Excerpted from The Biggest Legal Mistakes Physicians Make: And How to Avoid Them

Edited by Steven Babitsky, Esq. and James J. Mangraviti, Esq. (©2005 SEAK, Inc.)

Download Free 646 Page E-book: The Biggest Legal Mistakes Physicians Make and How to Avoid Them

Executive Summary

Termination of a physician’s employment can be very unsettling and difficult to handle for a physician, even if the physician employer terminates the employment. In many cases, the post-termination rights and obligations of both the physician employee and the physician’s employer are governed by a written employment contract. Additionally, a physician’s transition away from a former employer following termination may be affected or governed by either federal or state health care regulatory laws and regulations. Physicians must be cognizant of their rights, duties, and obligations as they exist under both a written employment contract and applicable federal or state laws and regulations so that they may avoid making mistakes that will generate additional and potentially serious legal consequences. Such mistakes and consequences may adversely affect a physician for years after an employment termination.

Mistake 1        Consulting Legal Counsel Too Late

Physicians often fail to understand all of their rights, duties, and obligations that may arise out of the termination of an employment relationship. Many physicians simply accept an employer’s termination of their employment and the employer’s explanation or interpretation of the physician’s duties and obligations following termination. By consulting legal counsel too late in the process, physicians may forfeit certain contractual rights or violate certain contractual obligations, fail to maximize their potential benefits (e.g., bonus and deferred compensation), or create legal consequences or statutory or regulatory violations that they otherwise could have avoided through consultation with legal counsel.

Action Step     Physicians should consult with experienced legal counsel as soon as they decide to terminate their employment relationship or discover that their employer is terminating the relationship.

Mistake 2        Failing to Understand and Recognize Contractual Rights and Obligations

Following termination of their employment, physicians often focus on obtaining new employment, moving their families to a new location, or simply trying to survive the shock of being terminated. However, one of the most critical issues for a physician in employment termination involves the physician’s ability to understand and recognize his or her contractual rights and obligations (or other rights and obligations if no written employment contract is involved). Physicians must be aware of the benefits to which they may be entitled based on their employment contract or relationship (e.g., the transition of their retirement plan and health insurance benefits, deferred and bonus compensation, and medical malpractice insurance policy continuation). Physicians must also be keenly aware of any post-termination obligations imposed on them by written employment agreements, such as the requirement to purchase “tail” insurance coverage or retroactive medical malpractice insurance coverage if the physician’s employer provided a claims-made medical malpractice insurance policy, as well as restrictive covenants (e.g., nondisclosure, nonsolicitation, and noncompete provisions in their written employment agreement). Physicians must also understand the basis for their termination. For instance, many physician employment agreements permit either the physician or the employer to terminate “at will” (meaning either party may simply terminate with appropriate notice) or “for cause” based on a material breach by one of the parties (e.g., loss of professional license by the physician, excessive malpractice by the physician, failure to pay compensation or benefits by the employer). In many cases, a physician’s post-termination obligations, such as purchasing tail insurance coverage or complying with a restrictive covenant, may be affected or nullified depending on the type of termination. Failure to be aware of and understand contractual or employment obligations, rights, and duties can have far-reaching and unforeseen consequences for physicians after termination.

Action Step     Physicians should ensure that they are aware of the applicable contractual rights, duties, and obligations under their employment agreements and seek experienced legal counsel to help them with such issues.

Mistake 3        Failing to Understand the Role of Medical Malpractice Insurance Policies

Employers often provide and pay for a physician’s medical malpractice insurance coverage as a benefit or condition of their employment. Termination of employment may result in termination of such coverage. Additionally, employment contracts may require physicians to obtain tail coverage for a defined period of time following termination if the policy covering the physician was a claims-made policy. If the physician’s employer has provided an occurrence policy, then the purchase of a tail policy may not be an issue. But physicians must ensure that in any case they have appropriate medical malpractice insurance coverage following termination, and that they have avoided creating gaps in their coverage history. Failure to obtain appropriate coverage may expose the physician to unnecessary liability and may also result in a breach of a post-termination obligation under the physician’s employment agreement.

Action Step     Physicians should ensure that they understand any requirements in their written employment agreements concerning medical malpractice insurance coverage and post-termination obligations.

Mistake 4        Improper Handling of Patient Medical Records

Physicians often fail to handle the transition of patient medical records in accordance with applicable state and federal laws and regulations, as well as medical record ownership provisions in written employment contracts. In many instances, physicians unknowingly violate contractual provisions and applicable state and federal laws and regulations by simply taking patient medical records with them from their former employer following termination. In many states, the physician who creates a medical record is deemed to be the medical records owner; however, medical record ownership laws often bestow ownership on a physician’s employer if the physician has an employment contract that states that the employer owns the patient medical records. Moreover, failure to properly inventory, transfer, or photocopy patient medical records can result in lost records, which in turn may result in violations of state medical record laws and regulations that require physicians to maintain patient medical records for a defined period of time. Also, mistakenly taking an employer’s patient medical records may result in allegations of theft or conversion of an employer’s property.

