Do Hospitals Pay Off Student Loans for Doctors? | Physicians Student Loan
Do hospitals pay off student loan debt for doctors? If a doctor gets a job with a hospital or healthcare network, can that organization pay off the student loan? Well, the answer to that is yes, they can. The better answer is how often they do that. And then how is it structured?
Student Loans Debt for Doctors
I would say it’s rare for any organization to agree to pay off student loans debt for a physician. It’s probably say less than 20% of the contracts I’ve reviewed include student loan payments. Also, there is easily a cap on how much the organization is willing to pay. I will say 150,000 is probably the max that I’ve seen. Usually, it’s somewhere between fifty to a hundred thousand.
How Do Doctors Pay Off Student Loans
Doctors have several options for paying off student loans, which can be tailored to their financial situation and goals. One popular method is refinancing, which involves consolidating high-interest loans into a lower interest loan, enabling faster repayment and potentially saving thousands of dollars in interest over time. In addition to refinancing, physicians can explore loan forgiveness programs such as Public Service Loan Forgiveness (PSLF), which offers forgiveness after 10 years of qualifying payments while working in a qualifying public service position. Income-driven repayment plans can also be beneficial, adjusting monthly payments based on income and family size, with the potential for loan forgiveness after 20-25 years. Ultimately, doctors should carefully consider their unique circumstances and consult with a financial professional to determine the best strategy for repaying their student loans efficiently and effectively.
How Long Do Doctors Pay Off Student Loans
The time it takes for doctors to pay off student loans varies depending on factors such as loan balance, interest rates, repayment plans, and income. For federal loans under income-driven repayment (IDR) plans, the repayment period typically ranges from 20-25 years, with potential loan forgiveness after the designated term. However, some doctors may opt for standard repayment plans, which have a 10-year term, or choose to refinance their loans to secure lower interest rates and expedite repayment. Additionally, doctors participating in loan forgiveness programs like Public Service Loan Forgiveness (PSLF) may have their remaining balance forgiven after 10 years of qualifying payments. Ultimately, the repayment timeline is highly individualized and depends on the doctor’s chosen repayment strategy and financial circumstances.
How Student Loan Forgiveness is Structured
Let’s talk about how that is structured. It’s usually one of two ways. One, if a physician signs an employment agreement with the hospital or network. There will be language that says, we will provide you with this amount of student loan repayment. In that case, the physician is typically not just handed a check, then they pay off the student loan. The organization will pay an amount directly to whoever the physician has a student loans with.
Pay Student Loans Through Staying With the Hospital
The two most common ways it’s done is the organization simply cuts a large check, so a hundred thousand dollars. Then they will pay that directly to the student loan provider. The physician would then have to stay for a period. Or they would have to pay back an amount of that money.
An average amount would be anywhere between two to four years for student loan forgiveness. How the hospital would forgive that would be, let’s say it’s four years. Every month the physician stays with the employer, the employer would forgive 1/48 of that student loan forgiveness. It means that the hospital would forgive 1/48 of 100,000 every month. Then they would work until it was gone entirely. That’s one way of doing it.
Hospitals Can Pay Medical School Debt in Parts
The other common way of doing it is the employer will just set a standard amount. Let’s once again just say $100,000. They’ll say, alright, over three years, we’ll pay 1/36 of that $100,000 monthly directly to the loan provider. The benefit is that the physician doesn’t have to worry about paying anything back. The downside is, with interest, it just makes sense to get a big chunk up front, and pay it all off. Then the principle that interest is being drawn from is much smaller immediately.
Now, if a physician goes into a job and they’re not sure they want to stay there for a while. They may leave after a year or two. Then it might not make a lot of sense to take a huge lump sum upfront and must repay it. There are some tax implications with that. I mean, it’s a mess, so it depends upon the physician’s situation. If they’re confident they’ll stay in the community, there’s no way they’ll leave. In that case, getting that big lump sum upfront makes complete sense. If someone’s iffy than the other, the monthly amount provided to the loan company would also be a better option.
Student Loan Repayment Unlikely in Private-Owned Practice
You can certainly ask for loan forgiveness. It’s improbable that if the physician gets a job with a private physician-owned group, they will get student loan forgiveness. That’s just reality. Most of the time, a hospital or healthcare network provides student loan forgiveness. So, that’s one thing to think about.
There are also some benefits of working for federal programs. You have the PSLF. Google that, and I’ll go through that in a later video. But working for a federal provider is another way of getting your student loan paid off quickly. Well, not quickly, but a better way of getting them paid off.
So, do hospitals provide school loan forgiveness assistance? Yes. There are different ways to work it. Do they do it very often? No, especially dependent. Hopefully, that’s a little rundown of how it works.
Chelle Law will provide a physician contract review and advice to identify areas we could improve and assist you in negotiating the best contract possible. Other topics of interest include:
Are Physicians Eligible for Student Loan Forgiveness?
