Always Negotiate an Unwind Clause in Hospital-Physician Employment Arrangements

Hospital-physician acquisition of medical practices continues at a furious pace.  Unfortunately, no one knows for certain whether physician employment by hospitals is the key to better or more cost-effective care.  Moreover, the hospital or the physician in such a transaction may for any number of reasons decide later on that the relationship is less than desirable.  Because no one can predict the future, it is generally advisable to include an unwind provision in the original practice purchase and employment agreement to allow the parties to unwind the transaction.  Sometimes the unwind may be triggered or exercised upon failure to meet certain agreed-upon milestones (e.g., failure to hire another physician in the same specialty with a defined period of time), during a limited period (e.g., only during the third year of employment) or at any time during the term.  The unwind clause should spell out the triggers as well as how it can be exercised and the details of how it will work to ensure a smooth transition back to private practice.  Where the physician’s employment by the hospital was precipitated by the purchase of the physician’s practice assets, an unwind will usually involve the repurchase of those assets by the physician from the hospital.  In this is the case, the unwind provision should address the valuation methodology to be used and the timeline for the repurchase.  Finally, if the employment agreement includes a restrictive covenant, it will need to include a carve-out for the unwind.  With even the best intentions on both sides of a transaction, there will be no guarantees of success.  A well-thought-out unwind clause can be an important safety valve for both parties if the arrangement does not turn out as planned.