can shift. Periodic review allows both parties to clarify responsibilities, reducing the risk of disputes.
• Updating compensation structures: Productivity metrics, bonuses, or incentive programs may need adjustment to reflect market trends, service volume, or quality metrics.
• Assessment of termination and renewal clauses: Reviewing notice periods, renewal provisions, and termination triggers helps both parties understand their rights and obligations, avoiding unexpected disputes.
• Evaluation of restrictive covenants: Non-compete, non-solicitation, or non-interference clauses may need updating to remain enforceable and reasonable.
• Documentation of agreed changes: Regular reviews provide an opportunity to formally document modifications, preventing reliance on verbal agreements or assumptions.

The Role of Healthcare Litigation Attorneys

Many disputes begin with something that appears small. Physicians and hospitals often assume they can resolve the issue informally, without legal guidance. However, seemingly minor disputes can escalate, and the absence of an attorney can impact the outcome. Without the guidance of a healthcare business litigation attorney, one party can send an emotional email, sign an amendment without full understanding, or admit fault. Engaging a healthcare litigation attorney early can ensure that minor problems are resolved quickly and efficiently, and ideally without the need for litigation. If litigation is needed, represented parties are often in a better position because they received guidance early on in the dispute.