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Indemnification clauses in healthcare contracts determine who bears responsibility for potential losses or damages. Learn how these provisions can safeguard your personal and professional assets.
(Updated March 7, 2025, to expand the list of common uses of indemnification clauses in healthcare practice contracts.)
If you have ever looked at a contract, you may have noticed a section entitled “indemnification.” But what does this word mean? Who uses it, and why? Does it mean that no one can bring a lawsuit? Take note: an indemnification clause can have a significant impact on your contract. That is, understanding who benefits (and how) can change the course of contract negotiations.
An indemnification clause is a part of a contract where one party agrees to cover certain losses or damages experienced by another party. In other words, these clauses define who is responsible for specific risks and liabilities.
The main goal of an indemnification clause is to assign risk between parties in a contract. By stating in advance who is financially responsible for particular issues or outcomes, these clauses help prevent costly legal disputes. Understanding these provisions is essential for protecting both personal and professional assets.
Common Uses of Indemnification Clauses in Healthcare Contracts
As a healthcare professional or private practice owner, you will encounter indemnification clauses in various types of contracts.
Partnerships
Healthcare practitioners often form partnerships to operate group practices. Partnership agreements may include indemnification clauses designed to protect individual partners from personal liability for actions taken by other partners or the partnership as a whole. For example, if one partner engages in misconduct leading to legal action against the partnership, an indemnification clause could obligate that partner to cover the associated legal costs and damages, thereby shielding the other partners from financial harm.
Management Services
Healthcare practice owners often enter into management services agreements (MSAs) with management companies that provide services such as billing, staffing, or administrative support. In this scenario, an indemnification clause can protect healthcare practice owners from the consequences of management companies’ actions. For example, if a management company’s marketing or billing practices don’t comply with applicable regulations, an indemnification clause would require the management company to assume responsibility and pay any resulting fines and legal fees.
Purchasing Assets
When healthcare entities engage in asset purchase agreements, indemnification clauses are commonly used to delineate responsibility for liabilities arising before or after the transaction. For instance, if a medical practice purchases assets from another practice, the agreement might include an indemnification clause requiring the seller to cover any claims arising from events occurring before the sale. This ensures that the buyer is not held liable for issues originating before their ownership.
Indemnification of Officers
In business entities such as corporations and LLCs, indemnification clauses can help protect officers from personal liability arising from their official duties. These provisions ensure leaders can make decisions without undue fear of personal financial loss. For instance, if an officer faces a lawsuit alleging mismanagement, an indemnification clause could require the corporation to cover legal defense costs and any resulting damages, provided the officer acted in good faith and in the organization’s best interests.
See our related article, “Why Healthcare Fraud is Landing More Doctors and Execs in Prison.”
Clinical Trials
In clinical trial agreements, indemnification clauses protect researchers and their institutions from liabilities arising from the sponsor’s products or protocols. For example, an indemnification clause could require the sponsoring company to cover legal claims or damages if a participant experiences adverse effects due to the investigational drug.
Employment
In healthcare employment contracts, indemnification clauses often require professionals to reimburse their employers for losses resulting from the professional’s actions during employment. For example, say that a physician’s negligence leads to a malpractice lawsuit involving both the physician and the employing hospital. An indemnification clause could require the physician to cover the hospital’s legal expenses and any resulting damages.
As you can imagine, these clauses can expose individual clinicians to significant financial risks. However, the enforceability of these clauses varies by state; some may deem them unenforceable due to public policy. Before agreeing to such provisions, consult a healthcare attorney familiar with your state-specific laws.
See our related article, “As an Employer, Am I Responsible for the Actions of My Licensed Workers?”
Bilateral vs. Unilateral Indemnification Clauses
Indemnification clauses can go in one direction or be reciprocal. In a unilateral indemnification arrangement, only one party agrees to indemnify the other, with no reciprocation. For example, an independent contract worker might be required to indemnify the organization that hires them for their services, placing significant risk on the contractor.
When a contract contains a bilateral (mutual) indemnification clause, both parties agree to indemnify each other for specific activities. For example, a medical practice and a management services organization (MSO) could enter into a bilateral indemnification arrangement. If the MSO’s administrative error led to a compliance issue, the MSO would cover the resulting liabilities. If a practitioner’s clinical mistake resulted in a malpractice claim, the practice would assume the responsibility.
How Do You Identify an Indemnification Clause?
One of the trickiest aspects of indemnification clauses can be identifying them in contracts. Many contracts allow for easy identification, using specific language that acts as a red flag to the reader. Such clauses include the words “defend,” “hold harmless,” or “indemnify.” For example, here’s a (vastly oversimplified) indemnification clause in a contract between Sophia Smith and Adam Anderson:
Sophia Smith shall defend, indemnify, and hold Adam Anderson, and his officers, employees, and volunteers harmless from any and all claims, injuries, damages, losses or suits including attorney fees, arising out of or resulting to this contract between Sophia Smith and Adam Anderson.
Also, pay attention to who is writing the contract. Often, the person who prepares the contract writes it for their own benefit and, therefore, tries to release themselves from liability by requiring indemnification from the other party.
Why Does Indemnification Matter?
The risk of lawsuits poses a serious and ever-present threat to healthcare professionals. Therefore, the ability to shift liability away from oneself is usually desirable. Indemnification clauses can protect you and your business from lawsuits and serve as a deterrent, even against strong cases. Note, though, that physicians and other healthcare providers cannot waive their responsibilities to their patients.
When presented with a contract drafted by another party, always pay close attention to indemnification clauses. Does the clause fairly distribute risk? What are the potential financial repercussions of assuming those risks? Understanding indemnification clauses can be quite challenging. Before signing any contract, speak with your healthcare attorney.
Get Legal Support
An experienced lawyer, such as the healthcare attorneys at Jackson LLP, can prepare or review contracts with your goals and best interests in mind. If you’re a healthcare professional, practice, or business owner in one of the states that we serve, book a free consultation to learn how we can help you.
This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader. It should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.
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