When a private practice wants to hire a new physician, but they don't have the capital to pay the new physician's salary on their own, they often partner with a hospital to fund the deal. The physicians, who are many times straight out of residency or fellowship, are often told of the recruitment agreement, "it's like free money." Well, not exactly. While physician recruitment agreements often work out for all parties involved, there are some instances where the ending is not so happy. Along with the various legal concerns that come with physician recruitment agreements - key among them being meeting the applicable Stark law exception requirements - there are also very serious considerations that physicians must take into account that have the potential to spiral into disaster. First, the recruitment agreement will provide that the hospital will offer "support" in the form of a monthly salary guarantee to the new physician, and in exchange, the physician agrees to remain practicing in the community for a specified length of time- the "forgiveness period." As the specified length of time passes, the amount of money the hospital has loaned in the form of the salary guarantee will be incrementally forgiven. The ratio of the "support period" to the "forgiveness period" typically ranges anywhere between 1 support year in exchange for 1 forgiveness year, and 1 support year in exchange for 3 forgiveness years. Point being, when physicians accept a recruitment agreement, they must be prepared to stick around and practice in the community if they are not otherwise able to pay off the amounts they have borrowed from the hospital. This can be a gamble, as physicians may be recruited to a community that does not have the volume of patients needed to support the addition of the new physician. In these cases, physicians can end up "upside down" in their recruitment agreements, where they cannot afford to stay in the community following their support period, and are forced to move elsewhere to find business, and therefore are stuck with a hefty loan to pay back.
For this reason, among others, it is also important for recruited physicians to carefully consider what amount of salary is reasonable for them to accept from the hospital each month; in other words, physicians must be reasonable in calculating what you are able to live on each month, and don't overdo it. The more you accept from the hospital, the more you will potentially be liable for following the support period if for any reason you are not able to continue practicing in the community.
Above all, it is essential that you have a physician contract lawyer review your physician recruitment agreement and your accompanying physician employment contract, as various regulatory requirements must be met. Beyond that, because physician recruitment agreements carry some amount of risk, recruited physicians should carefully select a physician contract attorney who practices in this area regularly and who can adequately protect your interests.