What is a Physician Income Guarantee Agreement and How to Negotiate with a Hospital?
By: Pearl Walia
An Income Guarantee Agreement is a type of forgivable loan provided by a hospital to a physician who is newly entering practice. Under this agreement, the hospital offers financial support to help the physician establish their practice within the community. If the physician makes the guaranteed amount under the agreement and continues to practice in the community for the pre-determined duration as established under the agreement (also known as the “forgiveness period”), the hospital will forgive the loan. These agreements are commonly used in communities with a greater need for physicians or specialists, as they help support building their patient base during the early stages.
Under this model, hospitals guarantee an income. Each month, physicians receive the difference between the guaranteed amount and the actual revenue generated by the physician. This model protects physicians against factors impacting the variability of their production including practice development, fluctuations in patient volume, or other unforeseen events. For example, if the guaranteed amount is $25,000 per month, and the practice earns $15,000 in a given month, the hospital would provide the remaining $10,000. The key periods under this agreement include:
- Guarantee Period: the period during which the physician receives financial assistance, and is fixed in the contract, often ranging from one to three years.
- Forgiveness Period: the duration in which the physician agrees to remain in the community for a certain number of years after the completion of the guarantee period, often spanning 2-3 years per year of financial assistance, although the duration can be If the physician accepts an income guarantee and leaves the community before the forgiveness period expires, they may be required to repay the unforgiven portion.
- Repayment Period: The period during which any unforgiven amounts must be paid by the
There are two types of Income Guarantee Agreements: Hospital Income Guarantee, and Income Guarantee Resulting in Ownership or Partnership.
1. Hospital Income Guarantee Agreements
Under this model, the hospital provides a newly licensed physician with financial support during the early stages of the physician’s practice, after they are newly licensed. This support is equal to the amount of guaranteed income, less the actual income that is generated by the physician. Under this model, physicians are protected from factors that may hinder their volume production, such as fluctuations in patient volume, or other unforeseen events. It is critical for physicians to thoroughly understand the limitations and durations of these agreements.
2. Income Guarantee Resulting in Ownership or Partnership
Under this type of agreement, a medical group or healthcare organization temporarily funds the startup and overhead costs associated with establishing a physician’s practice until the practice becomes financially independent. Over time, the physician can eventually become an owner or partner within the practice. Each month, the physician receives the monthly guaranteed amount, less the actual monthly income collected by the physician. As the physician’s revenue increases, the financial support provided decreases accordingly. If the physician’s revenue equals or exceeds the guaranteed amount, no additional payment for that month is provided. In essence, the purpose of this arrangement is to subsidize the physician’s income and certain practice-related expenses while the practice is being established.
How can a Physician Negotiate an Income Guarantee Agreement with a Hospital?
1.Understand the Agreement
Before entering negotiations, physicians should comprehensively understand all material terms of the agreement including the forgiveness period, the guarantee period, guaranteed compensation amount, repayment obligations, and any limitations or conditions that may impact compensation. Physicians should understand the purpose of the agreement and how revenue generation of their practice can impact the financial assistance under the agreement. It is also important for physicians to evaluate both their short- and long-term professional goals, including whether they intend to remain in the community. Physicians may consider consulting a health law attorney to review the agreement to help them fully understand any legal and financial implications.
2. Ensure it is in Writing
An Income Guarantee Agreement should always be in writing. This helps clarify expectations, and provides protection in the event of any future disputes or litigation.
3. Negotiate Key Terms
Depending on the physician’s unique practice needs and goals of achieving volume production, certain provisions can be negotiated, such as the forgiveness period, guarantee amount, guarantee period, and repayment period, and other financial obligations.
Questions Physicians Should Ask Themself When Negotiating
- Do I fully understand the terms of the agreement?
- Do I understand the difference between the guarantee period, forgiveness period, and repayment period?
- Am I aware of how my revenue may impact the financial support provided each month?
- What are my short-term and long-term goals for my practice?
- Do I intend to remain in this community long term
When Is It Recommended to Seek Guidance on the Contract Terms?
Income agreements often contain unfamiliar legal jargon and complex compensation formulas, making legal guidance a valuable resource. Having an attorney review the agreement and explain its terms to you in a clear and understandable way ensures that you fully understand your rights before picking up the pen and signing. It is always better to address any ambiguities in the contract before executing the agreement than to undergo a messy dispute after the fact. Before signing, ask yourself whether you can explain all terms and provisions in the contract, and whether you fully understand how the compensation formulas operate. If the answer to either question is no, consulting an attorney is strongly
recommended.
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It should be noted that I am not your lawyer (unless you have presently retained my services through a retainer agreement). This post is not intended as legal advice; it is purely educational and informational, and no attorney-client relationship shall result after reading it. Please consult your own attorney for legal advice. If you do not have one and would like to retain my legal services, please get in touch with me using the contact information listed above.
All information and references to laws, rules, regulations, and advisory opinions were accurate as of this time, but laws are constantly evolving. Please get in touch with me to ensure that the law governing your business is up to date. Thank you.
