What is a Stark service area? And what the definition of that is for recruitment agreements so that a physician can have a better idea of what are 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 kind of the basis of the recruitment agreement and the exception which allows 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.
Patient Origin under Stark
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. What that means is in the recruitment agreement, there will be an attachment, and, on that attachment, it will just have a bunch of zip codes. And depending upon where it’s at, it could be 40 different zip codes and in some bigger cities, it could just be a couple. What those zip codes mean is the physician has to relocate their practice within those zip codes and then they have to provide care to people within those zip codes.
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 normally through an income guarantee. The hospital will guarantee that the physician will receive a certain amount each month. They can provide reimbursement for overhead expenses, signing bonuses, relocation expenses, student loan assistance. There are several ways that they can supplement a medical practice, but the service area itself, the medical practice itself must be within those zip codes. And then I guess the main thing to consider is if the physician decides to leave the medical practice, then 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. Other blogs of interest include:
And then as long as the physician stays within that service area for several years, it’s either three or four years, which is kind of called the forgiveness period. If the physician stays within that community for that period, the amount that the hospital paid out in year one will then be forgiven. Usually, it’s a monthly fraction, so if it’s a three-year forgiveness period, then the physician’s loan is 1/36 of that would be forgiven per month. If the relationship goes sour with the employer, if the physician stays within that area, within those contiguous zip codes that serve 75% of the patients. Now, there are two exceptions, there are some exceptions for rural communities and then also residents who have been already training within the area where this may not necessarily apply.
Service Area under Health Plan
They don’t have to move into the area, but I’m not going to get into that right now. If the physician wants to end the agreement, and they stay within the service area, they don’t have to pay anything back. There needs to be an analysis of a couple of things before a physician signs a recruitment agreement and an employment agreement simultaneously: one, there shouldn’t be a non-compete in the employment agreement. Most recruitment agreements will list that there can’t be a non-compete between the employer and the physician. If there is a non-compete, let’s just say it’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, then the physician will have no opportunity to stay within the area.
They’ll be forced out and then 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 certain that there’s no non-compete, or maybe like a very reasonable and small non-compete where they’d have other opportunities. Another analysis that needs to be done is one, are there other opportunities in that area if the physician were to leave? Sometimes in smaller communities and certain specialties, there’s only one practice that does that. So, if a physician wants to stay in that service area, is there another practice to go to? Do they have alternatives? I mean, the worst possible thing that can happen to a physician is when something happens with the original employer, they simply don’t have an opportunity to get a job within the service area, and 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, but that’s another thing that should be looked at as well. Hopefully, that’s a good analysis of what this stark service area is for recruitment agreement. These are tricky. If the recruitment agreement is the sole reason why a job is available, then certainly it’s a good opportunity for a physician. But these do not always end well, and they present some real challenges if the relationship goes sour with the employer, so need to be careful.
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