Physician recruitment agreement forgivable loans explained. For the most part, these are used for people just coming out of training. So, how a recruitment agreement works between a hospital is the physician would have an employment agreement with a private practice within an area. And then the hospital or hospital network within that area would supplement the first-year compensation of the physician if the physician stays within the area for a period of time.
I know it might be a little complicated, so let’s break it down. The employment agreement with the employer is going to dictate the employment relationship between the two parties.
What are “Physician Recruitment Agreements?”
There are some practices that maybe couldn’t afford at the very beginning to completely compensate a physician. And so, the hospital may have a need for that specialty in the area, but they don’t want to employ that physician themselves. So, what they’ll do is they’ll tell the practice, alright, if you bring in this physician in this specialty, we will cover their first-year expenses in addition to some bonuses. And in the recruitment agreement, it may state, alright, we’re going to give you the physician a signing bonus, we’re going to help with relocation assistance, and then we’re going to cover a certain amount of their compensation for the entire first year. Let’s just say, you’ve got a primary care physician and they’re making 200,000 a year. The hospital would essentially say, alright, we’re going to supplement 200,000 for that first year.
And then they’ll offset that by whatever the physician brings in. They’ll also cover the practice’s expenses as well. And then at the end of that year period, there’s going to be an outstanding amount of money.
Forgivable Loan, more than just Compensation
And that amount is going to be kind of thought of like a forgivable loan. And as long as the physician stays within that geographic area of the hospital, there should be zip codes attached to the physician recruiting agreement that just says, as long as the physician stays within these zip codes, we will continue to forgive the loan. For compensation, there’ll usually be a one-year income guarantee period, and then there’ll be a forgiveness period after the fact. Usually, it’s three to four years.
How they normally would do it is they’ll take that amount. Let’s just say in this scenario, the total amount with signing bonuses, relocation assistance, base salary, and practice expenses is 300,000, and it’s a three-year forgiveness period. They’ll say, alright, for every month that you’re here, 1/36 of that 300,000 is forgiven. If you stay in the area practicing for three years, at the end of the three years, that amount is completely forgiven. You do not owe us anything and then you’re free to move on and do what you want.
Why Would a Physician Sign a Physician Recruitment Agreement?
Now, why would doctors sign physician recruitment agreements? Well, during recruitment, I would avoid it if possible, but there are some jobs where the only way that that job would exist is if they were supplemented in some way by the hospital network. And so, you need to say, alright is the practice just doing this to not have to pay me?
And I’m not going to tell the practice that they’re doing something dumb. They’re not, they’re being smart about the business. Why wouldn’t they accept supplements? Why would they say no, we’ll just pay everything, when they could have a hospital cover many of the fees.
The Downside to Physicians in Signing Physician Loan Agreements?
The downside to the physician is several things. One, they are going to ultimately, and very likely be responsible for whatever that outstanding amount is at the end of the initial income guarantee period. And let’s just have a scenario where they have a non-compete in their contract with the employer, but in the recruitment agreement, it states they must stay within a certain geographic region in order to forgive the outstanding amount. They could be completely limited in their options if they have a bad non-compete in the employment agreement.
Ideally, the hospital would require that the employer remove any kind of non-compete language. And I would suggest making certain that happens and you need to press the hospital network to press the employer to remove that language. If you just go to the employer and say, I’d like that removed, they may say, no, we’re not doing that. If the hospital insists that the employer remove that type of language, you need to tell the hospital, therefore this needs to happen. It will be much more likely that it will be removed because if the practice has a need for a physician, but they don’t want to pay the entire amount of compensation and bonuses and all that good stuff at the beginning, it likely will be worth it for them to just remove the non-compete to get supplemented with all of those things that I just talked about.
That’s kind of one thing you absolutely need to think about if you have physician recruitment forgivable loan is that you kind of get the non-compete removed from the physician’s employment contract because if you’re in a rural environment and there just aren’t that many opportunities in your specialty, and you did have a non-compete and maybe they there’s no opportunities for you, and it would be impossible for you to work out that three year forgiveness period, you’re stuck with a significant amount of money. There is interest on that amount as well, and they’ll likely want you to pay it back immediately and fully as soon as you are no longer practicing within that region. So, that’s something a physician must be very careful about. And then another one is, every job looks great at the beginning, right? Everyone is nice, the huge growth opportunity, but when you get there, it may not be as nice.
Other Issues to Think About
There may be problems that there’s just no way of knowing about in the interview process. And there are times when physicians may come into a job and then immediately, they think, oh man, this is not going to work for me. If you’re under a recruitment agreement, it could cause big problems for you. One, getting out of that job or two, having to pay back significant amounts of money. I would be very careful about signing a recruitment agreement with a hospital network without really thinking about it, is this the absolute place that I want to be? And then, do I have any other opportunities elsewhere that won’t require me to sign a physician recruitment agreement? It’s kind of a tough process. When I’m going over physician’s contract agreements with someone who just had training, they generally don’t have any knowledge about these things.
