COVID-19: Employers Cut Doc Pay and Bonuses: What's Your Recourse?

Leigh Page

April 21, 2020

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Employed physicians have had to take large pay cuts, give up bonuses, go on leave, and have even been terminated. In many cases, these actions violate their contract. How can they fight them?

Michael D., MD, a colorectal surgeon employed in a large surgical practice in Georgia, is still trying to make sense of a late-night directive from the practice, received in late March.

The practice had just started seeing a steep decline in appointments because of the COVID-19 pandemic. In a hastily arranged group phone call at 11:00 PM, the CEO told the group what would have to be done.

They would be taking a 50% reduction in salaries, their bonuses for work already done were being withheld, and they would have to use their paid time off (PTO) in order to get their full March salary.

"It's been over 2 weeks now, and still we've seen nothing formalized in writing," said Dr D., who asked that his name not be used, because he was told that, under no circumstances, should anyone talk to the media.

"They have not told us anything more since then," he said. "There's just been a lot of hearsay and speculation."

Dr D. has been in touch with employed physicians at other practices, and their experiences run the gamut. One doctor at a large multispecialty group said his salary hadn't been reduced at all, but a cardiologist was just told he will be laid off in 60 days.

Asking for Big Sacrifices

Just in the past few weeks, as the pandemic intensified, employed physicians have started to see massive changes in their payment arrangements. They have had to take large pay cuts, give up bonuses, go on leave, and have even been terminated.

"In my 11 years of work on physician contracts, I have never seen changes as drastic as these," said Kyle Claussen, a physician contract attorney and CEO of Resolve, a company that advises physicians on their careers. The company is based in Columbia, Missouri.

He has heard from more than 100 doctors about these proposed changes in their contracts and related matters. Even graduating residents, he says, are being told that the start dates for their new jobs will be delayed.

In many cases, these actions violate the employed physicians' contracts, says Ericka Adler, a physician contract attorney at Roetzel & Andress in Chicago.

"Some employers are acting out of desperation and are not making legally sound decisions," Adler said. "It's especially upsetting when they do not try to even talk to or work with the doctor first."

Employers Making Unfounded Unilateral Changes

Adler says some employers are simply issuing a letter to all doctors. "It goes something like, 'Just to let you know, we are cutting compensation, effective immediately,' and this may apply across the board to all doctors," she said.

"But the problem with letters is that this is a contractual matter," she said. "The employer needs to renegotiate each doctor's contract."

Employers might insist that the unilateral changes are based on terms in the contract, but this is usually unfounded, both lawyers say. A "force majeure" clause in contracts would allow the employer to set aside terms under certain specified emergencies, and the pandemic might be one of them. But Claussen says force majeure clauses are rare in physician contracts, and Adler says she has never seen one.

Lacking a force majeure clause, employers may try to turn to a common law doctrine that allows employers to set aside a contract when it is impossible to perform its terms, owing, for example, to "an unexpected intervening event." But this tactic is also questionable, says Adler, who also represents the employer's side of the contract. "This is a very high standard and unlikely to be satisfied," she says.

Employers Are Desperate to Amend Contracts

Lacking a cause to take unilateral action, many employers are desperately trying to amend their physician contracts ― the subject of the plaintive emails that employed physicians started receiving in mid-March.

"Doctors are trying to decide how they will react to these documents," Claussen said. "If they don't sign, they run the risk of being terminated." He is expecting termination letters for some of these doctors to start coming in 2 to 3 weeks.

In response to these amendments, "doctors want to reach out to their employers and see if something can be negotiated," he said. "Some employers have been amenable, but others have so far not been."

Adler says the amendments typically offer open-ended arrangements favoring the employer. "The document might call for a temporary pay cut until the employer thinks they can restore the old salary, but it is up to the employer to decide when that would be," she said.

Also, when the employer owes the physician for services already performed, the amendments don't promise to pay them the full amount owed, she says.

Adler advises doctors to ask for a provision that restoration of their original salary will occur at a definite point in time, such as 30 days after the organization is back at previous volume. And if the doctor is owed money, the doctor should ask for full payment ― and to sweeten that offer, allow the employer to pay the doctor back over a period, she says.

Just in the past month, employers have been pushing for several specific changes in doctors' employment status. Here are some changes that Claussen and Adler have been seeing.

Withholding Quarterly Bonuses

In March, just before quarterly bonus payments were due, employed physicians started getting notices that they would not get the bonus, Claussen says. This covered work already done, and it amounted to a lot of money because practices were busy then.

"Not paying bonuses is a very big deal, because they can make up to 50% of a physician's total compensation," Claussen said. He adds that unilaterally withholding those funds, without a change in the contract, is legally questionable.

In addition to these changes on past bonuses, he says employers are now trying to temporarily end bonuses going forward through the contract amendments. "It's not a good idea to sign this," he said.

Doctors Paid on Pure Production Are Left in the Lurch

As volume falls, some hospitals and practices are shutting down doctors' offices for all but emergencies, leaving their employed doctors with practically nothing to do. Doctors paid purely on their productivity are devastated by this change, because their income virtually goes to zero, Claussen says.

