Legal Services Resources

Employment Agreement Update

There is a recent provision in federal law that has not received much attention, but which may need to be addressed in your physician employment agreements.

Effective October 1, 2009, the Centers for Medicare & Medicaid Services (CMS) has the authority to reduce payments to Medicare providers and suppliers (including physician practices) to collect overdue taxes owed to the Internal Revenue Service and non-tax debts owed to other federal agencies, such as educational loans, personal and payroll taxes, and child support.

The Taxpayer Relief Act of 1997 originally authorized CMS to collect overdue taxes through a reduction in payments to providers and suppliers, and the Medicare Improvements for Patients and Providers Act of 2008 expanded CMS’ authority to add payment reductions to recoup amounts owed by physicians for non-tax debt.

If a physician in your practice owes overdue taxes and/or such non-tax debts and has failed to make arrangement to satisfy the overdue taxes or debts, CMS may reduce payments to your practice until the amount owed by the physician is paid in full.

If your physician employment agreements do not already authorize your practice to reduce physician compensation for such obligations, you may want to consider amending the employment agreements to allow your practice to reduce physician compensation in the event of such CMS payment reduction. Typical physician employment agreements include provisions allowing offsets to amounts owed to physicians upon termination of employment, but your physician employment agreements may or may not include an offset provision during the physician’s ongoing employment.

If your existing agreements do not authorize you to reduce physician compensation in such circumstances, you might want to add a provision similar to the following:

The Employee acknowledges that if the Employee owes overdue taxes to the Internal Revenue Service or owes non-tax debt to other federal agencies, such as educational loans, personal and payroll taxes, and child support, the Centers for Medicare & Medicaid Services (“CMS”) may reduce payments to the Employer as an offset to collect such overdue taxes and/or non-tax debt owed by the Employee (the “CMS Offset”). In the event of any such CMS Offset, the Employer may reduce the amount of compensation paid to the Employee by the amount of any such CMS Offset.

Gary Walker
Allen Dell, PA
202 South Rome Avenue, Suite 100
Tampa, FL 33606
Phone: 813-223-5351
Fax: 813-229-6682
GWalker@allendell.com

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