Physician Recruitment Agreements: Concerns and Considerations

Last week I wrote about some of the common features of recruitment agreements and the particular issues of which physicians and groups need to be aware. In this blog, I want to cover some additional concerns regarding recruitment agreements:

1. A recruitment agreement, like most other contracts, can be terminated in a variety of ways, including “for cause,” which can occur when a physician walks away from the community, loses his or her license, or otherwise breaches the recruitment agreement. When this type of termination occurs, the amounts which have been loaned to the physician by the hospital usually become immediately due and payable. It may be possible, however, to negotiate a payment schedule for when termination occurs, in order to avoid immediate repayment. Negotiation of this provision is something on which counsel should be focused.

An important consideration when reviewing the termination provisions of a recruitment agreement is whether the group played a role in breaching the agreement. For example, if the responsibility is on the group to provide the necessary reports and to bill and collect for services rendered by the physician, the failure to do so should not lead to an obligation for immediate repayment by the physician. Contractually, the group should be held financially responsible for their breach and the physician should be released from responsibility. While physicians and groups often cover this issue in an indemnification provision in the physician’s employment agreement, the recruitment agreement should identify each party’s breaches separately and the resulting liability. This is another important reason why both the group and the physician should be bound to the recruitment agreement.

2. In the event a physician becomes totally disabled or dies or if the hospital breaches the recruitment agreement, repayment of the loaned amount is typically forgiven. In some circumstances, I have come across hospital counsel who disagree with this position, but it is a rare objection. There is no legal requirement on the hospital’s part to pursue the physician’s estate, for example, to obtain repayment following the physician’s death. Such an approach is fully dependent on hospital policy. It is advisable, in such cases, for the physician and/or group, to maintain sufficient life insurance to assure repayment to the hospital in the event of the physician’s death.

3. Another important issue for the newly recruited physician is to specify in the recruitment agreement the exact promises that have been made by the hospital in recruiting the physician. For example, a physician in a highly specialized field who is recruited to a hospital with promises of support, personnel, and specialized equipment will want to be sure that any failure of the hospital to follow through on its promises will allow the physician to terminate the agreement for cause and avoid any obligation to repay the loaned amounts. Although the physician, as a licensed individual, could still “practice medicine” and conceivably meet the requirements of the recruitment agreement without the hospital’s promises being met, it’s likely the physician would not have signed the recruitment agreement or relocated to the hospital’s service area had the physician believed that he or she would not be able to practice their specialty.

4. When a group drafts an employment agreement for a recruited physician, the group should understand that the standard form of employment agreement may not completely suffice. For example, the compensation formula may need to be modified to take into account the restrictions set forth under the recruitment agreement. Similarly, time off and ability to earn and retain outside income may need to be limited. Most importantly, restrictive covenants will likely need to be deleted. It’s my recommendation that the physician’s employment agreement be drafted after review of the recruitment agreement to assure there are no inconsistencies. Where the group is not, for any reason, a party to the recruitment agreement, it’s still advisable for its counsel to review both documents so as to be aware of any conflicts that may exist.

A recruitment agreement is useful for both groups and hospitals in attracting physicians to the community. It’s important, however, that the parties make sure the documents into which they enter protect everyone involved so as to assure the best outcome.

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