An automatic renewal provision, also known as an “evergreen” clause, seems at first glance relatively straightforward. Just as an evergreen tree continuously renews its leaves, an evergreen clause continuously renews the term of a contract. These clauses, however, carry considerable weight.
Evergreen clauses crop up in contracts spanning various industries. In healthcare, physician contracts frequently include auto-renewal provisions. Physician contracts are complicated agreements spanning a wide range of topics–responsibilities, compensation, termination, malpractice, and restrictive covenants–all of which have the potential to breed conflict between physician and practice. Auto-renewal can exacerbate these conflicts by locking physicians into unfavorable situations.
On the other hand, evergreen clauses can protect healthcare organizations with contracts in exception to Stark Law. Stark Law restricts physician self-referral, but there are many legal exceptions: hospital ownership, office space lease, compliance training, and medical staff incidental benefits, to name a few. These exceptions must always have current written documentation. Without proper documentation, an exception becomes a violation. An evergreen clause ensures that a contract in exception to Stark Law will remain in effect.
According to the AHLA, a contract with an evergreen clause can be terminated only in the event that one of three things happen: one party provides notice of termination; both parties agree to termination; or a breach in contract activates a pre-existing termination clause.
In a broader sense, automatic renewals can be useful for both hospitals and physicians. Contract renewal is a tedious and time-consuming endeavor. For large healthcare organizations, manual contract renewal can be an exercise in futility. An evergreen clause eliminates this issue entirely.
Contracts containing evergreen clauses are best evaluated on a case-by-case basis. If you have questions about physician contracting best practices, email our team at info@mdranger.com.
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