Many health systems address perceived deficiencies in physician specialties in their service area by assisting private practices to recruit physicians into the area. These physician recruitment agreements can be a boon to both the practice and the physician, and often allow a practice to be able to afford to bring in a physician it would otherwise be unable to recruit. However, it is vital that physician’s counsel gets involved in negotiating these agreements.
One common form of physician recruitment agreement constitutes an income guarantee for the practice and/or the physician. In simple terms, the agreement guarantees that the practice will receive enough income from the physician’s services to pay the physician his or her salary and benefits, and costs directly attributable to the physician’s practice. To the extent the physician does not generate collections sufficient to cover these costs, the health system agrees to pay the deficit to the practice. This is generally structured as a loan. Typically there is a “guarantee period” and a “repayment period .” During the “guarantee period” the health system advances funds to the extent needed to pay the physician’s salary and benefits, and costs directly attributable to the physician’s practice. No payment is made in a given month if collections are adequate to pay these costs, but no repayment is required either. The practice then pays back the amounts advanced by the health system in future months (the “repayment period”).
Frequently there are detailed provisions concerning what expenses will be allocated to the physician. It is important to ensure that this is a comprehensive list of expenses. For example, expenses should include: lease or rental charges for space and equipment solely utilized by the physician; reasonable utility and telephone expenses (including expenses of a cell phone and usage plan); malpractice insurance premiums; medical staff dues; medical and office supplies; a portion of premiums for general casualty and liability insurance; reasonable billing, collection, legal, accounting and other professional fees related to the physician; CME expenses; mileage allowances for trips between offices and hospitals; medical association dues; licensure and DEA fees; board certification and recertification costs; health, disability and life insurance premiums; and medical school debt assistance. While not every practice will provide each of those benefits, physician’s counsel can attempt to get these benefits inserted into the recruitment agreement (and the physician’s employment agreement) while the practice is using “other people’s money.”
Although all monies are usually paid to the practice, I have seen instances in which the health system has attempted to treat the physician as a co-borrower. Frequently you can limit the circumstances under which the physician would be required to repay. However, it is difficult to argue that the physician should not be responsible for repayment of the loan where the physician has terminated his or her physician employment agreement without cause.
The health system generally protects its investment in several ways. First, it will take a security interest on the accounts receivable of the practice. Provisions regarding the security interest must be carefully analyzed. Many times the health system will attempt to insert a security interest on all accounts receivable of the practice. This can frequently be negotiated to only cover the accounts receivable generated by the physician being recruited.
The health system will usually also require repayment of amounts advanced if the physician’s employment is terminated for any reason. Two considerations apply here. First, repayment should generally come from the practice, not the physician. The practice received the income guarantee so that it could pay the physician a reasonable salary for services rendered. The expectation of any private practice is that ultimately it will profit from the services of its employed physicians. I have been able to negotiate a clause to the effect that any repayment will come solely from accounts receivable generated by the physician, unless the physician employment agreement is terminated without cause by the physician. The second consideration only applies to the extent the physician is unable to negotiate total personal relief from repayment obligations. At a minimum in these circumstances the physician should be relieved from repayment if the physician’s employment agreement is terminated because of the physician’s death or disability.
Physician recruitment agreements can be complicated, so it is important that counsel for the physician, as well as the practice, carefully negotiate the provisions of these agreements. An experienced physician’s contract lawyer can use this opportunity to “sweeten the deal” in the physician’s employment agreement.