With healthcare facing increasing regulatory scrutiny, well-crafted healthcare contracts aren't just important documents. Take the case of William Beaumont Hospital based in Detroit, which faced huge penalties under the false claims. The medical facility was charged a $84.5 million fine for violating the Anti-Kickback Statute and the Stark Laws due to poorly managed contracts.
This incident underscores agreements are the backbone of legal compliance, financial stability, and operational efficiency for healthcare businesses and professionals.
In this guide, we'll explore the various types of healthcare contracts essential for the efficient operations of your medical facility. We'll also discuss the best practices for contract creation and management to stay legally compliant, reduce errors, and save valuable time.
TL;DR
- Healthcare contracts establish legal relationships between medical facilities and various stakeholders, including physicians, vendors, and patients.
- Key healthcare contract types include physician employment, medical directorship, equipment leasing, and vendor agreements.
- These agreements ensure regulatory compliance, mitigate risks and protect sensitive information.
- You must use clear language, implement risk management strategies, and include dispute resolution procedures to manage all medical-related contracts efficiently.
- Use automated healthcare contract management systems to streamline workflows and minimize human errors.
What are healthcare contracts?
Healthcare contracts define the responsibilities, compliance requirements, reimbursement structures, and terms between medical facilities, providers, payers, vendors, employees, or patients. Usually, healthcare entities draft the contracts during the medical equipment lease, clinical trials, staff recruitment, and other operational support services.
Healthcare contract template
Healthcare contract creation can be confusing for the first time as the terms and provisions differ for every purpose. If you want to simplify the process, get our free-to-download healthcare contract template.
Our detailed sample contract document covers all the key clauses, terms, and conditions necessary to write a legally binding medical-related agreement. Moreover, it’s a custom template that allows you to modify the agreement based on the healthcare service needs.
What is the importance of a healthcare contract for medical facilities?
Contracts are far more than just paperwork for the healthcare sector. The legally binding agreements enable hospitals, physicians, and healthcare service providers to meet all compliance requirements. For providers, well-structured agreements mitigate risks like non-compete violations or intellectual property disputes, while value-based care contracts align incentives between stakeholders to improve patient outcomes.
With proper contracts in place, you can minimize ambiguity in scenarios like enforcing payment terms with insurers, clarifying the scope of work in vendor partnerships, or ensuring compliance with HIPAA, Stark Law, or the Anti-Kickback Statute. Further, these contracts secure valuable patient data from breaches and protect patient privacy to avoid legal penalties.
Thus, these documents aren’t just legally sound but also strategically aligned with a medical facility’s needs to provide the best patient care.
Also Read: How to Handle and Resolve Breach of Contracts
Types of healthcare contracts and key elements
Every healthcare organization creates multiple contracts to collaborate with different parties or individuals and get things done smoothly. Here’s a roundabout of common healthcare agreements with their core elements.
1. Medical directorship contract
As the name indicates, medical facilities use this healthcare contract to assign a physician as a medical director who will oversee compliance and ensure proper management. The agreement specifies:
- Responsibilities and obligations
- Compensation
- Contract term
- Liability insurance
- Non-compete and non-solicitation clauses
- Termination procedures
2. Physician employment contract
It’s a hiring agreement that is signed when physicians agree to offer their services to a hospital. The physician employment contract defines a physician’s relationship with the medical facility, including:
- Schedule expectations
- Accountability standards
- Obligations
- Remuneration
- Performance incentives
- Allowances
- On-call requirements
- Patient load
- Restrictive covenant (a “non-compete”)
- Practice-related disputes
- Contract renewal & termination terms
3. Physician recruitment contract
This contract sets the recruitment terms for new physicians, specifically addressing the hiring process and relocation assistance. The physician recruitment agreement must also adhere to the Stark Law, Anti-Kickback Statute, and other applicable medical regulations. In this contract, you must precisely detail:
- Physician incentives
- Responsibilities
- Commitment period
- Signing bonuses
- Relocation packages
- Housing assistance
- Repayment & termination clauses
4. Managed services contract
Hospitals can sign this contract when they outsource any non-medical management tasks to external service providers, such as billing collections, HVAC maintenance, laundry and linen, IT, staffing, rehabilitation services, marketing and legal assistance. Your managed services agreement must lay down:
- The scope of outsourcing services
- Performance benchmarks
- Timelines
- Pricing structures
- Uptime guarantees
5. Equipment lease contract
Instead of buying outright, medical facilities sometimes rent specialized medical equipment to manage their budgets, such as ventilators, MRI machines, and surgical tools. In such scenarios, they can use equipment lease agreements. This agreement clearly defines leasing details, including:
- Maintenance responsibilities
- Payment terms
- Duration
- Liability clauses
- Conditions for renewal or purchase
6. Patient transfer contract
When one hospital transfers a patient to another for treatment purposes, they sign a transfer contract to ensure continuous treatment. The agreement outlines various details like:
- Post-transfer care and treatment plan
- Care duration
- Billing
- Insurance
- Liability considerations
- Contract termination
7. Vendor supply agreement
It’s a procurement agreement between a vendor of medical supplies and a hospital to ensure a continuous supply of necessary medical goods like equipment, pharmaceuticals, and other support services. Your contract will include terms for:
- Quality parameters
- Delivery timelines
- Payments
- Returns
8. Supervision agreements
This legally binding document outlines the roles and responsibilities of medical professionals working under a supervising physician, like a physician assistant, resident physician, and nurse practitioner. In this contract, you’ll define:
- Scope of practice
- Evaluation processes
- Liability & malpractice coverage
- Non-compliance terms
9. Non-Disclosure agreement (NDA)
NDAs are confidential agreements that healthcare providers sign with employees or partners to protect sensitive patient data and proprietary information. The key terms and provisions may include:
- Responsibilities of each partner or shareholder
- Patient medical data privacy
- Medical research and clinical studies
- Medical procedures
- Business strategies
- Health Insurance Portability and Accountability Act (HIPAA) compliance
- Dispute resolution
- Specific breach penalties
- Exit strategy
Also Read: The Ultimate Guide to NDAs: NDA Meaning, Template, Requirements, Limitations & Best Practices
10. Technology contracts
The healthcare entity drafts a licensing contract with a service provider for the use of specific technology. Technology agreements specify clear terms for:
- Usage
- Implementation
- Licensing fees
- Ongoing support
- Prohibited activities
- Duration
- Termination clause
Remember, the strict industry regulations make contract creation, approval, and management a complex process. This creates an urgent need for an efficient hospital contract management approach to maintain compliance and relationships with the vendors, staff, and patients.
