Physician Recruitment Forgivable Loan Explained | Physician Loans

Physician recruitment agreement forgivable loans explained. Primarily, hospitals use these for people just coming out of training. How a recruitment agreement works is the physician would have an employment agreement with a private practice within an area. Then, the hospital would supplement the first-year compensation of the physician if they stay within the area for some time. I know it might be a little complicated, so let’s break it down. The employment contract with the employer will dictate the employment relationship between the parties.

What are “Physician Recruitment Agreements?”

Some practices couldn’t afford to compensate a physician at the very beginning completely. And so, the hospital may need that specialty in the area, but they don’t want to employ that physician themselves. They might say, if you bring in this physician in this specialty, we’ll cover their first-year expenses plus some bonuses. In the recruitment agreement, it may state, “We’re going to give you a signing bonus. We’ll be helping with relocation assistance, and then cover a certain amount of compensation for the entire first year.” Let’s say you’ve got a primary care physician, and they’re making 200,000 a year. The hospital would 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 cover the practice’s expenses as well. And then at the end of that year, there will be an outstanding amount of money.

How Physician Loans Work

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. The recruiting agreement will say, as long as you stay within these zip codes, we’ll continue to forgive the loan. There’ll usually be a one-year income guarantee period for compensation, and then there’ll be a forgiveness period after the fact. Usually, it’s three to four years.

How they usually would do it is they’ll take that amount. 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 you’re here, we’ll forgive 1/36 of that 300,000. If you stay in the area practicing for three years, we’ll forgive that amount at the end of that period. You do not owe us anything. 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’s recruitment agreements? Well, during recruitment, I would avoid it if possible. But there are some jobs that would only exist if supplemented in some way by the hospital network. And so, you need to say, is the practice just doing this not to have to pay me? And I will not 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 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 physicians is several things. One, they will ultimately be responsible for the outstanding amount at the end of the initial income guarantee period. And let’s have a scenario where they have a non-compete in their contract with the employer. Still, the recruitment agreement states they must stay within a geographic region to forgive the outstanding amount. They could be completely limited in their options if they have a terrible non-compete in the employment agreement.

Ideally, the hospital would require the employer to remove any non-compete language. I’d suggest making sure that happens. And you need to press the hospital network to press the employer to remove that language. If you 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. They will much more likely remove them if the practice requires a physician. Still, they don’t want to pay the entire amount of compensation and bonuses at the beginning. It’s likely worth it for them to remove the non-compete to get supplemented with all the things I just mentioned.

If you have physician recruitment forgivable loans, you get the non-compete removed from the physician’s employment contract. Because if you’re in a rural environment, there aren’t that many opportunities in your specialty. And you did have a non-compete, maybe there are no opportunities for you. 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 in that amount as well. They’ll likely have you pay it back immediately and fully as soon as you’re no longer practicing within that region. So, that’s something physicians must be cautious about. And then another one is, every job looks great at the beginning, right? Everyone is nice, the huge growth opportunity, but it may not be as nice when you get there.

Other Issues to Think About 

There may be problems that there’s just no way of knowing about in the interview process. You may come into a job and think, oh man, this isn’t gonna 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, paying back significant amounts of money. I would be cautious about signing a recruitment agreement with a hospital network without really thinking about it. Is this the absolute place that I want to be? Do I have other opportunities elsewhere that won’t require me to sign a recruitment agreement? It’s an arduous process. When I’m going over physician’s contract agreements with someone who just had training, they generally don’t know about these things.

When adding a recruitment agreement on top of an employment agreement, it’s like information overload for physicians. Sometimes, it’s difficult to convey the dangers of signing something like that. It’s probably infrequent. The contract agreements that I review containing or having a recruitment agreement attached is perhaps less than 10%. I’m not saying this is a terrible opportunity. As I said, some jobs may not exist if the hospital doesn’t supplement them for the first year. And they can become 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 a contract, starts a job, hates it, gets out, and owes 200,000. I can tell you if you’re just out of training, you’re not going to have, at least not immediately. So, that’s a breakdown of physician forgivable loans. I would suggest talking to somebody, an attorney, about each document before you sign anything. Especially Physician Loan Agreements or Physician Recruiting Agreements. Honestly, be careful if you’re going to do both and find somebody with expertise in doing this. To get a set of eyes on it and kind of walk you through the dangers of it.

Other Blogs of Interests

• What to Know Before Signing Your First Physician Contract
• What Can You Negotiate in a Physician Contract?
• Backing Out of a Physician Contract

Are Physicians Eligible for Student Loan Forgiveness?

Are physicians eligible for student loan forgiveness? In my mind, there are three main ways that physicians can have their loans forgiven. Or at least a portion of their loan forgiven. The first would be if the employer simply agrees to pay a certain amount directly to the physician’s loan provider. The second would be if they’re part of the public service loan forgiveness program. Which is where they work for a federal entity for a period, generally out of training. And then third would be if there’s a state program. 

