A facilities agreement outlines the provision of facilities and administration services to a practitioner. A company, usually a medical practice, provides the services. Sometimes this is also referred to as a medical or health care services agreementIt’s important to consider the aspects of a facilities agreement before entering into one. This article will discuss what to look out for when entering into a facilities agreement.

Uses of a Facilities Agreement

The medical industry frequently utilises facilities agreements. Medical practitioners give facilities agreements to patients or clients and use them under a company or medical centre banner. The presence of these agreements usually indicates that the medical centre will provide the practitioner with a range of services, such as:

  • administration and support;
  • space: premises or rooms in which to practice;
  • access to practice databases;
  • necessary equipment;
  • maintenance of space and/or equipment;
  • materials;
  • services (e.g a telephone and internet);
  • keeping and facilitation of accounts; and
  • branding and marketing.

This level of support allows the medical practitioner to focus more comprehensively on the delivery of high-quality services to clients. The facilities agreement sets out the:

  • terms of this relationship;
  • rights, obligations and duties of each party; and
  • relevant fees for the services.

There is no legislative requirement to draft and enter into a facilities agreement. However, it is best practice to have the terms of the arrangement agreed upon in writing. This will ensure both parties are aware of their responsibilities. It is also important to have the terms of the arrangement clearly defined, particularly if any disputes arise down the track.

Obligations Within a Facilities Agreement

Facilities agreements should outline a clear set of obligations for both parties to uphold. Generally, a medical practitioner will need to ensure that they:

  • observe all reasonable direction given by the medical practice or company;
  • provide high quality services to clients;
  • maintain their accreditation and continue professional development and all required memberships; and
  • not solicit clients for other premises.

In return, the medical practice or company will ensure they:

  • supply and maintain the facilities and administration services; and
  • do not direct how a practitioner performs their service (unless expressly permitted e.g if the practice needs to manage a complaint).

These obligations are not particularly onerous on either party and form the basis of many facilities agreements.

Important Considerations When Entering into a Facilities Agreement

Before entering into a facilities agreement, both the company and the practitioner should agree on the fixed rate of fee distribution.

The practice often bills the laboratory fees to the practitioner. It’s important to understand the full scope of fees. This will help parties fully consider whether the arrangement is cost effective and beneficial. This is especially important if one party is expected to pay for laboratory fees upfront and invoice the other party at a later date.

The practice may also sell goods, classified as retail goods. In this case, there should also be a clear clause which sets out the practitioner’s entitlement to receive a percentage of the sale of these goods, especially if they recommend the products to clients.

Facilities agreements will also generally require the practitioner to hold and maintain a significant level of professional indemnity insurance (PII). It’s not necessarily onerous. However, many agreements will require, due to the nature of the profession, a practitioner to continue to hold this insurance for a number of years following the termination of the agreement. Considering whether a practitioner is willing and able to continue to hold this level of PII is important when entering into the facilities agreement. The practitioner is also commonly required to hold and maintain workers compensation insurance. They also need to have public liability insurance (PLI).

A further consideration is the extent to which either party may seek to limit their own liability.

Restraints

Facilities agreements commonly feature restraints. These can be for particular time periods, distances or restrict the solicitation of clients. Restraints of this nature are often included to protect the ongoing business of the medical practice. They are also added to discourage practitioners from soliciting clients to move with them if they leave. These clauses are often drafted as cascading or waterfall clauses, for example:

“The Practitioner must not, within the restraint area for the restraint period;

  • directly or indirectly, in any capacity, carry on or be engaged in any activity that provides the specified service;
  • restraint area means;
    • 100 kms from the premises; or
    • 50 kms from the premises; or
    • 25 kms from the premises; or
    • 5 kms from the premises.
  • restraint period means;
    • 18 months following termination; or
    • 1 year following termination; or
    • 6 months following termination; or
    • 3 months following termination.”

The cascading clause allows for the courts to consider whether a certain restraint is unreasonable. The courts may read down the clause until it becomes reasonable. A court might find 100 kms, 50 kms and 25 kms too restrictive on the practitioner. In this case, the medical practice may still enforce the remaining 5 kms clause. The enforceability of restraint clauses is certainly a grey area. It’s advisable to have a legal professional provide advice and draft these clauses.

Key Takeaways

There are many other personal and professional considerations to take into account before you enter into a facilities agreement. You should also carefully consider restraints and how they may affect future opportunities. You should clearly document any arrangement and both parties should agree to the terms.

Whether it’s to engage a medical practitioner for your practice, or you’re a medical practitioner, our specialised legal team can assist you with drafting an appropriate agreement. Get in touch with LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

Talia Admiraal
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