3. Contract
A special agreement, written or oral, that
involves legally binding obligations between
two or more parties.
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4. Purpose of a Contract
• To specify, limit, & define agreements that are
legally enforceable.
• A contract forces the participants to be specific
in their understandings and expectations of
each other.
• Contracts serve to minimize misunderstanding
& offer a means for parties of a contract to
resolve any disputes that may arise.
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5. Types of Contracts - I
• Express
– Oral
– Written
• Implied
• Voidable
• Executed
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6. Types of Contracts - II
• Enforceable
• Unenforceable
• Realty
– Goods
– Services
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7. Elements of a Contract
• Offer/Communication
• Consideration
– Adequacy
• Acceptance
– Meeting of the Minds
– Definite & Complete
– Duration
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8. Breach of Contract
• Occurs when there is a violation of one or more of the
terms of the contract.
• Elements necessary to establish a breach
– A valid contract was executed.
– The plaintiff performed as specified in the
contract.
– The defendant failed to perform as specified in the
contract.
– The plaintiff suffered an economic loss as a result
of the defendant's breach of contract.
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10. Legality of Object
To be a valid contract, the contract must not
violate any federal or state statute, law, rule or
regulation.
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11. Conditions
Act/s or event/s that must occur or be performed
by one party before the 2nd party has any
responsibility to perform under the contract.
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16. Text Cases: Employment Contracts
• Nurse Breaches Contract: Repayment of
Tuition Required
• Geographic Limitations on Practice
Reasonable
• No Express Agreement: Right to Terminate
• Breach of Employment Contract
• Restrictive Covenant Enforceable
• Restrictive Covenant Not Enforceable
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17. Employee Handbook
– Elements necessary to establish employee
handbook as a contract:
• A policy statement that clearly sets forth a
promise that the employee can construe to be an
offer.
• Policy statement must be distributed to the
employee, making him or her aware of the
offer.
• After learning about the offer & policy
statement, the employee must “begin” or
“continue” to work.
– Employee Handbook: Considered a Contract 17
18. Medical Staff Bylaws a Contract
• Applicants for appointment to a medical-dental staff
submit a signed application attesting that he or she
has read & agree to accept & abide by the provisions
& directives in the bylaws.
• The physician promises to abide by the medical staff
bylaws in exchange for medical staff privileges.
• This exchange of promises, constitutes consideration
to support any contract of this bilateral nature.
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19. Exclusive Contracts
An organization often enters into an exclusive
contract with physicians or medical groups for
the purpose of providing a specific service to
the organization. Exclusive contracts generally
occur within the organization's ancillary
service departments
(e.g., radiology, anesthesiology, and
pathology).
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20. Restraint of Trade
• Department of Justice: primary responsibility for
enforcing federal antitrust laws
• Federal Trade Commission
• Sherman Antitrust Act
• Cases
– Conspiracy to Terminate Physician’s Privileges
– Claim of Group Boycott Denied
– Physician Agreement for Professional Services/
Too Restrictive
– Contract Violates Antitrust laws
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21. Hospital Staff Privileges
• Restricting Privileges
– Moratoriums & closed medical staffs, as used in
the healthcare field, describe an organization’s
policy of prohibiting further appointments to its
medical staff
– Generally, a moratorium is for a specified period
of time
• It is lifted at such time as the purpose for which
it was instituted no longer exists
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22. Moratorium Effect - I
• Effect on the organization’s census
• Organization and community needs for additional
physicians in certain medical and surgical specialties
and subspecialties
• Strain that additional staff will put on the
organization’s supporting departments
(e.g., radiology and laboratory services)
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23. Moratorium Effect - II
• Effect of denying medical staff privileges to
applicants who presently are located within the
geographic area of the organization and
serving community residents
• Effect on any contracts the organization may
have with other healthcare delivery
systems, such as health maintenance
organizations
• Effect a moratorium will have on physician
groups that may desire to add a partner 23
24. Moratorium Effect - III
• Effect additional staff may have on the quality of care
rendered in the organization
• Whether closing the staff will confine control of the
organization’s beds to the existing medical
staff, allowing them to enhance their economic
interests at the expense of their patients and other
qualified physicians
• Effect of a limited moratorium by specialty as
opposed to a comprehensive one involving all
specialties (Indiscriminately closing a staff in all
departments and sections without a review could be 24
considered an action in restraint of trade.)
25. Moratorium Effect - IV
• Existence of a mechanism for periodic review of the
need to continue a moratorium
• Effect that medical staff resignations during the
moratorium may have on the organization’s census
• Existence of a mechanism for notifying potential
medical staff candidates at such time that the
organization determines that there is a need for an
expanded medical staff
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26. Moratorium Effect - V
• Characteristics of the medical staff (Is the staff
aging and in need of new membership?)
• Potential for restraint of trade legal action
under anti-trust laws
• Effect on physicians without staff privileges
whose patients are admitted to the hospital
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27. Moratorium Effect - VI
• Formation of a committee composed of
representatives from the governing
body, medical staff, administration, & legal
counsel to develop an appropriate moratorium
policy
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28. Moratorium Effect - VII
Selection of a consultant
– study demographics marketplace
– physician referral patterns
– literature & organization use
– conduct a medical staff opinion poll
– develop patient–physician population ratios
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29. Moratorium Effect - VIII
Selection of a consultant cont.
– determine population shifts
– develop a formula to determine optimal
staffing levels by department & section
– provide this information to the governing body
for use in determining appropriateness of
closing staff in selected medical departments
and/or sections
31. Transfer Agreement - I
• Identification of parties to agreement
• Purpose of agreement
• Policies & procedures for transfer
• Organizational responsibilities for transfer
• Exchanging/Sharing information
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32. Transfer Agreement - II
• Retention of autonomy
• Procedure for settling disputes
• Procedure for modification or termination
• Sharing of Services
• Publicity
• Exclusive v. Non-exclusive agreement
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33. Insurance Contract
• Insurance Denials
• Pre-existing Condition
– Truett v. Community Mut. Ins. Co.
– Coverage Denied
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34. Review Questions - I
1. What is a contract?
2. Describe the differences between an express
and an implied contract.
3. What are the elements of a contract?
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35. Review Questions - II
4. Discuss the remedies available for
nonperformance of a contract.
5. Discuss the importance of disclaimers in
employee handbooks.
6. Discuss why the courts often consider
medical staff bylaws a contract.
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36. Review Questions - III
7. Explain why exclusive contracts are so
controversial.
8. Describe the advantages and disadvantages
of closing a medical staff to new physicians.
9. What is an insurance contract?
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