What is a Net Income Guarantee?

Question: What Is an Income Guarantee? How Does an Income Guarantee Work?I am a physician finishing up my residency and currently starting my search for new practice opportunities. Several hospitals have described an "income guarantee" as being the core component of their compensation plan. How does an income guarantee work? Is it the same thing as receiving a base salary?

Answer: An income guarantee is a way for hospitals to attract physicians to their community to practice in the hospital's service area. An income guarantee is not a salary! An income guarantee is more like a loan, or an advance, that is forgiven over time, to help a physician get started in his or her own private practice. As a recipient of an income guarantee plan, you are not an employee of the hospital, but you may have to meet a few key requirements. The terms of an income guarantee allow you to build your practice the way you want to build it, as long as you become self-sufficient by the end of the guarantee allowance period, which is usually 12 months, or 18 months at the most, depending on your medical specialty. The income guarantee amount is set ahead of time. For example, you may be offered a guarantee of $20,000 per month. If your income guarantee were set at $20,000, you would receive a check each month for an amount equal to the difference between $20,000 and the amount you collected that month. At the end of the 12 months, if that is the guarantee period, you would neither accrue any further debt or have to pay anything back, as long as you remain in the community practicing medicine. An average forgiveness period is about three years after the end of the guarantee period.

There are two types of income guarantees: a Net Income Guarantee, and a Gross Income Guarantee. A net income guarantee covers your salary only. Your overhead expenses would be expensed, approved, and reimbursed as a separate entity.

A gross income guarantee would include your salary and overhead expenses all in one flat monthly guaranteed rate. If you run your practice lean, and have money left over from the expense budget, you would get to keep that extra money that was saved.

Typically, after the Guarantee Period, most hospitals offer forgiveness on the amount of subsidy provided under the Guarantee Agreement if the recruited physician remains in the community for a period of time after the Guarantee Period. This is usually called the "forgiveness period." Again, every hospital has its own way of determining the length of time necessary for the forgiveness of the subsidy amount. When these agreements first started popping up, it was common to see one year of service to the community for each year of the Guarantee Period. As time wore on, and these agreements grew in popularity, and the amounts provided under these agreements grew, many hospitals started requiring longer periods of time for the forgiveness period, some as long as four years or more for a one year Guarantee Period (!), although most commonly, hospitals require a two year forgiveness period for a one year Guarantee Period.