Restrictive covenants in physician employment contracts have been frowned upon for years by the American Medical Association. The courts aren�t wild about them either. Still they remain a fixture, perhaps even more so than in the past. "As more practices grow � from Dr. Smith and Dr. Jones to Dr. Smith, Dr. Jones and, say, eight associates � the practices become more savvy and see restrictive covenants as more important," said consultant John Pinto of J. Pinto & Associates, Inc. "They�re less shy about demanding them. It�s all about putting the organization�s interests ahead of the individual�s."

Whether the practice is large or small, however, no one benefits from covenants that are too restrictive. So, even as established doctors need to protect what they�ve already built, and new associates need to be free to build their own careers should their arrangements break up, both parties do better when considering the needs of each other.

Striking a balance

The following points offered by some of ophthalmology�s top consultants can help doctors on both sides understand what kinds of covenants are being drawn up and how they might strike a balance between their different interests.

• Too tough usually means no go.
Even if a new associate signs a restrictive covenant, the courts may not enforce it if it�s too restrictive. A judge would probably declare a covenant invalid, for example, if it tried to prevent a departing doctor from practicing "in the state of North Dakota" or "in the city of Milwaukee," Pinto said. More acceptable geographic limitations would be within 3 miles in an urban area and within 10 miles in a rural setting.
Attorney Rob Wade, of Wade, Goldstein et. al., said it�s also important for a practice to know for sure what area it needs to protect. A ZIP code analysis can help pinpoint where patients are drawn from, he said. Wade worked with one practice that was located near a turnpike entrance. A look at patients� ZIP codes showed that they were clustered primarily in that immediate area. So, the practice protected a much smaller area than it might have without that data, lessening the chance that a judge would throw out the covenant should a challenge arise.
A covenant is also more enforceable if its time restrictions are reasonable. One to 3 years makes sense in most cases. Some consultants advise their clients to create covenants that expire after that number of years if the new associate leaves, or at least after the new associate becomes a partner. Others recommend that every physician in the practice, except maybe the founders, be bound by a covenant at all times.

• Not in the patients� best interests.
Still other consultants oppose restrictive covenants on principle.
"I just don�t believe that any doctor has the right to prevent patients from seeing another doctor," said consultant Yvonne Mart Fox. "That, in effect, is what happens if the new associate is prohibited from opening his own practice in a certain area. I just don�t think restrictive covenants fit in with medicine, pure business, yes, but not medicine." Mart Fox also sees covenants as an attempt by an established doctor to protect income that he wouldn�t be able to produce by himself.
An attempt to impose overly restrictive measures can be a red flag to the new associate, she said. He may wonder what kind of doctor he�s about to make a deal with. If he walks away because of the covenant, both parties have wasted time.

• Consider more flexible provisions.
Wade advises his clients to draw up covenants to the fullest extent of the law, but sees no need for the established doctor to be heavy-handed. He�s seen cases where the doctor wants to have a restrictive covenant apply from day one of the new doctor�s employment. He doesn�t think that�s necessary.
"What�s the difference if the arrangement breaks up after only 90 days?" he asked. The covenant is just as effective if there�s a short trial period during which the associate can leave without penalty.
He thinks the potential employee should also push for a covenant that won�t apply if he�s terminated without cause, especially if he�s uprooted himself and moved to a new area for the job.
John Buesseler, M.D., founder of Health Organization Management Systems, Intl., is also concerned by how financially disruptive a restrictive covenant can be to the employed doctor�s future. He recommends terms that allow the associate to pay a pre-determined amount of money if he decides to leave his position, instead of forcing him to leave the community to open his own practice.
Pinto pointed out that having a set damages amount � expressed as a dollar figure or as a percentage of collections � can prevent a lengthy court battle to determine the value of the harm done to the practice. These amounts can range from $50,000 to $250,000 or more, depending on the revenue of the practice, he said.

• The medical community can suffer.
Wade and Mart Fox both mentioned that contentious battles over enforcement of these covenants can fracture the medical community. Doctors may side with one party or the other, often the associate if they perceive that he�s being treated unfairly. And there�s no telling what patients, especially those who happen to like the departing doctor, might make of the senior practitioner forcing a bitter court battle. Wade had a warning for practices, too: Expect the individual who�s contesting the covenant to go fishing for some dirty laundry to use against you.
In fact, Mart Fox said even though practices get restrictive covenants signed, when it comes down to actually enforcing them, many would rather avoid the controversy. Rather than deal with the time, expense and potential fallout of a battle, they end up withholding the associate�s last paycheck, and then he opens up down the street anyway.

• See each other�s points of view.
It can be frustrating for established doctors when a potential physician employee balks at signing a restrictive covenant. Mart Fox recommends that they realize that a doctor coming in, especially a young one, may never understand what it took to build that practice. "Really, you need to be willing to share your riches," she added.
Established practitioners might also want to consider that it�s increasingly possible that the shoe could end up on the other foot. When doctors sell their practices to physician practice management companies, hospitals or other organizations, as they�ve done more frequently lately, they usually agree to work for the organization for a stipulated amount of time � under a restrictive covenant.
On the other hand, new associates must realize how expensive it is for a practice to bring in someone new. Practices can spend hundreds of thousands of dollars just to promote the incoming physician. And it can take as long as 3 years for a practice to break even on a hiring decision, Pinto said.
To make the situation palatable to both parties, Wade recommends that the established practice "protect what they have to, but nothing more."