The Executive Suite: Steps to follow if Physician Practice closures or layoffs become necessary due to Covid-19

Monday, March 23, 2020

Steps to follow if Physician Practice closures or layoffs become necessary due to Covid-19

Physician practices are currently struggling with how to handle physician and mid-level employment contracts in light of the COVID-19 pandemic. Although a practice may not be “required” to close, many have cancelled elective visits and procedures. This has greatly impacted patient volume and revenue, and may require full closure eventually. Even in practices that must offer some patient services, cutbacks are imminent.

Physician and mid-level employment agreements generally do not contemplate extreme situations such as COVID-19. Most contracts are terminable either without cause (which typically requires 30-90 days prior notice) or for cause. Employment contracts invariably require both the employer and employee to agree to any amendment. As a result, an employer risks potential liability if it unilaterally reduces a provider’s pay or hours.

While there are common law doctrines which arguably provide a basis for a practice not to fulfill its obligations under an employment agreement, the applicability of those doctrines to a situation such as the COVID-19 pandemic is uncertain.

As a result, practices are faced with the need to negotiate with salaried employees for reduced hours and/or compensation in order to remain in operation during this pandemic. Many practices have successfully negotiated such deals since some staff want to be home and others are willing to take less pay or work fewer hours to preserve their benefits and their job. But remember that any such modifications to employment contracts should be in writing to be enforceable and to avoid liability based on a breach of the agreement because the practice failed to follow the terms of the contract. You should refamiliarize yourself with any paid time off or other policies your practice may have in place! Also, make sure that you are offering similar deals to all contacted practitioners to avoid any claims of illegal discrimination.

For practices that have employees who are unable or unwilling to cut back or accept modifications to their contracts, a practice may have no choice but to provide notice of termination and to do so as soon as possible. E.g., if this pandemic continues for 90 days but the notice period in a provider’s employment agreement for termination without cause is 60 days, the practice will at least get relief from its obligations to compensate the provider after 60 days, but before the pandemic ends. While termination of a valued employee under these circumstances is unfortunate, it may be unavoidable. Paying an employee during the notice period may also be a challenge for many practices which may be struggling to survive in the coming weeks.

The following are the steps that should be followed by practices at this time as closures and layoffs become necessary:

Review your practice contracts and policies so you are familiar with scheduling and compensation obligations. Figure out which employees have contracts and which do not and how those contracts might differ.
Consider whether you should close the practice and whether this will be temporary or permanent. If you continue operations, can you lay off employees or cut hours and what will be required to do that? Establish a timeline for when these decisions will need to be made? This is critical if you need to terminate employees without cause and continue to pay them during the notice period.
Work with your employees to determine flexibility. You may be surprised to find some are willing to give up compensation as long as they have benefits, others will take lower pay or fewer hours to help the practice survive.
Many states will provide special unemployment options for workers who have been laid off or suffered a reduction in hours due to the pandemic. Make sure you and your employees understand the support that is available in your state. Even an employee who suffers a reduction in hours may be eligible for a partial benefit.
Check the resources available to your practice. Many banks are making it easier to draw on lines of credit or to borrow funds. The United States Small Business Administration (SBA) is helping small businesses in many states. For example, Ohio recently sent certification to the SBA seeking an economic injury declaration related to the coronavirus. This will make funds more readily available to small businesses, and we expect to see other states follow suit.
Practices should look at all possible avenues to survive the weeks ahead. Consider flexible telemedicine options which have been put into place during the COVID19 emergency to see how such option may benefit your patient volume and bottom line. Consider home visits or limited services that allow patients to feel secure in the practice’s office.
Check your insurance policies to see what coverage you may have in place to cover business interruption and similar claims.
Determine if there are other expenses which can be reduced or eliminated. For example, if your practice maintains a defined benefit pension plan, consider freezing the accrual of benefits or deceasing the plans’ benefit formula in order to reduce future contributions.

The current situation is fluid and available guidance is changing rapidly. Check in with counsel and stay on top of what your state and the federal government may be doing to assist medical practices and other small businesses to survive.