Action Step     Physicians must know and understand their statutory, legal, and contractual rights to patient medical records and should consult experienced legal counsel about whether they may take patient medical records with them following a termination.

Mistake 5        Failing to Understand Restrictive Covenants and Their Application

Many written physician employment agreements include restrictive covenants, such as noncompetition, nondisclosure, and nonsolicitation covenants. Generally, physician employment contracts define each party’s rights, duties, and obligations under these restrictive covenants, as well as the applicability of such covenants in a post-termination setting. In many instances, some portions of restrictive covenants in an employment agreement may not apply depending on the reason for the termination of the physician’s employment. For instance, some employment contracts state that restrictive covenants will not apply in the event the physician terminates the employment contract due to a material breach by an employer. Physicians must be aware of the potential applicability and enforceability of such restrictive covenants contained in their employment contracts, and should be particularly careful not to breach them.

Action Step     Because restrictive covenants often raise complex and complicated issues, physicians should consult experienced legal counsel about the potential applicability and enforceability of such covenants in a post-termination environment.

Mistake 6        Failing to Take Advantage of Available Benefits

Whether or not the physician has a written employment contract with the physician’s employer, the physician may be entitled to certain post-termination benefits and compensation. The physician may have earned deferred or bonus compensation that the physician’s employer is required to pay over a defined period of time following termination. Also, the physician may be able to transition certain life, health, or disability insurance policies on more favorable terms than the physician could obtain by purchasing new insurance policies. Physicians should also be aware of their rights to transfer or maintain retirement accounts, such as simple IRAs, SEP IRAs, and 401(k) plans. Failure to understand and properly handle benefits can result in severe financial loss for the physician.

Action Step     As soon as possible following termination, physicians should consult with a financial or benefits adviser and ensure that they have obtained all applicable summary plan descriptions and benefit plan documents from their former employers. 

Mistake 7        Failing to Properly Contact and Notify Patients

State laws and regulations often require physicians to contact and notify their patients of the relocation or termination of their practice. Failure to do so can result in disciplinary action being taken against a physician by the licensing board. Additionally, failure to properly contact and notify patients of the relocation or termination of their practice may expose physicians to claims for patient abandonment, which may carry with them exposure to both civil and regulatory liability. Physician employment contracts often contain provisions governing the terms and conditions upon which a physician may contact or notify his or her patients. Failure to comply with these provisions may expose the physician to claims of breach of nonsolicitation and noncompetition covenants by the physician’s former employer.

Action Step     Physicians should contact their state licensing board to obtain information concerning the appropriate notification to patients concerning the relocation or termination of their practice, and they should consult with experienced legal counsel concerning such issues.

Mistake 8        Forgetting to Notify State Licensing Boards of a Change of Address

State licensing boards generally require physicians to ensure that their practice and mailing addresses are current and properly updated in the event of a change. State laws and regulations often require physicians to notify state licensing boards of changes in their practice or mailing addresses within a defined period of time after such changes occur. Failure to do so may result in disciplinary action being taken against a physician’s license.

Action Step     Physicians should contact their licensing board to obtain information concerning changes of address and ensure that they provide change of address information to their state licensing boards in compliance with applicable state laws and regulations.

Mistake 9        Failing to Appropriately Transition Patient Care

While physicians often want to complete their termination process as quickly as possible, they should not overlook the fact that they are still professionally obligated to ensure appropriate transition of ongoing patient care. Failure to properly transition patient care, complete hospital rounds, review outstanding patient medical records, and finish required medical record documentation may expose a physician to myriad liabilities, including professional negligence, patient abandonment, and overpayment or false billing allegations.

Action Step     Physicians should ensure that they complete their professional obligations and properly transition patient care to other physicians if they will no longer be seeing patients.

Mistake 10      Failing to Properly Transition with Third-Party Payers

When physicians terminate their employment with one employer and transition to a new employer, they must ensure that they update information with third-party payers in order to avoid confusion as to how and to whom third-party payers should pay claims for professional services. Physicians who do not provide new billing information to third-party payers may find that claims for services rendered on behalf of a new employer are paid to a former employer. Physicians who fail to properly terminate or change their Medicare provider number following a termination may experience significant difficulty in getting paid for services rendered to Medicare beneficiaries at a new employer.

Action Step     Physicians should ensure that they provide change of address and location of service information to third-party payers, and in particular to the Medicare carrier in their state as soon as possible.


Physicians in a termination situation should be mindful of these mistakes and take appropriate steps as outlined to achieve a smooth transition during their post-termination phase. 

Written by:

Michael R. Lowe, Esq.

Peer reviewed by:

William F. Sutton, Esq.

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