Are doctors eligible for student loan forgiveness programs? In my mind, there are three main ways that a physician can have their loan forgiven. Or at least a portion of their student loans forgiven. The first would be if the employer simply agrees to pay a certain amount directly to the physician’s loan provider. The second would be if they’re part of loan forgiveness programs. Which is where they work for a federal entity for a period, generally out of training. And then third would be if there’s a state program.
Not every state provides a loan forgiveness program, but many states do. Normally, it would be in rural areas that are hard to recruit to. And the state would then pay or forgive a certain amount of whatever their loan was. If the physicians stays in the area practicing their specialty for a set amount of time.
Hospital Network Service Loan Forgiveness Programs
Let’s just take each one individually and go through some of the things you need to think about. First, it would be with the hospital or hospital network. You are very rarely going to see any kind of debt forgiveness if you are joining a private physician-owned practice. It just simply does not happen. If you do enter debt forgiveness with a hospital or hospital network, it’s usually situated like this: they’ll say, we will pay this amount to your loan provider directly.
Then as long as you stay employed with us, there’s no student loan repayment. And there are a couple of ways to situate it. The first would be if they just give a lump sum upfront. On average, the debt forgiveness would be somewhere between 50,000 to 150,000. Then if they give a lump sum upfront. It would be forgiven over time. This means if they give you $150,000 for debt forgiveness, and then you leave after six months, you’re going to have to pay back a large portion of it.
It’s usually tied to the term of the agreement, sometimes beyond it if it’s a significant amount of money. Let’s say you have a three-year initial term, then they would state maybe for every month that you’re there 1/36 of the debt that the upfront money we gave you would be forgiven.
That’s a normal way of doing it. Another would be, let’s just say it’s $50,000 stretched out over the term and it’ll just state every month, we’ll pay directly whatever the 1/36 of 50,000 is to your loan provider. That’s good in the fact that physicians wouldn’t ever have to repay anything which is annoying. And there are some tax implications as well. So, those are kind of the two main ways of doing it.
School Loan Forgiveness in a Big Hospital Network Setting
If you’re with a hospital network, they’ll just pay you a significant sum of money upfront, then you use that to pay off a portion of your debt, or they’ll just pay a certain set amount over time. Sometimes, if let’s just say they were going to pay you 150,000, they may do 50,000 at the end of each year of the initial term of the contract. So, after year one, they’d pay 50,000 to the loan provider after year two. That’s another way of avoiding having to pay anything back. And I would suggest doing it that way.
Public Service Loan Forgiveness
The next one would be with the public service loan forgiveness program. Briefly, this is if you become employed through the federal government and then stay employed for ten years is the amount then they will completely forgive your student debt.
The downside to that is you’re usually going to make less, so your compensation is going to be below market. So, you may need to do a cost analysis of, alright, well, if I’m making $50,000 less a year over the course of 10 years, could I have just taken a normal position, made more, and then paid it off in the end? Depends upon the situation, but that’s kind of the thinking that you need to go through is alright, which one ultimately would I make more money or have the forgiven faster?
And then last, as I said before if there’s a state program. Some states will provide, once again, usually somewhere between 50,000 to 150,000. And they would just state that if the physicians was working within a certain area for a period, they would have whatever set amount forgiven.
Private Physician Loan Repayment Program
Debt forgiveness is rarely provided. It’s not a common thing. And as I said before, if you’re joining a private physician-owned group, it’s exceedingly rare that you would get any kind of debt forgiveness at all. Obviously, it’s a great perk to a job. I know plenty of doctors that I assist will then seek out those jobs in the first couple of years, get through the initial three-year term, get their student loan forgiven, and then move on to whatever city that they ultimately want to end up in. That’s a smart way of doing it.
So yes, doctors are eligible for debt forgiveness. It generally will not be the entire sum. It will be a decent portion of it. But if you kind of look for those specific jobs, you certainly can find opportunities for that.
Physician Recruitment Forgivable Loan Explained
Physician recruitment agreement forgivable loans explained. Primarily, hospitals use these for people just coming out of training. How a recruitment agreement works is the doctors would have employment agreements with a private practice within an area. Then, the hospital would supplement the first-year compensation of the doctors if they stay within the area for some time. I know it might be a little complicated, so let’s break it down. The employment contract with the employer will dictate the employment relationship between the parties.
What are “Physician Recruitment Agreements?”
Some practices couldn’t afford to compensate a physician at the very beginning completely. And so, the hospital may need that specialty in the area, but they don’t want to employ that physician themselves. They might say, if you bring in this physician in this specialty, we’ll cover their first-year expenses plus some bonuses. In the recruitment agreement, it may state, “We’re going to give you a signing bonus. We’ll be helping with relocation assistance, and then cover a certain amount of compensation for the entire first year.” Let’s say you’ve got a primary care physician, and they’re making 200,000 a year. The hospital would say, alright, we’re going to supplement 200,000 for that first year.
