Locum Tenens Contracts: What Doctors Need To Know

Overview

In recent years, locum tenens placements have grown substantially due to the critical shortage of healthcare providers in the United States.  Hospitals and clinics are increasingly turning to locum tenens physicians to fill the gaps in their staffing needs to maintain continuity of care and ensure patient access.

Physicians seek locums work for a variety of reasons.  The benefits include flexibility, independence, travel and potentially higher pay.  However, this freedom comes with a lack of stability and job security.  A well-crafted locum tenens agreement can remove some of these drawbacks, while maximizing the benefits of a locums position.

How It Works

Though in some instances a hospital will contract directly with a physician to fill a locum tenens vacancy, typically the hospital will engage a third party healthcare staffing agency.  These companies specialize in locum tenens staffing – locating and contracting with physicians who meet the needs of the healthcare practices they represent.  These agencies handle all aspects of the placement process – they negotiate the employment contract and compensation, handle licensing, credentialing, and malpractice insurance, and provide travel support (transportation and lodging) for the physician.

What to Watch Out For

If you are interested in pursuing a locum tenens opportunity, there are several important things to keep in mind as you work through the process.  First, and most importantly, keep in mind that the locums agency represents the hospital, and is being paid by the hospital to meet its needs and protect its interests.  What is best for the provider may not always be best for you.  You cannot expect the agency to protect your interests or assume that it is acting in your best interest.  This is important to remember when evaluating compensation, insurance, individual liability, and other aspects of your contract.  Here are the most common contractual issues to consider:

Non-Competition Agreements

A non-competition agreement is a restrictive covenant in which the contracting physician agrees not to engage in employment as a physician in direct competition with his current employer for a certain period of time within a defined geographic area.  In the context of locum tenens employment, two terms are standard in a majority of contracts.  First, the contract will likely contain an agreement that you will not accept a permanent position with the provider for a period of time following the expiration of your contract unless the provider pays a “recruitment fee” to your locums agency.  Second, your contract will also likely contain a clause in which you agree not to work with same healthcare provider through another locums agency for a certain period of time after your contract expires.

Though these terms are standard, be sure to read the language carefully.  The terms of non-competition agreements are generally dictated by their duration (the amount of time the agreement is effective) and their geographic area (the area in which the agreement is effective).  Be wary of agreements that are overly broad (i.e. prohibit you from working in an entire city or county) or excessively long (i.e. more than two years).

Malpractice Insurance

Malpractice insurance coverage is a standard term in locum tenens contracts, but the terms and coverage limits can vary. Locum tenens medical malpractice insurance policies typically have a twelve month term and have a “$1 million/$3 million” coverage limit.  This means that the insurer will cover up to $1 million of a single claim and an aggregate total of $3 million over the life of the policy.

The two basic types of malpractice insurance policies are occurrence policies and claims-made policies.  Occurrence policies provide coverage for claims that occur at any time during the policy period, regardless of when the claim is reported to the insurance company.  Occurrence coverage is the broadest type of coverage available, and as a result, it is also the most expensive.  It is so broad, in fact, that it is rarely offered for medical malpractice insurance because of the long-term financial exposure it creates for the insurance carrier.

Claims-made policies are far more common in the modern medical setting. These policies provide coverage for claims that are made on or after the specified retroactive date of the policy, up until the policy’s expiration date.  If your contract calls for a claims-made policy (which is likely) it is important to ensure that it includes “tail” coverage.  Because these policies only cover claims made during the term of the policy, tail coverage is necessary to protect you financially for any malpractice claims made after the policy period ends for incidents that occurred during the contract.

Your locum tenens contract may provide for you to be covered under the hospital’s malpractice policy, or it may require you to provide proof of insurance through your own individual policy.  Make sure to know what your obligations will be ahead of time, as malpractice insurance can be a significant cost that may impact your decision on a particular locums position.

Individual Liability

Medical malpractice insurance will protect you as a physician in the execution of your job responsibilities as a healthcare provider.  However, it will not protect you from individual liability for legal issues outside the scope of your medical practice, such as a dispute related to your locum tenens contract.  The formation and use of a business entity for the purposes of contracting as a locum tenens physician can significantly limit your individual liability in the event of a legal dispute regarding your employment contract.  With the assistance of an attorney, you can structure your locum tenens contract so that the staffing agency is effectively contracting with your business entity (such as through a professional limited liability company or professional corporation) rather than you as an individual.  In the event of a contractual dispute, only your business entity’s assets will be exposed to liability and your personal assets will be largely protected.  The use of a business entity for work as a locum tenens physician may also have significant tax advantages, so you should consult with both your attorney and your accountant to determine what entity to use.

Compensation

The majority of locum tenens physicians are paid a daily rate.  This rate varies depending on the medical specialty and demand, and compensation is largely driven by market forces.  For example, a neurosurgeon needed at a rural hospital will command a much higher daily rate than a family physician needed at a suburban private practice.  However, medical specialty tends to have a much greater influence on compensation than geography.

It is important to remember that these rates are not set in stone.  You will have the ability to negotiate your rate before you make the decision to accept the contract.  There may be other elements of your compensation other than your base rate that may be negotiable as well, such as rate premiums for weeknight or weekend on-call, long shifts, and longer work weeks.  In some circumstances, you may be able to collect a portion of your billed charges.

Termination

Given the nature of locum tenens work, both parties enter into the contract expecting that it will end at some point.  Having said that, you do not want to be in a position where your contract is suddenly terminated and you are left without an income stream until you can find a replacement position, nor do you want to be in a position where you are required to work for months in a position that you want to leave.  You should review the termination procedures in your locum tenens contract to ensure that you are provided with adequate notice and remedies, and also that you are not locked in for a longer term than you want.  In most instances, thirty days’ notice of termination from either party serves both of these goals, but work with your attorney to determine what notice period works best for you.

Choice of Forum/Law

It is very important to ensure that your contract provides that in the event of a dispute, your home state law applies and the forum for the dispute will be the courts of your county of residence.  Many third-party staffing companies are located outside of Arizona, and the nature of locums work is such that many opportunities are in other states.  If a dispute arises, you do not want to have to litigate the dispute in an inconvenient forum in another state.  Forum selection and choice of law clauses are negotiable terms, and should be part of the negotiation process.

Locum tenens work can be rewarding.  However, because of the unique risks and issues associated with working as a locum tenens physician, the contracts can expose you to unnecessary liability and avoidable costs.  Therefore, if you are interested in pursuing locum tenens work, you should have any contract reviewed by experienced legal counsel.