Mid-Atlantic Health Law TOPICS

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Does Incentive Compensation Continue After Employment?

Does your practice pay physicians a base salary, plus incentive compensation based on a percentage of their collections? If so, be sure the applicable employment agreements address whether or not the incentive compensation continues with respect to collections received after the employment relationship terminates. If your employment agreement is silent as to this issue, you could face an expensive and uncertain legal battle.

This very situation was recently litigated by St. Joseph Hospital in North Dakota. The hospital employed Dr. Garofalo pursuant to a contract that provided Dr. Garofalo with an annualized base salary of $120,000, plus 90 percent of any collections the hospital received above $165,000 per year for services rendered by Dr. Garofalo to hospital patients. The hospital eventually terminated the contract, but chose not to pay Dr. Garofalo for collections the hospital received after the termination.

Dr. Garofalo convinced a lower court, prior to a trial, that he should be awarded 90 percent of all receipts with respect to his services collected by the hospital following his termination. The hospital appealed, and the Supreme Court of North Dakota, in Garofalo v. St. Joseph's Hospital, sent the case back to the lower court for a trial to determine the parties' original intent in this regard, because the contract was ambiguous on this issue.

The bottom line is that there is no reason to invite such controversy to your practice. Physician employment agreements that provide for incentive compensation should clearly state whether or not such compensation is to paid with respect to collections received after the termination of the employment contract.


March 21, 2001




Rosen, Barry F.


Health Care