And then they’ll offset that by whatever the doctors bring in. They’ll cover the practice’s expenses as well. And then at the end of that year, there will be an outstanding amount of money.
How Physician Loan Works
That amount is going to be thought of as a forgivable student loans. And as long as the doctors stay within that geographic area of the hospital. The recruiting agreement will say, as long as you stay within these zip codes, we’ll continue to forgive the student loans. There’ll usually be a one-year income guarantee period for compensation, and then there’ll be a forgiveness period after the fact. Usually, it’s three to four years.
How they usually would do it is they’ll take that amount. In this scenario, the total amount with signing bonuses, relocation assistance, base salary, and practice expenses is 300,000. And it’s a three-year forgiveness period. They’ll say, alright, for every month you’re here, we’ll forgive 1/36 of that 300,000. If you stay in the area practicing for three years, we’ll forgive that amount at the end of that period. You do not owe us anything. Then you’re free to move on and do what you want.
Why Would Doctors Sign a Physician Recruitment Agreement?
Now, why would doctors sign a physician’s recruitment agreement? Well, during recruitment, I would avoid it if possible. But there are some jobs that would only exist if supplemented in some way by the hospital network. And so, you need to say, is the practice just doing this not to have to pay me? And I will not tell the practice that they’re doing something dumb. They’re not, they’re being smart about the business. Why wouldn’t they accept supplements? Why would they say no, we’ll pay everything, when they could have a hospital cover many of the fees.
The Downside to Physicians in Signing Physician Loan Agreements?
The downside to the doctors is several things. One, they will ultimately be responsible for the outstanding amount at the end of the initial income guarantee period. And let’s have a scenario where they have a non-compete in their contract with the employer. Still, the recruitment agreement states they must stay within a geographic region to forgive the outstanding amount. They could be completely limited in their options if they have a terrible non-compete in the employment agreement.
Ideally, the hospital would require the employer to remove any non-compete language. I’d suggest making sure that happens. And you need to press the hospital network to press the employer to remove that language. If you go to the employer and say, I’d like that removed, they may say, no, we’re not doing that. If the hospital insists that the employer remove that type of language, you need to tell the hospital. Therefore this needs to happen. They will much more likely remove them if the practice requires a physician. Still, they don’t want to pay the entire amount of compensation and bonuses at the beginning. It’s likely worth it for them to remove the non-compete to get supplemented with all the things I just mentioned.
If you have a physician recruitment forgivable loan, you get the non-compete removed from the physician’s employment contract. Because if you’re in a rural environment, there aren’t that many opportunities in your specialty. And you did have a non-compete, maybe there are no opportunities for you. It would be impossible for you to work out that three-year forgiveness period. You’re stuck with a significant amount of money.
There is interest in that amount as well. They’ll likely have you pay it back immediately and fully as soon as you’re no longer practicing within that region. So, that’s something doctors must be cautious about. And then another one is, every work looks great at the beginning, right? Everyone is nice, a huge growth opportunity, but it may not be as nice when you get there.
Federal Provider Can Help With Student Loan Repayment
If someone’s iffy than the other, the monthly amount provided to the loan company would be a better option also. You can certainly ask for loan forgiveness. It’s very unlikely if the medical practitioner gets a job with a private physician-owned group, that they’ll get student loan assistance. That’s just reality. Most of the time that student loan assistance is provided is from a hospital or a healthcare network. So, that’s one thing to think about regarding student loans.
There are also some benefits of working for a federal program. You have the PSLF, Google that and I’ll go through that in a later video. But working for a federal provider is another way of getting all of your loans paid off quickly. Well, not quickly, but a better way of getting your loans paid off. In summary, do hospitals provide student loan assistance? Yes. There are different ways of doing it. Do they do it very often? No, especially dependent, but hopefully, that’s kind of a little rundown of how it works.
Other Issues to Think About
There may be problems that there’s just no way of knowing about in the interview process. You may come into a job and think, oh man, this isn’t gonna work for me. If you’re under a recruitment agreement, it could cause big problems for you. One, getting out of that work or two, paying back significant amounts of money. I would be cautious about signing a recruitment agreement with a hospital network without really thinking about it. Is this the absolute place that I want to be? Do I have other opportunities elsewhere that won’t require me to sign a recruitment agreement? It’s an arduous process. When I’m going over physician’s contract agreements with someone who just had training, they generally don’t know about these things.
When adding a recruitment agreement on top of an employment agreement, it’s like information overload for doctors. Sometimes, it’s difficult to convey the dangers of signing something like that. It’s probably infrequent. The contract agreements that I review containing or having a recruitment agreement attached is perhaps less than 10%. I’m not saying this is a terrible opportunity. As I said, some jobs may not exist if the hospital doesn’t supplement them for the first year. And they can become tremendous opportunities.
