Important Features of Medical Director Agreements

A medical director plays a central leadership role in ensuring the quality, safety, and professionalism of healthcare delivery within an institution. They oversee clinical leadership, quality, safety, and compliance within a healthcare organization and must address concerns both within and outside the institution. Due to their unique role within healthcare organizations, medical director agreements can be more complex than physician contracts. Here is what the employer and employee should consider when drafting and negotiating a medical director agreement.

How Medical Director Agreements Differ From Other Physician Contracts

A medical director agreement is a formal contract between a healthcare organization and a licensed physician who serves as the Medical Director. This agreement defines the physician’s roles, responsibilities, and compensation, among other things.

While medical directors are physicians, their role within the institution requires different contractual considerations. For instance, medical director contracts emphasize administrative, supervisory, and leadership responsibilities.

Medical Director Agreements are typically designed to ensure compliance with state and federal regulations, particularly when a healthcare organization is owned or operated by non-physicians, such as a medspa. These agreements often address requirements such as Corporate Practice of Medicine laws, which mandate that a licensed physician provide appropriate clinical oversight.

Most Important Features of Medical Director Agreements

A well-drafted medical director agreement protects both parties by eliminating ambiguity and clearly defining each party’s responsibilities to the other. These are some of the most important features of medical director agreements to consider:

Clear Definition of Roles and Responsibilities: There should be a detailed description of the medical director’s duties. Avoid vague or overly broad job descriptions. Provide clarity on duties such as developing and implementing clinical policies and protocols, supervising or collaborating with medical staff, participating in quality assurance programs, and advising on regulatory compliance and accreditation requirements.
Time Commitment and Availability: Specify the expected time commitment. The agreement should clearly outline expected hours per reporting period and whether services will be provided on-site, remotely, or both. It should also address on-call or emergency availability, if applicable, and requirements for tracking and documenting time.
Compensation Structure and Fair Market Value: How and how much is paid should be clear. Key features include the structure of payment, such as an hourly rate, a monthly stipend, or an annual fee, and the method for calculating it. Agreements should also specify any maximum compensation limits.
Performance Standards and Evaluation: If the agreement specifies how performance will be evaluated, it should include clear metrics. Examples of performance evaluation include setting quality benchmarks or goals, requiring participation in committees, and conducting periodic performance reviews. Both parties should be clear about what is expected.
Term and Termination Provisions: The agreement should clearly define its duration and the conditions under which it may be terminated. There may be a fixed term listed with options for renewal. Termination provisions typically address termination for cause, such as loss of license, breach of agreement, or misconduct, as well as termination without cause with advance notice. The types of conduct triggering termination should be clear.
Scope of Authority and Decision-Making Power: Avoid conflict and confusion by spelling out the medical director’s authority and the power they have to make decisions. The agreement should explicitly state whether the medical director has supervisory authority over clinicians and outline any limits on their decision-making power. It should also define the reporting structure, detailing to whom the medical director is accountable and how they interact with other leadership roles. Additionally, the agreement should clarify the medical director’s relationship with executive leadership.
Conflict of Interest and Non-Exclusivity: Medical director agreements should proactively address potential conflicts of interest. Physicians may hold other professional roles, investments, or affiliations that could influence their decisions. Common provisions include disclosure of financial interests, restrictions on self-dealing or competing arrangements, and non-exclusivity clauses permitting other professional activities when appropriate.
Amendment and Assignment Provisions: Medical director agreements should specify how amendments can be made and whether the agreement may be assigned to another party. Key considerations include requiring written consent from both parties for any changes and placing restrictions on assignment without approval. The agreement should also address the impact of mergers, acquisitions, or changes in ownership.

Actions To Be Taken Before Signing Medical Director Agreements

It is best to consider the contents of the medical director agreement before either party signs. Before a medical director agreement is signed, the parties should take the following action:

Seek Professional Advice Early:
Engage experienced legal, financial, and compliance professionals at the beginning of negotiations. Early guidance helps identify regulatory risks, clarify complex provisions, and structure agreements that are both compliant and strategically beneficial to the employer or employee.
Thorough Review of Agreements:
All healthcare agreements should be carefully reviewed by qualified legal counsel before signing. A detailed review ensures the contract protects professional interests, clearly defines obligations, and complies with applicable federal and state healthcare regulations.
Understand Legal Structures and Terminology:
Healthcare professionals should be familiar with key legal terms and common contractual models. Understanding these terms helps prevent costly misunderstandings related to liability, compensation, and control.
Conduct Due Diligence on Ownership and Control:
Physicians must understand state-specific laws governing medical practice ownership, including restrictions on the corporate practice of medicine.
Confirm Fair Market Value and Compensation Compliance:
Compensation terms should be evaluated to ensure they reflect fair market value and comply with healthcare fraud and abuse laws.
Document and Periodically Review Agreements:
All negotiations, amendments, and expectations should be documented in writing. Agreements should be reviewed regularly to account for changes in laws, regulations, or business operations.

Consult an Experienced Physician Contract Attorney

Physician contracts have nuances, but given the medical directors’ job requirements, greater care is needed to ensure their appropriateness. Healthcare organizations and physicians alike benefit from carefully structured medical director agreements. Given the high stakes involved, medical director agreements should always be drafted and reviewed with experienced physician employment counsel.