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Protect Your Practice With Essential Contract Terms
Business relationships require written documentation
By Bruce D. Armon
“You don't write because you want to say something, you write because you've got something to say.” F. Scott Fitzgerald |
Think about the number of business arrangements in place for you and your practice. You might have an outside billing service. You might have an administrative role at your local hospital. You have a host of medical and office supply vendors. You have participating provider agreements with multiple third-party payers. You might have professional and non-professional employees. You might be leasing office space from a landlord, or you might be a landlord yourself.
It is critically important that you take the steps to protect you and your practice. While a firm handshake and direct eye contact might instill good feelings between you and the other contracting party, you need more than that today to ensure the likelihood of a productive long-term relationship. It is imperative that you have executed contracts in place. Set forth below are five things to consider before you execute a contract – regardless of the type of contract or the previous (or current) relationship you have with the other party.
What am I getting, or giving?
In its simplest form, a properly drafted contract protects each party’s rights, responsibilities and expectations. The contract should clearly state its objective(s) and the obligation(s) of each party to fulfill these goals. There should be no surprises. The agreed-upon business terms should be reflected in the actual document.
If there is a subsequent dispute that uncovers an inconsistency between your expectations and the executed contract, there is a very strong likelihood that the terms of the executed contract will prevail.
How do I get out of
the arrangement?
Most of us do not consciously enter an arrangement with the intention to end it thereafter. However, because nothing can be guaranteed to last forever, it is appropriate and important to understand how you and the other party can end the arrangement.
The first issue to consider is whether the contract has a defined term, or it lasts indefinitely unless it is terminated as provided in the contract. If the former is true, you need to understand whether renewal terms are available and, if so, whether the terms are different than the original terms. If the contract continues indefinitely, you also need to understand when, and how, the terms of the arrangement might change in the future.
A well-drafted contract should include explicit termination provisions – both “for cause” and “without cause”. In the latter situation, typically either party can end the relationship, provided that it gives the proscribed amount of notice. Alternatively, one or both parties might have the opportunity to terminate a relationship “for cause” if certain clearly delineated events occur or do not occur. It is important to understand whether you and or the other party gets a second chance – a so-called cure provision – to correct the transgression before the “for cause” termination takes place.
Can a substitute party become involved in the arrangement?
Most of us enter into a business relationship with another party because we trust and respect that party. However, you can pick up a newspaper almost every day of the week and see that one company merged with another, or a community hospital was acquired by a bigger conglomerate. How do you know if you will have that same comfort level with the entity that just acquired the party with whom you have an executed contract?
You probably do not know, but most contracts include an assignment provision that maintains the contractual relationship even if one of the parties is sold and acquired by a new entity. It is important to make sure you have some ability to terminate the relationship irrespective of whether an assignment provision is triggered so that you have the necessary flexibility to run your business as you see fit and contract with the parties with whom you are most comfortable.
What are the payment terms?
No one wants to overpay for services received, or be underpaid for services performed. You need to understand the frequency with which you will be paid (or have to make payments) and the prerequisites that must be satisfied.
Does the agreement provide any penalties if payment is not received by a date certain? Conversely, are there “bonus” opportunities if certain objectives are fulfilled? Depending upon the arrangement, a bonus or penalty provision could be significant.
Performance goals should be clearly delineated to minimize confusion and uncertainties. Make sure the goals are attainable, or they will be illusory and you will not have any opportunity to earn that “bonus”.
While money is not the root of all evil, misunderstandings and misconceptions regarding payment issues can leave each party’s expectations unfulfilled and can irreparably damage an otherwise satisfying professional relationship.
What do I do if I do not understand certain clauses in a contract?
First and foremost, do not sign the contract. It is imperative that you speak with someone who can explain the particular language and the potential ramifications to you and the other party. There is no such thing as “filler language” in a contract.
If the contract is drafted properly, every paragraph, every sentence and every word is drafted for a particular reason. Imagine two contracts. The first contract states that a contracting party “shall” take the following steps. The second contract states that the same contracting party “may” take the following steps. The language in the first contract requires those actions, while the second contract makes those provisions optional due to the substitution of “may” for “shall”.
Once you sign the contract, it is likely going to be too late for you to argue that you did not understand what you signed. As a physician you are trained to ask additional questions and consider various scenarios. Take the extra time to understand the implications of particular language and consider whether the language needs to be amended before it is executed to better protect your interests or expectations.
Well-drafted contracts will protect you. Use and revise the contractual language to your advantage. To analogize F. Scott Fitzgerald’s quote above, a contract is written because the drafting party has something it wishes to say to protect itself. Do not be lulled into the false premise that the contract must be signed as presented to you in order for you to fulfill “This Side of Paradise”, or conversely that you should stubbornly adhere to certain one-sided contractual provisions and live a life like the fictional Jay Gatsby who is driven only by greed and ambition. A contract can – and should – protect both parties.
Bruce D. Armon is a partner in the health care group of the law firm Saul Ewing LLP. Mr. Armon frequently speaks to physician groups regarding regulatory, transactional and compliance matters. He can be reached at barmon@saul.com or 1-800-355-7777, x7985.