But you always must look at, alright, what’s the worst-case scenario in this situation? The worst-case scenario is someone signs a contract, starts work, hates it, gets out, and owes 200,000. I can tell you if you’re just out of training, you’re not going to have, at least not immediately. So, that’s a breakdown of a physicians forgivable loan. I would suggest talking to somebody, an attorney, about each document before you sign anything. Especially Physician Loan Agreements or Physician Recruiting Agreements. Honestly, be careful if you’re going to do both and find somebody with expertise in doing this. To get a set of eyes on it and kind of walk you through the dangers of it.
What is a Stark Service Area?
What is the stark service area definition? The definition is so that physicians can better understand the repercussions of signing a recruitment agreement. And whether they’re eligible to sign one as well. First, most recruitment agreements I find are for newer doctors. Either they’re just coming out of training or have been out for a year. The basis of the recruitment agreement. And lastly, the exception allows a hospital to supplement the medical practice with money to bring in the physicians. I’ll just read what those are.
Relocating to the Patient Origin
There must be a documented need in the zip code area for the physician specialty. It must be in writing.
The physicians must relocate their medical practice to the patient area. What is the area itself? It must be the geographic region that the hospital serves. In this case. It is the lowest number of contiguous zip codes from which the hospital draws at least 75% of its patients.
That means in the recruitment agreement. There will be an attachment. It will just have a bunch of zip codes. And depending upon where it’s at, it could be 40 different zip codes. In some bigger cities, it could just be a couple. What those zip codes mean is that the physicians has to relocate their practice within those zip codes. Then they have to provide care to the people within them.
And that grants the exception of how a hospital can supplement the medical practice that the physicians are joining. How do they supplement? Well, it’s generally through an income guarantee. The hospital will guarantee that the physicians will receive a certain amount each month. They can reimburse overhead expenses, signing bonuses, relocation expenses, and student loans assistance.
If the Physician Leaves the Medical Practice Within the Service Area
There are several ways to supplement a medical practice. But the service area and medical practice must be within those zip codes. I guess the main thing to consider is that suppose the physicians decides to leave the medical practice. They can continue to stay within that stark service area and not have to pay anything back to the hospital. How the recruitment agreement works is they will provide a certain amount of money. And it’s generally the first year, the income guarantee period.
Then, as long as the physicians stays within that service area for several years, it’s three or four years. Which is called the forgiveness period. If you stay within that community for that period, the employer will forgive what the hospital paid in year one. Usually, it’s a monthly fraction. So the hospital would forgive 1/36 of that student loan monthly if it’s a three-year forgiveness period. Suppose the relationship goes south with the employer within those contiguous zip codes that serve 75% of the patients.
Now, there are two exceptions. There are some exceptions for rural areas. And to residents who’ve been training within the area where this may not necessarily apply. They don’t have to move into the area, but I won’t get into that right now. If the physician wants to end the agreement and stay within the area, they don’t have to pay anything back.
Stark Service Area Considerations When Staying
There must be an analysis of a few things before a physician/physicians signs a recruitment and employment agreement simultaneously. One, there shouldn’t be a non-compete. Most recruitment agreements will list that there can’t be a non-compete between the employer and the physicians. Let’s say there’s a broad non-compete. 30 miles from the primary practice location and all the zip codes are obviously within 30 miles of the hospital. The physicians won’t have the opportunity to stay within the area. That’ll force them out. And they may be on the hook for having to pay back the amount that’s still left on the student loans. First, the physicians need to make sure that there’s no non-compete. Or maybe a very reasonable and small non-compete where they’d have other opportunities.
Another analysis we must do is, are there other opportunities in that area if the physician were to leave? In smaller communities and certain specialties, only one practice does that. So, if a physician wants to stay in that service area, is there another practice to go to? Do they have alternatives? The worst possible thing that can happen to a physician is when something happens with the original employer. They don’t have an opportunity to get work within the service area. Then they owe hundreds of thousands of dollars to the hospital.
There should be joint and several liabilities between the medical practice and the physicians. That’s another thing to also look at. Hopefully, that’s a good analysis of this stark service area. These are tricky. If the recruitment agreement is the sole reason why work is available, certainly it’s an excellent opportunity. But these do not always end well. And they present some real challenges if the relationship goes south with the employer, so we need to be careful.
What is the Stark Law Recruitment Exception?
Today, I will discuss recruitment agreements; the interplay between the employment agreement the physicians will sign as a new job. What a recruitment agreement is, and the downsides and upsides.
