The Basics of Healthcare Contracting: What Every Physician Should Know
The business of providing healthcare is one contract after another. A contract creates a legally binding obligation between or among parties; it provides for a remedy if one or more parties to the contract breach it. Not only does the contract provide for a legal remedy, but it defines the obligations of each party, it outlines each party's expectations and comprehension of the transaction. However, a contract must include certain requirements before it can be a legally binding document with legal remedies.
The fundamentals of a legally binding contract are:
- Legality of Object; and
- Written Document (oftentimes).
The offer and acceptance components are often referred to as the "meeting of the minds" or "mutual assent". This means that all parties to the contract must agree on the same deal, objectively. The parties' objective words and conduct are at the heart of determining if there is a "meeting of the minds". The offer has to be definite, complete and communicated so that the other party knows exactly what is being proposed. An advertisement and an opinion are not offers. The offer can be revoked at any time prior to a valid acceptance, provided the offeree (person receiving the offer) receives it. Acceptance of the offer creates a valid contract. For example, a company offers to sell a hospital real estate from at a certain price, but, concurrently the hospital offers to buy the same real estate from the company for the same price. Both offers are mailed at the same time and received. Even though the parties agree to the terms, there is no contract because there has been no acceptance of the two offers. Keep in mind that if the subject or purpose of the contract becomes illegal by some statute, rule or regulation before actual formation of the contract or thereafter, as it sometimes might in physician recruitment agreements due to Fraud and Abuse Laws, the parties no longer can form the contract or the contract is void.
The next requirement for a valid contract is consideration. Consideration is usually measured in the "price" or the exchange of money for services. Legally, attorneys know it as a legal detriment and a legal benefit. When one party performs a service, which they are not otherwise legally obligated to do, or they stop from doing something that they are legally allowed to do, then they have suffered a legal detriment. Conversely, when the other party enjoys the benefits of that forebearance to act, or action, then that party has received a legal benefit. For example, a physician relocates to the service area of the hospital and agrees to see patients from that area for a loan amount. The physician has done something they were not legally required to do, they have suffered a detriment, and the hospital has received a benefit for its service area. That is consideration.
Conversely, an example of a lack of consideration in a contract is a common clause that is found in physician employment contracts--the non-compete clause. If an employer has a non-compete clause in an employment agreement that is governed by California law and the relationship between/among the parties does not fall within the limited exceptions of sale of a business/practice, then the non-compete clause is illegal. The non-compete, by itself, is not consideration and is illegal. But, remember, the law will not protect a party from a bad bargain, the adequacy or inadequacy of the consideration or the price paid will not affect the formation of a contract.
The third requirement to a contract is the purpose of the contract must not be against the law. There are many examples of contracts, called exculpatory, that may be invalid because they are against public policy. Exculpatory contracts are those that excuse a party from alleged fault in advance and those that try to limit, in advance, liability for negligence. Many consent forms are exculpatory. Covenants not to compete are another widespread example of exculpatory contracts.
In certain cases, only written contracts will be enforced by the courts. Thus, a fourth requirement is to have your contract in writing. The Statute of Frauds requires that some types of contracts be in writing and signed by each party against whom the contract is sought to be enforced. Those contracts include contracts for the sale of land, for the sale of more than $500 worth of goods, and for transactions or activities that cannot be performed within one (1) year. Another issue with written contracts is the Parol Evidence Rule. That is when the court will not consider any oral agreements or negotiations made prior to the signing of the contract if the parties intend the written contract to be their full, complete and final agreement. A way to identify this, is to look at the "Miscellaneous" or "General Terms" section at the end of the contract and find the "merger" clause, which will state that the contract is intended by the party's to be their full, complete and final agreement. In these cases, before you sign the contract, make time to revise the contract to include all the terms agreed upon. However, evidence of fraud, duress, mistake or other circumstances affecting the validity of the contract will not be excluded by the court.
In order to prevent mistakes, misunderstandings, and to protect your general interests, retaining a qualified healthcare attorney who has experience with healthcare contracts is essential. Contact Kolah Law, P.C. to speak with an experienced healthcare attorney.