There are several different employment options available to a newly-minted doctor who has just finished his or her training. Employment with a hospital or established practice provides a steady income stream but limits upside, while solo practice can be feast or famine. There is another option, however, the Physician Recruitment Agreement (or “Relocation Agreement”), that can act as a bridge between these two extremes. In order to fully take advantage of the opportunities available through a Relocation Agreement, a physician should be prepared to negotiate some key elements.
A little background: A Relocation Agreement is a mechanism whereby a hospital enters into a contract with either (1) a physician directly or (2) a practice group and a physician and guarantees the physician’s collections for a set number of years (in the form of a loan) in exchange for the physician’s agreement to either pay back any payments received or to continue to practice in the hospital’s service area for several years following the end of the guarantee. Typically, a Relocation Agreement will provide for a monthly collections guarantee for 1- 2 years and will forgive 1/36th of the debt for each month that the physician stays in the service area following the guarantee period. In this way, three years after the guarantee period ends, the physician is free to move his or her practice outside the service area without repercussions.
There are three key issues that can arise during the negotiation of a Relocation Agreement: (1) should you join a group or go solo?, (2) is there a non-compete?, and (3) the re-payment. Let’s take these one-by-one.
Join a Group or Go Solo?
Many times, a new physician learns about a potential Relocation Agreement opportunity because an established group is offering employment through the use of a hospital guarantee. The hospital agrees to guarantee the physician’s collections for a year or two through payments to the practice group, while the practice group takes on a new physician with little risk to its bottom line. While this could be a perfectly acceptable arrangement, the new physician might want to consider the following issues:
- Does the group have a good reputation in the community?
- Are there any reasons why it may be difficult to get referrals from other physicians after joining this group?
The physician needs to talk to others in the community to find out whether there are any dynamics that could make this relationship difficult.
If the answers to the above questions suggest that there could be a problem down the road, the physician can approach the hospital directly and find out whether the hospital would be agreeable to contracting directly with the physician instead of through the group. The hospital gains the same benefit — another physician practicing in the needed specialty — while the physician doesn’t have to worry about problems with group dynamics and inherited reputational issues. Many times, the hospital will be agreeable to a direct relationship.
In the event that the agreement is with a group practice, the group will occasionally require a non-compete agreement. However, a physician needs to be very wary of such an arrangement. A non-compete combined with a Relocation Agreement will essentially lock the physician into the practice group for the duration of the guarantee period and the 36 month loan forgiveness phase. Assuming that the non-compete covers much of the hospital’s service area, a physician wanting to leave the group will be contractually obligated both to work in the service area (by the Relocation Agreement) and not work in the service area (by the non-compete).
If this issue arises and cannot be resolved, it is important that all options are explored, including approaching the hospital, as described above, about contracting directly with them and leaving the group out of it. While the enforceability of non-competes varies from state to state, it is best to avoid the problem altogether.
The Re-Payment Provision
The structure of the re-payment provision, which is at the heart of any Relocation Agreement, is important to understand. Typically, re-payment of the loaned money will not begin until after the guarantee period ends (i.e., the beginning of the forgiveness period). However, some agreements contain an “excess receipts” clause stating that if the physician has utilized the guarantee in previous months, that any amounts collected above the guaranteed collection amount in later months must be used to repay the loan. These clauses can be counter-productive, as they penalize physicians who quickly develop a profitable practice. If possible, a physician should try to negotiate with the hospital to remove this provision.
These are not the only issues that arise in Relocation Agreements, but they are a few of the major ones. This small amount of work up front will save significant time, money, and heartache down the road.