Manage healthcare contracts with automated tools hassle-free
Whether creating, renewing, or terminating contracts, you require a proactive approach to agreement management. Healthcare facilities can avoid unnecessary mistakes and expenses by automating the entire process.
Source: Himanshu Tiwari via LinkedIn
Thus, choosing the right health tech solution is essential for effective and smooth contract management. Here’s why you should invest in automated software to manage healthcare agreements and transactions.
Workflow automation
Manual management sometimes leads to missed deadlines, lost documents, and tracking problems. According to the HealthTech Magazine survey in 2023, 87% of medical facilities are now adopting digital tools to optimize workflow, like contract management systems.
With SpotDraft’s Contract Lifecycle Management (CLM) software, you can reduce lengthy paperwork by automating regular workflows and contracting tasks, such as compliance checks, renewal tracking, and performance analysis. Moreover, it allows you to organize, access, and track all documents from a centralized place.
“Although a CLM solution might seem costly in the early stages, companies should have it in place and build workflows within the tool to process contracts better. By doing so, they can keep legal costs low in the growth stages and close deals faster. Moreover, they will have clear visibility into the contract pipeline and use their legal resources to optimize workflows better for yielding maximum results."
~ Igor Poroger, the Director of Legal (EMEA) at Vectra AI
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Easy-to-use pre-build healthcare contracts
Automated CLM software offers standardized templates with a library of relevant pre-approved clauses, allowing you to create regular and common healthcare agreements in a few minutes. Thus, your management staff can save time, ensure compliance, and reduce errors.
Financial tracking
Like any business, healthcare entities go through various contract-related financial transactions, such as vendor payments and insurance claims. AI-powered contract management tool ensures on-time payments, cost reduction, and budget control.
When you effortlessly review vendor contracts and service agreements, you won’t just reduce unexpected expenses but will also find cost-cutting opportunities.
Get digital signature
To speed up the contract execution and approval process, you can collect e-signatures for each healthcare contract. You’ll get instant access to any digitally signed document from a single repository when you use SpotDraft’s e-signature tool.
Plus, the end-to-end encrypted digital signature enhances security. It even allows medical facilities to manage access by setting unique IDs and one-time passwords for all your legal documents.
Best practices of healthcare contracts
Multiple people are involved during the drafting, correction, submission, and renewal of medical contracts. In this complex process, the chances of disputes, financial losses, litigation, and reputation damage are higher, especially if you manage contracts poorly.
To mitigate these risks and protect the interests of all parties involved, you must follow the practices below during contract management.
Clear and Precise Language:
You must create contracts in easy-to-understand language while providing maximum clarity to avoid any ambiguity and misinterpretation. Contracts will be effective when you add all relevant details, clauses, and terms to your agreement.
Risk Management:
Include insurance and contingency plans in your risk mitigation strategies. Further, regularly audit contract performance to update terms and identify potential issues before it’s too late. You should also verify certifications and licensing of service providers to avoid conflicts with healthcare regulations.
“Risk is everywhere. While the company wants you to spot every risk, doing so is impossible. In order to make it manageable, you need to know what types of risk are most important to the company and where to look to get information about those risks.”
~ Sterling Miller, CEO and Senior Counsel, Hilgers Graben PLLC
Ten Things: Ten Things You Need to Know As In-House Counsel
Ensure Regulatory Compliance:
Medical facilities must ensure their contracts comply with the latest healthcare laws and standards like HIPAA, Stark I, II, III, HITECH, GLBA, Federal Anti-Kickback Statute, False Claims, and Joint Commission.
Data privacy and security:
Your agreement must specify provisions addressing how you’ll manage medical and other sensitive business data. Use the CLM platform with two-factor authentication and control access so that only authorized parties can view the legal documents.
Source: Hari Krishna Shetty via LinkedIn
Include Dispute Resolution Procedure:
Define steps for mediation/arbitration based on jurisdiction and governing laws to prioritize efficient resolution.
Termination Clauses:
Don’t forget to add conditions for contract termination, notice periods, and obligations post-expiry.
Healthcare contracts balance operational efficiency and compliance
As you can see, healthcare contracts vary based on the specific needs of a medical institution. However, each of these contracts aims to establish clear expectations, protect sensitive information, and ensure compliance with complex regulations for the healthcare industry.
Thus, managing these agreements effectively is key for your facility's operational success and legal compliance. Using automated tools and following best practices won’t just make your contract management easy but also help you deliver exceptional medical services to your patients.
