Articles Posted in Physician Practices

The amount of attention that physician recruitment receives from government eyes warrants recruitment agreements that are, ideally, airtight. So, what are key criteria for a physician recruitment agreement that is compliant and will work for both parties? There are many important elements of a good physician recruitment agreement, including the following.

First, it is vital to show that a community need exists for the doctor’s services. A specific need for the physician’s specialty area or an opportunity to lower costs and improve access to care in that community, demonstrated with proper evidence (such as statistical or demographic studies), can lend strong support a physician recruitment agreement. It is a good idea to hire a third party to analyze supply and demand for specialties in the local community. Additionally, the recruitment agreement itself should spell out the need and demonstrate that an objective of the agreement and relationship is to serve community interests.

A hospital can provide subsidies to the physician for working in the local area such as reduced rent, a traditional net income guaranty, and payment of malpractice insurance premiums. No matter what type of benefits the hospital provides, however, the physician should sign a promissory note that requires repayment of all subsidies from the hospital. Generally speaking, this repayment obligation can only be waived if the physician remains in the local area for a period of two to three years after the end of the guaranty period. The waiver is to ensure the community’s need for that physician is effectively met through the recruitment agreement.

Any guaranty payments made to a group that employs the physician rather than to the physician directly should be with caution in light of the STARK Law, to avoid perceived abuse. Any portion of the guaranty payment made to the physician’s group that is not returned to the recruited physician must be accounted for. The physician group can only retain portions of the payment that directly go to additional expense that attends addition of the new physician. No portion of the guaranty payment can be withheld to pay for existing overhead costs that the medical group already incurs. For example, the medical group employing the physician cannot charge its rent costs to the new physician when he or she did not cause any increase to the expense. Both the hospital and practice should keep careful records that show what formulas are used to calculate the payment amount in order to prevent the use of expenses for preexisting medical group expenses.

Any formulas used for calculating the payments to the physician should be very specific. Avoiding vague language in the agreement will reduce the likelihood of disputes. The agreement should specifically state the salary, what expenses are included in the guaranty, and whether the collections of the recruited physician will be reconciled monthly or quarterly. Taking proper care of these specifics will reduce the chance of disputes and unnecessary headaches in calculating payments.
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The trend for physicians to work for a hospital or hospital system continues. Once a physician finds a job opportunity, one of the first details the physician and the hiring entity may discuss is the nature of the relationship. Will the doctor be an employee or an independent contractor?

Often the hiring entity desires to avoid certain burdens that typically attend employment, such as malpractice liability, employment benefits (e.g. pension, health insurance), and payroll taxes. There are certain reasons the physician may perceive his best interests are served by independent contractor status as well, such as (perceived) tax advantages to having his own corporation or a greater sense of independence in practicing his trade.

The hiring entity and the physician should be mindful, however, that establishing an independent contractor relationship is not automatic from legal standpoint, their desire and their written agreement notwithstanding. In fact, most doctors hired cannot be properly classified as independent contractors. Whether the relationship is “employment” or “independent contractor” must be determined ad hoc according to the particular, details of the relationship.

What determines the issue?

In the Joint Committee on Taxation’s publication Present Law and Background Relating to Worker Classification for Federal Tax Purposes (JCX-26-07), May 7, 2007, 20 factors the IRS analyzes to determine whether sufficient direction and control exist to support an employer-employee relationship are set forth. Those factors are:

1. Instructions: If the person for whom the services are performed has the right to require compliance with instructions, this indicates employee status.

2. Training: Worker training (e.g., by requiring attendance at training sessions)
indicates that the person for whom services are performed wants the services performed in a particular manner (which indicates employee status).

3. Integration: Integration of the worker’s services into the business operations of the person for whom services are performed is an indication of employee status.

4. Services rendered personally: If the services are required to be performed personally, this is an indication that the person for whom services are performed is interested in the methods used to accomplish the work (which indicates employee status).

5. Hiring, supervision, and paying assistants: If the person for whom services are performed hires, supervises or pays assistants, this generally indicates employee status. However, if the worker hires and supervises others under a contract pursuant to which the worker agrees to provide material and labor and is only responsible for the result, this indicates independent contractor status.

6. Continuing relationship: A continuing relationship between the worker and the person for whom the services are performed indicates employee status.

7. Set hours of work: The establishment of set hours for the worker indicates employee status.

8. Full time required: If the worker must devote substantially full time to the business of the person for whom services are performed, this indicates employee status. An independent contractor is free to work when and for whom he or she chooses.

9. Doing work on employer’s premises: If the work is performed on the premises of the person for whom the services are performed, this indicates employee status,
especially if the work could be done elsewhere.

10. Order or sequence test: If a worker must perform services in the order or sequence set by the person for whom services are performed, that shows the worker is not free to follow his or her own pattern of work, and indicates employee status.
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