What is a recruitment agreement? The stark and anti-kickback laws allow a hospital to provide certain financial incentives to medical practice in their efforts to bring in a new physician into the area. What does that mean? If a physician is moving to a new job, either out of training or from somewhere else. Most of the time it’s with young doctors or people newly out of training. They will sign an employment agreement with the practice itself.
However, there are also some opportunities for a hospital to supplement that physician’s income for the first year. And provide some other incentives too. So, you could have a recruitment agreement with an income guarantee. They will essentially pay the medical practice a certain amount to supplement the physician’s salary. They can provide moving expenses, signing bonuses, and student loan repayment. Or they could also cover costs from the practice associated with bringing the physician in, most likely through overhead. There are a lot of opportunities for a hospital to supplement a medical practice. Why do they do this? Well, it’s possible that medical practice could not financially afford to bring in a physician without these supplements. Or it’s also just a smart way for a practice not to pay as much money as they usually would.
In most of the specialty services, it would be someone who must build up a practice. Most doctors moving into a new job are not very profitable for the first year or two. Once again, kind of specialty-dependent and practice-dependent. Are they replacing somebody? Are they coming in from the cold? Do they have any ties to the community? All those things kind of factor in. It usually takes 12 to 18 months for practice to reach maturity. If you’re in family care and joining a practice, you’d continue seeing more volume for the first 12-18 months.
Rules of What Hospitals Can Do
What are the rules that dictate what a hospital can do? The conditions that need to be there? I’m just going to go through the list.
One, there must be a documented need in the area for the physicians specialty. It needs to be in writing. The hospital will give a contract to the physicians and the qualified health center, and they will both sign it. The physicians must relocate their medical practice to the area. They must move into the geographic area served by the hospital. What is the geographic area? Mostly, it’s the lowest number of contiguous zip codes from which the hospital draws at least 75% of its patients. So, there will be an attachment at the back of every recruitment agreement that lists zip codes. Basically, the physicians must serve those zip codes. For the recruitment agreement, the physicians must move at least 25 miles from 25 miles into the geographic area.
There are also some exceptions for rural communities and residents who’ve been in training and want to stay in the area. A few minor exceptions exist. But for the most part, the things I mentioned dictate whether a hospital can provide the recruitment agreement. What does the recruitment agreement look like? It’s a contract like an employment contract and dictates the terms of what they offer. And most importantly, what the forgiveness period is. The hospital does this so they can bring in specialty health services.
Down the road, I guess initially, they will get downstream revenue from referrals from this physician. I mean, that’s the whole point of bringing them in. Even though they provide an income guarantee, a signing bonus, and overhead expenses for the first year, which is standard.
Forgiveness Period for the Health Physician
Well, they will require a forgiveness period, meaning the physicians must stay in the area for several years. It’s usually three, sometimes four. Then each month they’re in that area providing care, the hospital will deduct a fraction from the overall loan amount. Let’s say a hospital sends 200,000 to the medical practice. That 200,000 amount, after the first income guarantee period, which is usually one year, will then be three-month forgiveness. So, the hospital will forgive 1/36 of that 200,000 every month. And this means that no one must pay it back if the physicians stays for the forgiveness period. In this case, if it was three years, no one would owe any money back to the hospital.
The hospital, as I said, will hopefully gain more by having that physician in the community and utilizing the downstream revenue from recruiting referrals into the network, which should more than cover whatever they paid out to bring the physician into the community.
The downside to the physician. Depending upon the agreement’s language, if they leave the area, they’re responsible for that amount of money. Usually, it would be a joint responsibility between the practice and the physician. But for the most part, if the physician leaves early, they will have to pay back that money.
For some doctors and other health specialties, it can be a significant amount of money. I’ve seen up to 500,000 after the first year, not that it’s specialty-dependent. But it could be a lot of money. Let’s say the relationship goes sour with whoever the employer is. Maybe there aren’t opportunities in the area to switch to a new group and continue in the geographic region. It can be a big problem.
The benefits of a recruitment agreement. One, if the work couldn’t exist, the medical practice couldn’t afford to bring in a new physician into the area. Then clearly, the recruitment agreement is creating the work opportunity for the physician. So, it may be necessary. I mean, it’s a no-brainer for medical practice. They essentially can have an entire year of doctors’ salaries supplemented by a hospital. They would take advantage of that if they could, and some practices are savvier than others.
Some of those agreements will require that, and they should, there’ll be no non-compete. If the physician must stay within a certain area to not violate the agreement. And the contract is terminated with the original employer. Still, there’s a non-compete that forces them out of that area, well, that is a massive problem for the physician. Most recruitment agreements will prohibit the employer from placing a non-compete into the agreement. That’s one thing to look for.
So, that was a little breakdown of recruitment agreements, stark law, and anti-kickback statute. It could be a valuable tool for a physician. But it could also be a disaster if not worded properly. Or if the employer has thought of all the permutations if the physician leaves the practice.