Not every state provides a loan forgiveness program, but many states do. Normally, it would be in rural areas that are hard to recruit. And the state would then pay or forgive a certain amount of whatever their loan was. If the physicians stay in the area practicing their specialty for a set amount of time.

Hospital Networks Loan Forgiveness Programs

Let’s just take each one individually and go through some of the things you need to think about. First, it would be with the hospital or hospital network. You are very rarely going to see any kind of loan forgiveness if you are joining a private physician-owned practice. It just simply does not happen. Say you enter loan forgiveness with a hospital or hospital network. It’s usually situated like this: they’ll say, we’ll pay this amount to your loan provider directly. 

And as long as you stay employed with us, there’s no repayment. There are a couple of ways to situate it. The first would be if they just give a lump sum upfront. Normally, the loan forgiveness would be somewhere between 50,000 to 150,000. Then if they give a lump sum upfront. The hospital would forgive over time. Say they give you $150,000 for loan forgiveness, and then you leave after six months. You’re going to have to pay back a large portion of it. 

It’s usually tied to the term of the agreement, sometimes beyond it if it’s a significant amount of money. Let’s say you have a three-year initial term. They’d say, for every month you’re there, we’d forgive 1/36 of the loan that the upfront money we gave you. That’s a normal way of doing it. Another would be, let’s just say it’s $50,000 stretched out over the term. And it’ll just state every month, we’ll pay directly the 1/36 of 50,000 is to your loan provider. That’s good in the fact that physicians wouldn’t ever have to repay anything which is annoying. And there are some tax implications as well. So, those are the two main ways of doing it. 

Student Loan Forgiveness in a Big Hospital Network Setting

If you’re with a hospital network, they’ll just pay you a significant sum of money upfront. Then you use that to pay off a portion of your loan. Or they’ll just pay a certain set amount over time. Suppose they were going to pay you 150,000. They may do 50,000 at the end of each year of the initial term of the contract. So, after year one, they’d pay 50,000 to the loan provider after year two. That’s another way of avoiding having to pay anything back. And I would suggest doing it that way. 

Eligible Students: Public Service Loan Forgiveness

The next one would be with the public service loan forgiveness program. Briefly, this is if you become employed through the federal government. And then staying employed for ten years is the amount then they will completely forgive your student loan.

The downside to that is you’re usually going to make less, so your compensation is going to be below market. So, you may need to do a cost analysis. Say I’m making $50,000 less a year over the course of 10 years. Could I have just taken a normal position, made more, and then paid it off in the end? Depends upon the situation. But that’s kind of the thinking that you need to go through. Ask, alright, which one ultimately would I make more money or have the forgiven faster? 

Lastly, as I mentioned, if there’s a state program. Some states will provide, once again, usually somewhere between 50,000 to 150,000. And they’d say, if the physician was working within a certain area for a period, they’d forgive whatever set amount.

Loan forgiveness is rarely provided. It’s not a common thing. If you’re joining a private physician-owned group, it’s exceedingly rare you’d get any kind of loan forgiveness at all. Obviously, it’s a great perk to a job. Plenty of physicians I assist then seek out those jobs and get through the initial three-year term. Have a bunch of their loans forgiven. And then move on to whatever city that they ultimately want to end up in. That’s a smart way of doing it. So yes, physicians are eligible for loan forgiveness. It generally will not be the entire sum. It will be a decent portion of it. But if you kind of look for those specific jobs, you certainly can find opportunities for that.

Loan Repayment: Do Hospitals Pay Off Student Loans for Doctors?

Do hospitals do student loan repayment for doctors? If a doctor gets a job with a hospital or healthcare network, can that organization pay off their student loans? Well, the answer to that is yes, they can. The better answer is how often do they do that? And then how is it structured? I would say it’s rare for any organization to agree to pay off student loan debt for physicians. I’d probably say less than 20% of the contracts I review include student loan assistance. And then also, there is easily a cap on how much the organization is willing to pay. I will say 150,000 is probably the max that I’ve seen.

Length of Forgiveness for Loan Repayment

Usually, it’s somewhere between fifty to a hundred thousand. Let’s kind of talk about how that is structured. It’s usually one of two ways. Suppose a physician signs an employment agreement with the hospital or network. There will be language in there that says, we will provide you with this amount of student loan assistance. And in that case, normally they are just providing a check and then they pay off the loans.

The organization will pay an amount directly to whoever the physician has a loan with. The two most common ways it’s done is, that the organization will simply cut a large check. So a hundred thousand dollars. And then they will just pay that directly to the loan provider. The physician then has to stay for a period, or they’d have to pay back an amount of that money.

I would say a normal amount would be anywhere between two to four years for forgiveness. And then how the hospital would forgive it, let’s just say it’s four years. Every month that the physician stays with the employer, 1/48 of that student loan forgiveness would then be forgiven. This means that 1/48 of 100,000 would be forgiven every month. And then they would work until it was completely gone. That’s one way of doing it. 

Other Things to Think About

The other common way of doing it is that the employer will just set a standard amount. Once again let’s say it’s $100,000. They’ll say, over three years, we’ll pay 1/36 of that $100,000 each month directly to the loan provider. The benefit is that the physicians don’t have to worry about paying anything back.

