Seeking a relaxed life, the doctor signs on with a rural hospital where he will share ER call with two other urologists. But then the two leave.
When Dr. R, age 33, finished his urologic residency and went in search of a location to settle down, he selected a community hospital in a rural area. He was attracted because the hospital already had two urologists on the staff, and he was assured by the hospital administrator that the ER call was on a rotating basis. The other urologists, al-though not in practice together, did take call for each other as necessary and convenient. He even met briefly with the two, who seemed fairly friendly, even though he was coming into town as their competition.
Dr. R signed a two-year contract with the hospital for a guaranteed minimum income, plus an incentive payment and moving allowance. For the first three months in his new situation everything went smoothly. He shared call with the other urologists, had time to pursue his love of fishing, and life was good. Then the other urologists dropped a bombshell. They were moving to another state.
Dr. R was soon stuck taking solo call for the hospital. His income went up so much that he no longer needed the guaranteed minimum payments, but the psychological price was considerable: his hours were long and unpredictable, and his evenings not his own. After six months of strain, he had had enough. But when he asked the hospital administrator to let him out of the contract, he was bluntly told, “You can leave anytime, but you have to pay us back what we have given you over the past year. Plus interest. We advise you to check with your lawyer.”
Dr. R did just that. his lawyer told Dr. R: “Oh, yes, I’m familiar with this contract; in fact, the other lawyer in town drew it up for the hospital. We call it the Catch-22 Contract: you can check out any time you like, but you can never leave.” Dr. R was not amused, and instead felt trapped and deceived.
Off to a new life
Despite the warnings from his local lawyer and the hospital, Dr. R pulled up stakes and moved out of state to join a large group in a sprawling urban area. Although he liked the area less, he liked the call schedule more, since it was 1 pm-7 pm. But stress soon returned to his life, this time in a form of litigation. The rural hospital sued for “breach of contract,” and demanded $102,000 back to compensate it for the guaranteed payments and moving expenses.
Dr. R contacted the lawyer in his prior community, and asked him to represent him in the defense of this claim. “Sure,” said the lawyer, “Just send me a check for $25,000. Money fixes almost anything.” With the check safely in his bank, the lawyer filed an answer to the lawsuit, claiming that Dr. R had been induced to enter into the contract through “fraudulent inducement” by the hospital administrator, who had assured him that the other urologists would be available to share call with him, even though he knew that they would soon be leaving town.
A week later, after some conversations with the lawyer for the hospital, Dr. R’s lawyer called him. “Bad news, I’m afraid. The hospital has applied to the court for summary judgment.” If this request were granted, it meant that the judge would review the contract and give the case to the hospital immediately unless Dr. R could raise other relevant issues.
At considerable expense and inconvenience, Dr. R attended the hearing on the request for the summary judgment. After Dr. R presented his side of the story, the administrator testified that he had no foreknowledge that the other urologists would leave. After hearing the oral arguments, the judge examined the contract and ruled in favor of the hospital, granting them $102,000 plus interest. Dr. R made his way back to his new job out-of-state, considerably poorer and chastened.
Legal background
Contracts are generally enforced exactly as written unless evidence indicates that there is
a “defense to the formation” of the contract, such as fraud, a mistake, impossibility of performance, or illegality. In the above case, Dr. R admitted signing the contract for guaranteed payments, but proposed the defense of “fraud in the inducement,” alleging that statements were made that were known to be untrue at the time in order to induce him to sign. The judge found insufficient evidence for this assertion and let the contract stand.
Risk management
Physicians signing contracts with hospitals and other large institutions are at a disadvantage. While the institution has negotiated many such contracts, and has lawyers on the payroll adept at wording them to the institution’s advantage, the new physician is inexperienced in legal matters and may take the contractual provisions on trust or not fully understand their implications.
The first defensive step is the obvious one: the realization that the physician is at a disadvantage in the negotiations and therefore must be cautious. The next step is to have a business lawyer familiar with such contracts review the proposed agreement and point out the legal consequences of various provisions. A prudent third step is to consult with physicians who have gone through the same experience, especially with the same institution.
Taking these cautionary measures may not avoid contractual disputes and other unexpected events, but usually will raise enough red flags to encourage further investigation. In the above case, talking with the other urologists at length might have led to the suspicion that they were about to leave. Dr. R could then have included a contingency clause for cancellation of the contract if the other physicians left town, as actually happened.