Key Considerations in Physician Recruitment Contracts

Physician recruitment contracts are more complicated and nuanced than standard physician employment contracts because as opposed to two parties, these arrangements involve three: the recruited physician; the employing practice; and the recruiting hospital. 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.

Motivations to Enter Into a Physician Recruitment Arrangement

The employer benefits from a recruitment arrangement as the expenses commonly incurred in hiring a physician are greatly reduced due to the hospital supplementing its expenses. Additionally, the employer 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 payment(s) to the employing practice or recruited physician, as the case may be. However, in reality, hospitals often benefit handsomely in the form of facility fees generated from the treatment of the recruited physician’s patients, as well as patients of the practice, treated in the hospital.

Key Considerations for the Physician

1. Commitment to the Geographic Area. If a physician cannot, after an honest assessment, reasonably foresee remaining in the geographic area served by the recruiting hospital for the duration of the recruitment contract, the physician 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 which could necessitate premature relocation, such as immigration concerns or the passing of an immediate family member, the physician would be wise to carve out exceptions to enforcement of 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, this is rarely the case. While 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, but a particularly keen understanding of the compensation calculation is necessary when the compensation is not fixed but is a based on productivity, such as a work relative value units (wRVUs) model.  For a good explanation of wRVUs and how they impact physician compensation, please read “What is an wRVU and Why Does It Matter?” (available for free online at http://www.hollomanlawgroup.com/blog/?p=9).

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: (1) a guaranteed income period, generally of twenty four months or less; and (2) 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 (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 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 (i.e. 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 the physician 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 the 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 his or her employment, the physician could find himself/herself in the unenviable position of determining which contract to breach.

Conclusion

A physician contemplating a recruitment arrangement must ensure that he or she fully understands 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.

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