What is a Physician Recruitment Agreement?

For those coming out of training, it is not uncommon if they are moving into a new area to be offered not only an employment agreement but a recruitment agreement. Many questions I get are what is a physician recruitment agreement? At the basic level, there are laws that prohibit hospitals, healthcare networks from compensating physicians for referrals who are not employees. There are exceptions from the stark law that allows certain hospitals to provide compensation to physicians under certain circumstances. And then they do this through a contract, which is a recruitment agreement.

Employment Agreement Legal Concerns

I don’t think I’m going to get into all the specifics of what is necessary to bring a physician in. With this video, I’ll focus more on what’s in the recruitment agreement itself. On the basic level, a physician will get a job with a physician doing practice in an area, and then, by being in that area and practicing in the area, the hospital can supplement their income or through bonuses, overhead expenses, and assist the practice that’s employing the physician, with kind of offsetting the cost of that physician in the first year. What do they normally offer? Well, the recruitment agreement could contain a signing bonus, relocation assistance, and then normally it would be income guarantee. As I said before, they would set a number, and then let’s just say it’s a $20,000 signing bonus, a $10,000 relocation assistance, and then a $200,000 income guarantee.

The hospital will then provide either to the physician directly with the bonuses and then with the income guarantee to the practice that amount of money, which then the practice uses to pass through to the physician. Now, it’s not free. The income guarantee will normally last a year. And then the physician along with the practice will sign the recruitment agreement. After the income guarantee period, there will be forgiveness period. Let’s say, they amassed $300,000 total in the income guarantee period. Normally, the physician would then have to stay within that area for three years after the fact, and then it would be forgiven, normally monthly. So, if it’s a three-year forgiveness period, 1/36 of that $300,000 would be forgiven until the entire amount is forgiven. Other blogs of interest include:

• What is MGMA Physician Compensation?
• Remedies for Breach of a Physician Contract

Physician Employment Agreement

Some of the downsides of a recruitment agreement for a physician: If things go south with the employer, and the physician wants to leave or move away from the state, they could be on the hook for a significant amount of money. Also, most recruitment agreements would prohibit the employer from putting any kind of non-compete in the contract, however, there are plenty of employment contracts I see where they utilize both the employment agreement and the recruitment agreement, and the employment agreement contains a non-compete, which makes it very difficult for a physician to stay in the area due to that, which means they would then be on the hook for whatever the amount that’s outstanding. The benefits of the recruitment agreement: If the job could not exist without the hospital supplementing those things, then certainly, that’s obviously a benefit. It’s a no-brainer for a practice for a hospital to essentially give them money to pass through to the physician.

I mean, the main reason is, a physician normally depends upon the situation. Are they replacing a physician? Is it a brand-new office? Is it a new specialty they’re using? All those factors go into determining whether a physician is profitable in year one. But normally, it takes 12 to 18 months for a practice to reach maturity, and so a physician will likely lose practice money during the first year and having the supplement from the hospital assist the physician practice, kind of getting over the hump to when the physician is profitable. Why does a hospital do this? The downstream revenue that they would receive from the referrals from that physician is kind of the reason why they would do this. If a physician establishes referral patterns to a certain network or a specific hospital, that hospital is going to reap the benefits of having those patients referred to them. And then, doing the financial calculations, they would then benefit over time with the referrals versus providing $200,000 to the physician’s first year. I think these present some, and when I say ‘these’, I mean recruitment agreements can present some difficult and complicated problems. It helps if the hospital lists things that the employer can’t do in the recruitment agreement. So, having the hospital state, you cannot have a non-compete, is helpful and provides some leverage for the physician. Making certain that both the practice and the physician are joint and separately liable for that outstanding amount helps as well. Having a shorter forgiveness period, that’s certainly beneficial to the physician as well, so that they’re not stuck if they’re in an unhappy situation for a longer time.

I would be very careful if you’re coming out of training, and you’ve been presented with both and that you must execute simultaneously. I mean, it’s self-serving for an attorney to say, yes, you should get it reviewed. You absolutely should get both reviewed if you’re a physician looking to get into this type of situation. I’ve had plenty of people call me after the fact and say, I hate this job, there’s a $500,000 amount that must be forgiven, I have no options, what do I do? And that is a terrible situation for a physician to be in. So, just be careful.