As the Locum Tenen market continues to grow with new agencies, new clients, and new providers, it is important to understand the contracts that enable and control these relationships. These contracts create intended and unintended liability for both parties, open corporate liability, alter insurance exposure, create undue regulatory pressure, and be used as leverage against the Locum Tenen industry. As an insurance broker representing agencies, I have reviewed many managed service provider/vendor management system (MSP/VMS), client, and provider contracts. While the wording in these contacts varies significantly, and it would be impossible to point out all the differences in the various contracts, there are some consistent themes throughout Locum Tenen agreements. This article is the first of a two-piece introduction to a generalized overview of contracts used in the Locum Tenen industry. After the two-part introduction, future articles will dive further into provisions typically included in these contracts. For starters, important worker-status and insurance elements of contract review relevant in the Locum Tenen industry are:
- Employee Status Provisions – The specific words in a contract are important to head and manage. Some of the key words to watch for are:
- Any type of “control” language – While the qualifications of an independent contractor varies by venue, determining who controls the work will nearly always determine if a provider is an independent contractor or an employee of the agency. If the agency controls the work of a provider, a regulatory body, such as the Department of Labor, the IRS, or an alternative party, may use that control to establish that the provider is partially or fully an employee of the agency where agency employment status was not intended. This is of paramount importance as courts continue to find joint employer status with increasing frequency. When reviewing your own contracts or those required by third parties, it is imperative to strike or modify any language that insinuates the agency has control over the provider. Look for verbiage that requires an agency to “ensure,” “direct,” or “require” a provider to do or not do something. An agency may not practice medicine, control the practice of medicine, or control the medical providers it places. All variations of this type of control language can be used to demonstrate agency control over a provider and expose the agency to liability and unwanted regulatory consequences.
- Any Language that References the Provider as an “Employee” – Many of the more sophisticated provider and client contracts drafted by a Locum Tenen agency or a VMS/MSP’s are careful to avoid referencing the provider as an employee. Other client or government facilities at times use form documents recycled from permanent placement contracts or nurse staffing contracts that use the term “employee” when referencing the Locum Tenen provider, rather than using some other defined term such as “provider” or “independent contractor.” This type of wording is extremely detrimental to the Locum Tenen agency. Referring to providers as “employees” within a contract creates blurbs, or sound bites, that can be taken out of the context of a particular contract and used to create the existence of a relationship that was not intended. Facilities typically acquiesce to changing the word “employee” throughout a contract and this simple edit could preserve the integrity of your entity and relationship status
- Insurance Provisions – Insurance provisions are included with most, if not all, contracts. The most common requirements are:
- Professional Liability
- Limits of liability – It is very common for the client and provider to require that you will maintain $1,000,000/$3,000,000 limits of liability. However, if you are placing providers in multiple states, it is paramount that you check the limits of liability your policy provides in each state. For example, if you are placing providers in Virginia, your limits are likely the statutory minimum of $2,200,000/$6,600,000. In Kansas, the limits your policy provides are likely $200,000/$600,000 due to the compensation fund. In the event of a malpractice claim, failing to maintain the contractual limits in every location may be regarded as a breach of contract that triggers several negative repercussions. It is noteworthy that this could be the case even if you provide more coverage than the contractually required amount. Accordingly, when a specific limit of liability is contractually required, it is prudent to add a provision similar to “unless higher or lower limits of liability are required by a state, regulatory body, or industry best practices” after the stated limits of liability.
- Type of limit – Typically, depending on the state of placement, your existing policy will have a “per claim” limit rather than a “per provider” limit. If we continue with the same policy limit examples used above, a “per claim” limit simply means $1,000,000 of insurance is available for a particular claim, regardless of the number of providers you place or are named in a claim. As a comparison, if you have a “per provider” limit, you have $1,000,000 for every provider named in a claim. So, on a “per provider” limit, for every provider you place, you could have $1,000,000 available for each claim. Some contracts will specifically require a “per provider” limit or a “per claim” limit. Accordingly, it is important to check and ensure the limits of liability of your policy correlate with the limits of liability your contract requires.
- Rating of carrier – Many Locum Tenen contracts require a minimum “A.M. Best” rating of a carrier. If you believe you will ever self-insure via a risk retention group or captive, be wary of this provision because your self insurance vehicle may not earn this rating unless further, costly, steps are taken. Further, it is worth ensuring that your carrier meets the rating requirements of the contract.
- Extended Reporting “Tail” provisions – Most contracts require a policy in force continuously throughout the term of the contract or the purchase of an “extended reporting endorsement,” commonly referred to as a “tail.” A tail will continue coverage if you do not have a current “in force” policy. The term of a tail required by a contract can be silent, limited to a specific time period (typically a statute of limitations), or for an unlimited time period. The tail policies offered by insurance carriers are offered by the number of years and many carriers cannot offer the unlimited term policies described in some Locum Tenen agreements. Therefore, it is important to verify that you can provide the tail duration required by the contract. As an aside, tail policies can be negotiated with most carriers and some carriers offer “stand alone” tail policies even if they were not the original carrier.
- Workers’ Compensation – Many agreements require workers compensation coverage for “your employees.” If that is the case, there is nothing harmful with providing workers’ compensation for your employees, such as your recruiters and company management. Other contracts require workers’ compensation insurance for the providers. Providing workers’ compensation for providers can be used as evidence that providers are employees, rather than independent contractors. Accordingly, all provisions requiring workers’ compensation for providers should be removed.
- General Liability – Many contacts will require you to carry General Liability insurance. These contract requirements differ in that some contracts require general liability for your company and some require general liability for the company and for the providers while on assignment. Policies covering the providers can only be purchased via a “stand alone” commercial general liability policy or by adding the general liability to a professional liability policy. It is important to identify the contractual requirements in order to maintain compliance.
- Errors and Omissions (E&O) – Technically speaking, medical professional liability insurance, or medical malpractice insurance, is E&O insurance. However, there are policies that are specifically designed for the errors and omissions of the agency itself (some of this exposure is usually contemplated in your medical malpractice insurance.) Unfortunately, many times contracts will require you to maintain E&O insurance and they are really referring to medical malpractice insurance. If you are negotiating a contract requiring E&O coverage, the contract should specify if the requirement is for medical professional liability insurance or to E&O for your agency.
- Directors and Officers Insurance – These policies can provide extremely broad protection for Directors and Officers of the company against suits directed at company management. Locum Tenen contracts rarely require Directors and Officers insurance; however, it may be prudent to ensure your company management is adequately covered contemporaneous to executing a new provider agreement.
- Professional Liability
The points above are merely a summary of the commonly onerous provisions regarding worker control and status verbiage and insurance provisions. In Part 2 of this series, we will continue to address important common contractual requirements that can adversely impact your Locum Tenen organization and its liability.
In the meantime, if you have any questions, please feel free to reach out to me directly or review the additional information at http://www.locumsmalpractice.com.
Timothy E. Sheridan, J.D.
866-578-3161
tim@igaholdings.com
http://www.sheridanliability.com
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