A practice’s desire to grow by adding another doctor can present a medical group with a significant economic dilemma. The practice must balance the need for additional physicians against the cost to a group of a new doctor’s salary and overhead during the time that he or she is building a profitable practice. One solution is to recruit new physicians with the financial assistance of a hospital.
If the financial assistance of a hospital is available, the medical practice can hire a new physician while the hospital underwrites most of the expense. The hospital’s assistance is in an amount calculated to cover the short fall between the revenue a new physician generates and the amount of his or her salary plus the cost of any overhead directly attributable to the new physician. The recruited physician must agree, among other things, to repay the hospital any amounts paid on behalf of the new doctor; however, the hospital will release the new physician from this debt over time, if the physician continues to practice in the hospital’s community.
Since it is likely that the new doctor will be in a position to refer patients to the recruiting hospital, the financial assistance from the hospital must be structured to comply with the Stark and Anti-kickback Laws. In addition to placing restrictions on the new doctor’s relationship with the hospital, the Stark and Anti-Kickback Laws also place specific limitations on the recruiting practice’s relationship with the hospital and the employment agreement with the new doctor.
Both the Stark and the Anti-kickback Laws require in most circumstances that a hospital’s assistance be limited to either newly licensed physicians or physicians that are “relocating” their practice. Both the Anti-kickback and the Stark Laws require that there be a need for the physician in the community served by the hospital. If the group the physician is joining will be receiving any of the funds from the hospital, the Stark Laws require that a recruitment agreement be a three way agreement among the hospital, the practice, and the physician. In addition, among other things, there is a limit to the amount of expenses attributable to a new physician for which a practice can be reimbursed and the hospital’s assistance cannot be tied to a new physician's patient referrals.
Finally, both the Stark and Anti- Kickback Laws prohibit a physician practice from unreasonably restricting the recruited physician’s ability to practice medicine in the geographic area served by the hospital. Non-compete and similar restrictions are permitted in a practice’s agreement with the new doctor so long as those restrictions do not unreasonably restrict the recruited physician’s ability to practice medicine.
Tennessee law defines what is a reasonable non-compete restriction in the context of a medical practice. In Tennessee, a geographic restriction which prohibits practice within the county in which the practice is located or an area in a ten mile radius from the practice is considered reasonable. Tennessee law provides that in certain circumstances up to five years is a reasonable time restriction but, more typically, two years is the reasonable limit on a non-compete.
Although the financial assistance of a hospital may be desirable in recruiting a new physician, it is a complex and highly regulated relationship. A practice and its newly recruited physician should carefully review and consider the various agreements involved in working with a hospital to obtain recruitment assistance, both to confirm the business terms of the arrangement and to insure compliance with the various state and federal restrictions.
