Physician Compensation: Income Guarantee vs. Guaranteed Salary

By Filed in physician compensation with 2 comments

cell phone spy softwareAs you begin your physician job search, it’s important to have a solid understanding of different kinds of Physician compensation models. This involves more than determining how much money you’ll make — it’s about making an informed choice that’s right for you in the long term.

Your rate of Physician compensation is one thing (i.e. $300,000 per year), but different compensation models can make things confusing.

Put simply, a compensation model is a formal arrangement for your pay. Over time, however, an arrangement can have a big impact on your bottom line, causing you to leave thousands of dollars on the table.

With that in mind, let’s look at two of the most common arrangements — guaranteed salary and income guarantee.

What is a Guaranteed Salary?

A guaranteed salary is a compensation model that’s typically provided for one or two years. After that, physicians are usually switched to a production-based compensation plan.

This is a great model for new physicians, as it removes the risk associated with starting a practice. It often takes a couple of years for a physician’s schedule to fill up with new patients, so a guaranteed salary provides a safety net for that time.

In addition, many guaranteed salary contracts have a clause that states that the physician must give thirty days to six months’ notice prior to leaving the practice. This provides a way out if the physician is not satisfied with the position. Other types of contracts are less flexible, requiring the physician to sign on for four years or more.

Sounds great, right?

It can be, but that’s not always the case. If a physician has low productivity, he or she might experience a significant decrease in income when switched to production-based pay.

Unfortunately, this sometimes inspires “practice hopping,” or moving from one guaranteed salary to another. This keeps physicians from gaining real momentum in their careers.

Physician Compensation: Guaranteed Salary Pros and Cons

Pros:

  • Administration makes decisions
  • Fewer business aspects to deal with
  • Generally light call
  • Not tied to the position long term

Cons:

  • Less autonomy
  • More competition for opportunities
  • Compensation is less flexible than other models
  • Agreement expires, which may cause financial uncertainty

What is an Income Guarantee?

An income guarantee supports a physician for a certain amount of time, with the assumption that he or she will eventually take ownership of practice.

Initially, the organization pays the physician a salary, but it acts as a loan. Over time, as revenue comes in from the physician’s services, it is applied against this loan.

Up front, this doesn’t sound too enticing. However, the great thing about the income guarantee model is that it allows a physician with high production rates to earn much more. Unlike the guaranteed salary model, there typically isn’t a cap on income.

Generally, income guarantee models require a commitment of at least four years. This makes it a good model for physicians who are looking to settle down and commit to a specific practice.

Income Guarantee Pros and Cons

Pros:

  • Provides autonomy and flexibility
  • High income potential
  • Great for physicians looking to settle down
  • More support with administrative duties

Cons:

  • Heavy call schedule
  • More risk
  • Can be penalized for ending commitment early
  • Financial uncertainty

Which Model is Right for You?

Even if you think you know what Physician compensation model is right for you, it’s always a good idea to learn more. The Physician Compensation Packages Tools section in the Adventures in Medicine Resource Library provides even more information.

Stay tuned for next week’s post, which goes into more specifics about the guaranteed salary model.

What are your thoughts on different physician compensation models?

Do you find one to be particularly appealing (or unappealing)?

Why?

Please share your views in the comments below.

Doctor Career: Sponsors

Though the views expressed above are solely the writer's, Guthrie Clinic supports “The Dose with Dr. Goodhook” and is partnering with Adventures in Medicine to create an open, inspiring and insightful community for residents and physicians. Click here to learn more about ways that Guthrie Clinic is making practice purposeful.

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About

Holly Higgins is a freelance writer. She enjoys working with the Adventures in Medicine team and industry experts to create educational materials for residents, fellows and practicing physicians.

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2 Responses to Physician Compensation: Income Guarantee vs. Guaranteed Salary

  1. […] hard for residents who are seeking their first job opportunity to make sense of different compensation models. After being cooped up in school for over 10 years, most are ready to start building a practice, […]

  2. Nadene J. Bradburn, M.S., M.A., F.A.C.H.E. says:

    A “Guaranteed Salary” can also mean a straight salary in certain contexts–especially rural environments where productivity models are rarely used–so you should ask the question if the position description doesn’t explicitly indicate, “Two-year Income Guarantee followed by RVU-based compensation model,” or some such statement.

    A Guaranteed Salary situation (i.e. a position that does not allow you to earn more for extra productivity or offer bonus opportunities) is one that you can negotiate for a higher salary more aggressively up front.

    “Income Guarantee” is also the term used when a hospital system offers support to an independent physician practice looking to recruit a physician using the Stark recruitment safe harbor. In those situations, there is most definitely a cap on income. The salary paid must be deemed “reasonable by a 3rd party comp reviewer, and the doc’s AR must be reconciled annually against the practice’s Allowable Expenses. Any excess payments to the physician must be repaid to the nonprofit hospital.