When you add in a physician recruitment agreement on top of an employment agreement, it’s like information overload for physicians. And sometimes, it’s difficult to convey the dangers of signing something like that. It’s probably infrequent, meaning, the percentage of physician’s contract agreements that I review that contains a recruitment agreement or have a recruitment agreement attached to it is probably less than 10%. Now, I’m not saying this is a terrible opportunity. As I said before, some jobs may simply not exist if they aren’t supplemented by the hospital for the first year, and they can turn into tremendous opportunities. But you always must look at, alright what’s the worst-case scenario in this situation? The worst-case scenario is someone signs physician contract agreements, starts a job, hates it, gets out of it, and owes 200,000, which I can tell you if you’re just out of training, you’re not going to have at least not immediately. So, that’s kind of a breakdown of physician forgivable loans. I would suggest talking to somebody, meaning, an attorney about each document before you sign anything, especially Physician Loan Agreements or a Physician Recruiting Agreement. Honestly, be careful if you’re going to do both and find somebody that has expertise in doing this, just to get a set of eyes on it and kind of walk you through the dangers of it.
What are Restrictive Covenants in a Physician Contract?
What are restrictive covenants in physician contract agreements? Restrictive covenants are essential things you can’t do. Many times, it’s when the contract is in effect and then for a period after the physician contract ends. Kind of the general and normal restrictive covenants for a physician would be a non-disparagement clause, non-compete, and a non-solicitation agreement. These are things you can’t do. Let’s go through each one. Non-disparagement clause, simple. When the contract ends, they want you to agree that you’re not going to badmouth the employer. The physicians of the employer, and the staff of the employer, there will be no disparaging comments. If you have a non-disparagement clause in your contract, it should go both ways.
I would ask them if it just says, you can’t say anything bad about them, then I would ask them to make it mutual interest, meaning, it just takes the same paragraph and reverses the parties so that they can’t badmouth you after the physician contract agreement ends as well. Next, is the non-compete. This one is easily the most important in the physician contract. A non-competition clause will state that a physician can’t work within a specific specialty for a period within a defined geographic region. Let’s just take a cardiologist as an example. The non-compete will state that the physician can’t work in cardiology for one year after the physician contract agreement terminates within 15 miles of the primary practice location. The important parts of any kind of non-compete are one, the definition of the specialty. Some people are boarded in multiple specialties and can do different things like a hospitalist. If you’re in internal medicine, you can do hospitalists, you can do ED, and you can also do urgent care. And you need to limit the definition of the specialty to what you are doing for that employer.
If you are, as I said before, working for a hospitalist for a hospital, then you want to have the opportunity to do maybe primary care, ED, or urgent care for that year. And then you can switch back to being hospitalists in that area if you want to. That’s the first part. Now, how long should it be? Well, most are somewhere between one to two years. In most states one year is considered the enforceable amount. If you do have a two-year non-compete, you would ask to limit that to one year. One year is fair. I don’t think any state is going to find that a one-year non-compete isn’t fair unless it is a state that completely finds any kind of non-compete unenforceable. There are a few states like that, but obviously, we’re talking about states where it can be enforced.
If you have a longer than one-year non-compete, you want to cut that down to one year. And then the most important part of a non-compete is the definition of where you can’t practice. Kind of the simplest way would just be you can’t compete, or you can’t have a job within 10 miles of the primary location that you work in. That’s simple, right? Like you can’t work within 10 miles and it’s as the crow flies. There it’s not a street 10 miles, it’s just sticking a pin 10 miles all the way around. Now, if an employer has multiple locations or potentially if the physician is working, maybe not only in an outpatient clinic, but they’re working in a hospital or multiple hospitals, you need to be careful about what the definition of the restricted sites will be. Is it just your primary site?
Is it every site that the physician owns? Is it just the sites that you worked at? You want to limit that as much as possible as well. I mean, one trick is just to say, if they have multiple locations just to say, anywhere where I’ve generated more than 35% of my charges, that way it can only be two locations when you do the math on that one. That’s where the fight matters. If you’re with an enormous employer that has 20 locations in the city, and they’re saying it’s 10 miles from 20 locations, I can’t imagine any court would find that reasonable or enforceable. However, you never want to sign an agreement that you’re just expecting to break or not be enforced. That’s just a bad idea. So, those are the three kinds of main restrictive covenants. The non-disparagement clause, non-solicitation agreement, and non-compete. We need to go over the non-solicitation clause
That means, for a period, you can’t actively solicit patients, employees, independent contractors, or vendors. And so, the important part of that is what is considered soliciting. Let’s just take the patient part. Actively soliciting a patient would be downloading a patient list of all your patients with the employer, and then blasting out an email to them and saying, hey, I’m leaving the practice. I’m opening my own practice. Please come with me. That would be prohibited under a non-solicitation clause. Now, if the patient reaches out to the physician and says, hey, I hear you’re leaving, where are you going? That’s not an active solicitation. So, that would be okay. As far as soliciting employees, let’s say you’re opening up your own practice outside of the non-compete area, but you’re interested in bringing over the front office, an MA, a nurse, or an office manager, well, a non-solicitation clause would prohibit you from actively soliciting that person to come with you.
Many savvy employers will have a ‘you cannot hire them.’ I mean, if I was writing a physician’s employment contract for practice, I would absolutely make certain, it doesn’t just say you can’t solicit them. I would also say you cannot hire them. But in that scenario, it depends on what the language is, but you couldn’t actively solicit the employees or potentially not hire them as well. So, that’s a brief example of a non-clause.
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