The downside to that is with interest. It just makes sense to get a big chunk up front and pay it all off. And then the principle that interest is being drawn from is much smaller immediately. Now, if a physician goes into a job and they’re not certain they want to stay there for a while. Or they may leave after a year or two. Then it won’t make a lot of sense to take a huge lump sum upfront and then must repay it. There are some tax implications with that. I mean, it’s kind of a mess, so it depends upon the physician’s situation. If they’re certain they will stay in the community, there’s no way they’ll leave. Getting that big lump sum upfront makes complete sense.

Federal Provider Can Help With Student Loan Repayment

If someone’s iffy than the other, the monthly amount provided to the loan company would be a better option also. You can certainly ask for loan forgiveness. It’s very unlikely if the medical practitioner gets a job with a private physician-owned group, that they’ll get student loan assistance. That’s just reality. Most of the time that student loan assistance is provided is from a hospital or a healthcare network. So, that’s one thing to think about regarding student loans.

There are also some benefits of working for a federal program. You have the PSLF, Google that and I’ll go through that in a later video. But working for a federal provider is another way of getting all of your loans paid off quickly. Well, not quickly, but a better way of getting your loans paid off. In summary, do hospitals provide student loan assistance? Yes. There are different ways of doing it. Do they do it very often? No, especially dependent, but hopefully, that’s kind of a little rundown of how it works.

What Is a Stark Service Area? 

What is a Stark service area? The definition is so that a physician can better understand the repercussions of signing a recruitment agreement. And whether they’re eligible to sign one as well. First, most recruitment agreements I find are for newer physicians. Either they’re just coming out of training or have been out for a year. And then the basis of the recruitment agreement. And the exception allowing a hospital to supplement the medical practice with money to bring in the physician. I’ll just read what those are. There must be a documented need in the area for the physician specialty. It must be in writing.

The physician must relocate their medical practice to the area. What is the area itself? It must be the geographic region that the hospital serves. And in this case, it should be the lowest number of contiguous zip codes. From which the hospital draws at least 75% of its patients. That means that in the recruitment agreement, there will be an attachment. It will just have a bunch of zip codes. And depending upon where it’s at, it could be 40 different zip codes. In some bigger cities, it could just be a couple. What those zip codes mean is that the physician has to relocate their practice within those zip codes. Then they have to provide care to the people within them.

How Do Hospitals Supplement?

And that grants the exception of how a hospital can supplement the medical practice that the physician is joining. How do they supplement? Well, it’s generally through an income guarantee. The hospital will guarantee that the physician will receive a certain amount each month. They can reimburse overhead expenses, signing bonuses, relocation expenses, and student loan assistance. There are several ways to supplement a medical practice. But the service area and medical practice must be within those zip codes. I guess the main thing to consider is that suppose the physician decides to leave the medical practice. They can continue to stay within that stark service area and not have to pay anything back to the hospital. How the recruitment agreement works is they will provide a certain amount of money, and it’s generally the first year, the income guarantee period.

And then, as long as the physician stays within that service area for several years, it’s three or four years. Which is called the forgiveness period. If you stay within that community for that period, the employer will forgive what the hospital paid in year one. Usually, it’s a monthly fraction. So the hospital would forgive 1/36 of that loan monthly if it’s a three-year forgiveness period. Suppose the relationship goes south with the employer within those contiguous zip codes that serve 75% of the patients. Now, there are two exceptions. There are some exceptions for rural communities. And to residents who’ve been training within the area where this may not necessarily apply. They don’t have to move into the area, but I won’t get into that right now. If the physician wants to end the agreement and stay within the area, they don’t have to pay anything back. 

A Couple of Considerations

There must be an analysis of a few things before a physician signs a recruitment and employment agreement simultaneously. One, there shouldn’t be a non-compete. Most recruitment agreements will list that there can’t be a non-compete between the employer and the physician. Let’s say there’s a broad non-compete. 30 miles from the primary practice location and all the zip codes are obviously within 30 miles of the hospital. The physician won’t have the opportunity to stay within the area.

That’ll force them out. And they may be on the hook for having to pay back the amount that’s still left on the loan. First, the physician needs to make sure that there’s no non-compete. Or maybe a very reasonable and small non-compete where they’d have other opportunities. Another analysis we must do is, are there other opportunities in that area if the physician were to leave? In smaller communities and certain specialties, only one practice does that. So, if a physician wants to stay in that service area, is there another practice to go to? Do they have alternatives? The worst possible thing that can happen to a physician is when something happens with the original employer. They don’t have an opportunity to get a job within the service area. Then they owe hundreds of thousands of dollars to the hospital.

There should be joint and several liabilities between the medical practice and the physician. That’s another thing to also look at. Hopefully, that’s a good analysis of this stark service area. These are tricky. If the recruitment agreement is the sole reason why a job is available, certainly it’s an excellent opportunity. But these do not always end well. And they present some real challenges if the relationship goes south with the employer, so we need to be careful.