When Should a Resident Receive a Signing Bonus?
When should a physician in residency receive a signing bonus? The timing of it is essential. When medical residents finish training, they have likely already signed an employment contract. More importantly, when negotiating the contract, usually in their early PGY-3 year, some PGY-2. When they receive the signing bonus is crucial for a couple of factors. One, as doctors in residency, don’t make much money. Say they’re training in New York and get a job in California. Depending on their family size, it could be a substantial amount of money to move across the country.
Now, almost every employer someone signs with as a resident will offer relocation assistance. Usually, between $5,000 to $15,000. You won’t see above $15,000 as far as relocation assistance goes. Somewhere along there, they should pay for the entire amount, to be honest. And some people moving a short distance can also use the relocation assistance money for traveling back to the city. To look for an apartment or a home. So, airline lodging, all that kind of stuff. Some people could use that money for a security deposit or maybe the first couple of months’ rent. Most employers are flexible in what the physician in residency can use that money for. But they want it to be housing-related or relocation-related in some manner.
Negotiate To Get The Amount of the Signing Bonus You Need
Now, the timing of when you get paid is important. Usually, the physician in residency will receive different offer bonuses. One would be the relocation assistance as I said before, somewhere between 5,000 to 15,000. And also, a signing bonus is usually paid out during their first pay period. Whenever they get paid first after they start with the employer, that’s when they would receive the bonus. There’s a different way of doing it. Often employers will say unless it’s a big hospital network that has established relationships with moving companies. Let’s say you’re running a private practice. They’ll say, pay your moving expenses, submit us the receipts, and then we’ll reimburse you. Well, for some people, outlying $10,000 to $15,000 to move is difficult. Simply because, as I said before, you’re not a wealthy doctor when you’re still in training.
So, we assess the situation for the physician in residency and determine if is it helpful if you get this prior to moving. How soon before you complete training do you need the money? We can say to the employer, “Hey, look. It will help us defray the cost of the move if we receive this before moving.” Or, more importantly, maybe the employer would be willing to pay the amount directly to the moving company. In that way, there’s no cash outlay by the physician, which is the entire point of that. The signing bonus also. The timing of when the employer pays it can be essential as well. Depending upon the size of the signing bonus, we could say, we would like half upon execution of the agreement.
Discuss Resident Physician Repayment Obligations
So, when you sign the actual agreement, and both parties sign it, that’s called the execution of the contract. Many times, we could say, we’ll get half upon signing. And then the other half when they start. Both bonuses will have a repayment obligation tied to them. At least it usually would. This means that, let’s say the physician has an initial two-year term. The employer states, you’ll owe us a prorated portion of the bonuses if you leave before the initial two-year term. It could be quarterly forgiveness, monthly forgiveness, or yearly forgiveness. Let’s say someone has a $30,000 signing bonus. They say, alright, half of it is forgiven after the first year. And the other half is forgiven after the second year.
So, if the physician left between the first and second year, they owe back $15,000. So, the employer is insulated from the physician, simply taking the bonuses early. And then, splitting out on the job by signing the agreement in advance. There’ll be language in there that talks about the repayment obligations. If the employer is expressing concerns about that. Or maybe they just don’t utilize that. That would be a good way of saying, look, if you’re concerned about me, just take the money, and leave.
Then let’s put in these repayment obligations and therefore, you’re protected if I were to leave. And I benefit by getting the money in advance. So, that’s a discussion of when the physician in residency should receive the signing bonus or relocation assistance. It’s just dependent upon the situation for some people. It’s fine receiving it after the fact. But for others, it’s important to have it up front—just some things to think about.
How Much are Resident Physician Salaries?
One question med students have is the average salary for a resident physician. After a physician graduates from medical school, they move on to an internship or residency within their specialty. Then earn. But for most of them, it’s simply not even remotely enough for the work that they’re doing. So, it’s not uncommon for residents to work 70- or 80-hour weeks. The average salary for residents in the United States is around $63,000. Maybe you’re a resident right now, thinking, I don’t even make close to that, or maybe I make more. This is average across all specialties. Some specialties will make a little bit more than others.
Leverage in Salary Negotiation
Some could be as high as the 60s. Whereas maybe in family medicine, you could be about 50s. Can residents negotiate their salary during training? No, they have no leverage. Anytime you’re negotiating a contract, you base it upon leverage. Even those residents coming out of training and moving on to their first employed job don’t have much leverage either. The only leverage they have in those situations is if they’re in a needed medical specialty. Or two, if they’re willing to go to an underserved geographic area and need doctors.
So, around 63,000 is the medical residency salary. If you think of it this way, if they work 70 to 80 hours a week, they’re making about $15 hourly. And providing care as a doctor for $15 an hour. Now, once they move out of training, the salary increases substantially. And for some specialties could be an eight-fold increase, at least just coming out. But that’s what it is. One consideration we make when reviewing and negotiating the resident’s or fellow’s first contract. Most of them don’t have a ton of money coming out of training.
