Physicians have enough to think about when it comes to negotiating physician employment contracts when joining a new practice. Those nuances are heightened when a hospital recruits a physician to establish their practice within the hospital’s community—not as a hospital employee, but as an employee of an established practice (with a salary guarantee, which the hospital subsidizes), or in particularly underserved areas as the founder and sole owner of the practice (which requires a set of business skills in addition to medical ones).
Instead of being a contract between just two parties, these kinds of recruitment arrangements involve three: the recruited physician, the employing practice, and the recruiting hospital.
These contracts are generally structured such that in exchange for compensation from a hospital, most commonly in the form of a salary subsidy, repayment of student loans, or a sign-on bonus, a physician agrees to maintain a full-time practice in the community for three years.
The compensation offered by a recruiting hospital is structured as a loan, which is incrementally forgiven monthly or annually due to the physician maintaining a full-time practice in the hospital’s community.
The recruiting hospital’s real incentive is to generate revenue by virtue of referrals from the physician’s practice within the community. Such treatments allow a recruiting hospital to generate additional revenue from outpatient procedures and inpatient stays.
For the recruited physician, it is important to consider the respective motivations of the employing practice and the recruiting hospital, as these motivations both align and divide.
The motivations behind recruitment arrangements
In this particular kind of recruitment arrangement, the hospital supplements the recruitment expenses commonly incurred by the employing practice. Additionally, the employing practice has the ability to evaluate whether the physician employee is a good fit without realizing the expenses usually incident to such evaluation (most notably, paying the physician a base salary).
The recruiting hospital’s benefit is much more indirect than the employer’s benefit. In theory, the hospital receives no direct benefit in exchange for its payments to the employing practice or recruited physician. However, in reality, hospitals often benefit handsomely in the form of facility fees generated from the treatment of the recruited physician’s patients (and those of his practice) when they’re treated in the hospital.
Key considerations for the physician
When you’re considering signing on to a recruiting contract, it’s important to consider these seven aspects.
1. Commitment to the geographic area
If you can’t, after an honest assessment, reasonably foresee remaining in the geographic area served by the recruiting hospital for the duration of the recruitment contract, you should seriously reconsider executing the recruitment agreement.
Once the recruitment agreement is signed, it becomes legally binding and enforceable, no matter any change of heart or desire to relocate. Therefore, if there are specific, legitimate and foreseeable events that could necessitate premature relocation, such as immigration concerns or the passing of an immediate family member, carve out exceptions to enforce the recruitment agreement in such instances.
2. Negotiable terms
Understand that the arrangement terms are negotiable and you have a degree of leverage. Physicians may believe the hospital recruitment agreement is entirely non-negotiable, but this is rarely the case.
Though it is true that the majority of the negotiable terms will be found in the employment contract, the recruitment contract is negotiable to a degree. Commonly negotiated provisions are: liability in the event employment with the initial practice terminates; hospital call coverage responsibilities; and whether the recruitment contract will preclude the employing practice from imposing a post-employment restrictive covenant prohibiting the physician from practicing within the hospital’s catchment area.
3. Compensation
Physician compensation is obviously a key consideration in any recruitment arrangement. Make sure you have a particularly keen understanding of the compensation calculation when the compensation is not fixed, but is instead based on productivity, such as a work relative value units (wRVUs) model.
4. Duties
The recruitment contract should specify what duties are to be performed in exchange for the hospital’s financial assistance. In addition to the requirement to maintain a full-time medical practice within the hospital’s service area, physician recruitment arrangements often also require that the physician participate in the hospital’s call coverage schedule.
5. Term
A physician recruitment contract will have two terms: a guaranteed income period, generally 24 months or less; and a period during which the physician commits to practice within his or her specialty on a full-time basis in the hospital’s service area (called the commitment period).
If the physician fails to maintain a full-time medical practice for the duration of the commitment period, the recruitment agreement would be breached and the hospital would be entitled to all or a portion of the sum it paid in association with the physician’s recruitment.
6. Reimbursement obligations
Essentially, the hospital’s payment to the employing practice is treated as a forgivable loan to both the recruited physician and the employing practice, repaid either in cash or forgiven on a pro rata basis via the physician’s full-time practice in the hospital’s service area.
In certain situations, for example due to immigration-related limitations, a physician does not have the option of self-employment.
Therefore, should employment with the initial employer end before the commitment period ends, the physician would be dependent on a subsequent employer to hire him or her, else the physician will be forced into a breach of the recruitment agreement, and consequently jointly liable with the practice to reimburse the hospital all or a portion of the sum paid in association with the physician’s recruitment.
7. Restrictive covenants
In the event the physician’s employment is terminated, the physician will likely remain bound by the terms of the recruitment agreement and must still remain in full-time medical practice in his or her specialty within the hospital’s service area.
Therefore, the recruitment agreement should expressly state that the employment contract cannot restrict you from practicing within the hospital’s service area should the employment contract terminate prior to the expiration of the recruitment contract.
If on the one hand the recruitment contract requires a physician to practice on a full-time basis through the commitment period, and on the other hand the employment contract requires the physician not to practice within the hospital’s service area and resign all medical staff privileges upon the termination of employment, a physician could be in the unenviable position of determining which contract to breach.
A physician contemplating a recruitment arrangement must fully understand the employment contract, the recruitment contract, and how each reconciles with the other.
An ounce of prevention is worth a pound of cure. The nominal fee to have your contracts reviewed by an attorney specializing in health care transactions will undoubtedly pale in comparison to the legal fees you will incur should you intentionally or unintentionally breach a covenant contained in the contracts you sign. l
Roderick J. Holloman (rjholloman@hollomanlawgroup.com) is the principal of The Holloman Law Group, PLLC (HLG) (hollomanlawgroup.com), a health care law firm with clients throughout the country.
September 1, 2021
Debbie Swanson