He says office shutdowns are particularly common for specialists, because hospitals have been stopping elective procedures during the pandemic, but they can also happen in primary care, which has seen steep declines in patient volume, too.

Having doctors on pure production means that employers can keep doctors hired without having to pay them, Claussen says. He has seen some employers try to shift more doctors into pure production through the amended contracts.

But Adler says having doctors on pure production is actually disadvantageous for employers in the current climate. The employer may end up being owed money because of advance payments they have already made to these doctors, she says.

In any case, both lawyers agree that doctors on a pure production model are in an untenable situation right now. Adler says they are not earning money but are still technically at work, so they cannot collect unemployment compensation, which would give them some income.

Forcing Doctors to Use Paid Time Off

To provide some pay for doctors who have no volume, many employers are forcing these doctors to use up their PTO days, which typically amount to about 4 weeks, Claussen says. "These doctors have no choice in the matter," he said.

Furthermore, while on PTO, they are being required to take call. Employers are still obligated to cover call, and there may not be enough doctors still working to fill the call schedule. But making doctors do this work on their time off may be a violation of the contract, Claussen says.

Terminating Physicians

Doctors who have little to do are often put on furlough. This means they don't get paid but they keep their benefits, Adler says. The next step, she says, is to lay them off, with the stated intention of rehiring them.

Once laid off, she says, they can get unemployment payments. "Unemployment payments may not be anywhere near what they were earning before, but they are better than not earning anything," Adler said.

In some cases, employers are just terminating them and are offering no prospect of rehiring them, she says. Adler says terminations can be a big problem for doctors. Physicians might have to repay a signing bonus, or they might lose their malpractice coverage, forcing them to buy a tail. They could also be subject to a noncompete clause, which would not allow them to practice in the area, she says.

Terminating without cause typically requires 60 to 90 days' notice, which both sides might use to negotiate some changes in the contract. But Adler says some employers are firing doctors with cause, and are using legally questionable reasons to do so.

"In most cases, these employers are grasping at straws," she said. As a result, she expects many fired doctors will file wrongful termination lawsuits. She thinks employers are better advised to negotiate with the physicians.

Delaying Start Dates for New Physicians

Typically, graduating residents and fellows signed with their new employers months ago and are ready to start working on July 1. But some employers are pushing back the start date for several months, Claussen says.

Claussen has been helping several clients in this situation. He says these delays are often a clear violation of the employment contract. Most contracts require an amendment to change the start date, he says.

Claussen says some employers have agreed to a new start date in an amended contract, giving the new physicians a solid date to work with. Not having work can be a real problem for graduating residents, who typically have to start paying off loans.

Now Physicians Won't Become a New Partner

Claussen says physicians who are up for becoming partner are now being told that the deal is off. With less money coming in, existing partners are not willing to share it with a new partner, and there is no work for a new partner.

"The promise to make them partner is usually a verbal promise, so it is much less likely to be a breach of contract," he said. "It is frustrating for physicians who were expecting to become partner."

What Can Physicians Do?

When employers present changes to them, physicians often feel their hands are tied, Adler says. In these dangerous times, they are expected to make sacrifices to keep the organization from going out of business.

Even if they wanted to file suits against their employer, "they can't go to court right now, because the courts are closed," Adler says. "Employers are banking on doctors not doing anything."

In most cases, however, doctors don't have to act right away, she says. "Just because you have not reacted to the new situation does not mean you accepted it," she said. "You can wait months, even years to file a lawsuit, depending on the state and the cause of action."

Adler recommends that doctors make it clear that they don't agree with the changes. An attorney experienced in physician contracts can review the changes being made and the amended contracts being offered.

Thank to recent federal changes, employers have to have some ways to continue paying physicians, Adler says. Medical practices with fewer than 500 employees can get loans from the federal government that would not have to be repaid if they met certain stipulations, such as hiring back all the employees they terminate, she says.

Claussen says physicians should resist the obvious dangers, such as a shift to a pure production salary, denying bonus payments for work already done, and forcing physicians you use up PTO days.

He also suggests persuading employers to postpone rather than eliminate payments. "Some employers have agreed to postpone payments until a date later in 2020 rather than eliminate them," he said. "The aim is that the organization will be back on its feet at that time."

Claussen says he is trying to limit the contract amendments to 1 or 2 months. Because the situation caused by the pandemic is so fluid, "this allows for flexibility," he said. "We can revisit the situation and come up with different changes."

Adler doubts employers would accept short-term changes with a definite end date, because such changes would not be in the employer's interest. But Claussen says one employer has agreed to reevaluate its contracts in June.

Both lawyers agree that many employers are trying to work with their physicians. "In 90% of the cases I have seen, both sides cooperate," Adler said. "Because of the situation, people are being much more conciliatory than they would have been."

Leigh Page is a freelance healthcare writer in Chicago, Illinois

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