Importance of Relocation Assistance
So, suppose the new employer is offering a signing bonus or relocation assistance. In that case, we want to ensure they’re getting a chunk of that before moving and starting the new job. Wherever, if they are moving from where they’re currently training. Simply most residents, especially if they have family, may be the only breadwinner. At that point, they don’t have $10,000 to $15,000 if they’re making a cross-country move. So, we need to ensure that either the employers pay their moving costs directly to the moving company. Or they’re going to front the money before the physician needs to spend it on the move.
In that way, they don’t have to outlay a ton of cash. Because it certainly is expensive moving from one place to an entirely different one. Medical residents certainly are underpaid. Unfortunately, it’s part of the process they must go through to be fairly compensated for the services they provide. But it’s just tough when you’re making that little. And I think the average physician has about. I think 47% of doctors have student loans over $200,000. It could be a big burden.
How to Negotiate a Physician Contract
How do you negotiate a physician contract? What are the goals to consider during the contract negotiation process to win the terms of the negotiated agreements? So in my mind, there are three different scenarios. One, you’re either just coming out of training. Two, you’re switching jobs to an area of the country that you’ve never been to before, or three, you’re moving from somewhere within the area where you already live. So negotiation is always based upon leverage. Do you have it or do you not? So let’s just take coming out of training, for instance. For the most part, in negotiating job offers, the only leverage someone has when they’re coming out of training is in a specialty that’s hard to recruit for? I mean, that’s just the honest truth.
Negotiating a Contract by Physicians
You are not bringing in any established PA patient base. You’re also all relatively new to being out on your own. So, a learning curve will go into moving into any position. Consider this, if you are either in an area that’s very difficult to recruit that could apply to any specialty, or you’re in a specialty that’s all to bring in and is super profitable. Those are two things to consider.
When you’re looking into it, how do I negotiate the terms of the contract? And when people say negotiate, most of the time, they think about the bottom line, what is my base salary. But I think that’s kind of a narrow mind. And this will apply to anybody looking for a job. There are some other goals to consider during contract negotiations, at least in my mind, things that are more important than just the base compensation. One, what are the terms of the restrictive covenants?
Non-Compete is Important to Most People
My advice if someone lives in an area, they have family in the area, they have kids in the area. They absolutely cannot move after the contract ends since they will have to also think about things related to moving – like the schooling of the kids, or your wife’s job, or if they are also running a business. Sometimes, the non-compete could be the most important thing in a contract. A non-compete says you cannot practice within a specific area for a period.
Negotiate Tail Insurance
Another important piece is, who pays for tail insurance. Depending upon specialty, this could be an enormous part of a contract. If you’re an OB-GYN and you have to pay for your own tail and your underlying premium is $40,000 a year, your tail insurance cost will be higher compared to other specialties, probably going to be around 80,000. So, who pays for tail insurance certainly could be the most important thing in an employment agreement during a contract negotiation for an OB-GYN.
Employer Practice Negotiations
My advice if you’re being paid on production. Let’s just say you’re in a contract that’s just pure net collection. An average range for a physician is 35 to 40% of collections. Is there language in the contract that states that when the contract terminates, you will be able to collect for a 60 to a 90-day window after the contract terminates? If you don’t have that, then you literally worked for free for two or three months, which nobody obviously wants to do.
Going back to what is important, it depends upon the person what his goals are. Having the numbers is important when you’re looking at base compensation. They’re not always easy to obtain. Most places or the majority of the places use MGMA numbers. That’s a medical group management association. Most of the time you have to pay for that, and it’s expensive. So no physician, at least most physicians are not gonna do that.
You could either find someone who has access to those numbers and try to get them. Or if you kind of Google around on the internet, sometimes you can find them, the average, our view production, average compensation. It is broken down into areas of the country. I honestly don’t think those are accurate when it comes to determining exactly how much in what part of the country. There’s just a feel for what someone is getting in this area, but then you also have to consider all the other things I just said. If someone has a base that’s $10,000 less, but employers will not make you pay for tail insurance, or the non-compete is extraordinarily small, that’s worth way more than $10,000 in some instances. That are kind of a few factors during contract negotiation to think about.
Physician Employment Contracts
If you’re just coming out of training, let’s say you’re established in the community, either you’re a primary care PE, it’s cardiology, you have an established space, and you’re just moving into a new practice. Well, this is the highest leverage you can have during contract negotiation. There’s gonna be no, or at least there shouldn’t be a lot of time needed to ramp up the practice. You’re just bringing people with you. Plus, when you have numbers in a community, these were my net collections, or these were the RVs I produced, or these were the patient encounters I had on a weekly basis. Those are absolute hard numbers that you can use to negotiate compensation terms, moving to a different practice.
In that case, you have the highest leverage possible. Then obviously, you can negotiate all the ancillary things I’ve already spoken about. The last thing would be, if you’re moving, you’re out of training, you’ve been in practice for a while, and you’re moving from one city to another, you don’t have an established patient base, that takes away some leverage. There are two factors that kind of work for you for your contract negotiation strategies.
One, are you moving to an area of the country that’s difficult to recruit to? Very rural communities certainly pay more simply because it’s harder to find physicians in certain specialties to come and make them move and live in those areas. Or two, if you’re in a specialty that is just simply hard to recruit to or extremely profitable. So obviously, surgeons are difficult to find, or some of the other GI subspecialties are always difficult as well.
Doctors Can Negotiate Effectively
If you’re moving to a different part of the country, then the same analysis applies to some kinds of training. However, you have the benefit of having some numbers of what you produced in your previous position. You can tell them during your contract negotiation that this was the net collection that I generated in my last position. Now, it doesn’t always translate from one state to another or one situation to another, and maybe you’re going from private practice into an employed group.
But having any kind of data to back up what your production was is essential during contract negotiation in determining your new total compensation in a new position. So, those are some tips on things to think about. I mean, honestly, just doing this video, I can think this could be broken down into ten different videos, but this is just kind of an overview on negotiating.
How to Negotiate a Physician’s Salary
How to negotiate a physician’s salary? As an initial matter, I don’t personally believe that the salary should be the driving factor in a decision for a physician. Now, clearly, if there’s an enormous gap, a hundred thousand dollars, maybe 50, but if it’s $10,000 just going with the job that offers the most when maybe the benefits are different, the work environment is different, the ability to learn, have a good mentor, a good teacher, a good team.
I think all those things are probably more important than just the absolute base salary amount, but it certainly is important. And so, when someone asks me, all right, well, what do I do? How do I get a better salary during contract negotiation? How can I make them offer terms that are in my goals in the hiring process? There are a couple of ways of doing it during contract negotiations.
Know Your Worth
One, you need to know your worth. How does a physician find out what’s a reasonable salary? Well, there’s data. The MGMA medical group management association is, I would say, probably the industry standard as far as compensation numbers go, but it is not the be-all and end-all of whether something is fair or not. They break it down into regions: West, East, Midwest, Southwest, and those kinds of quadrants have different salary numbers associated with them.
Potential For A Partnership
But just the base salary could be great or not be great depending upon if there’s productivity compensation in the agreement as well, or there’s potential they can offer partnership. So, there are many scenarios where a physician is out of training, and they’ve given a two-year, three-year agreement. That’s probably below what’s a reasonable or average amount for someone just coming out of training, kind of with the carrot on the stick of, well, if you take below market for these two or three years, then you’ll get away above-market. Once you become a partner, be careful of the situation. Do you need to find out how many people are partners? How many people have they not offered partnership to? And then what will you make once you’ve become a partner? That’s certainly important.
Now, as far as the MGMA numbers go, they are kind of hard to find. I mean, you can Google around and find, I would say, data from maybe a year or two old. I found that people are relying on 2020 numbers. They’re completely screwed up due to COVID. Some of the RVU compensation factor numbers are way out of whack.
Some of the comps are just way out of whack. I would not use 2020 data to compare the contract offer. 2019 is probably the safest and most reliable number that we have right now. 2021 hasn’t been released, at least at this point while I’m making this video yet. So, Google and read around. You can try and find some numbers to help you with negotiations, but I’d say the best tactic is to go out there and find multiple job offers and see what you’re being offered initially.
Colleagues in Training
And then also, anyone in training has other people in their specialty that are also looking for jobs. Reach out to your colleagues, and talk to the people you’re in training with. What have you been offered? Where have you been offered this?
Cost of Living the Area
One difficult thing is that some people automatically think that they’re in a high-cost city and that they’ll make more, but have not considered other factors, like a higher cost of living. And that’s just not the case. It’s almost the opposite. If you’re looking for a job in a city that’s kind of a desirable location, usually the salaries, or at least sometimes the salaries will be depressed. I live in Scottsdale, Arizona, which is a great place to live.
And when I speak to physicians who are moving into the area, they’re surprised sometimes because the salaries may not be adjusted to the cost of living of the area, California as well. If you’re in San Diego or LA or even in San Francisco, the cost of living is very high, and the housing is very high, but the salaries are not commensurate with that. You need to be aware that just because you’re in a bigger city with a higher living cost doesn’t mean you’ll be making more. It’s the opposite, really.
If you’re in a rural location that’s hard to recruit, you will almost always make more money in those scenarios. So, if money is the bottom line you’re looking for, then you need to look in the smaller cities that are simply difficult to recruit to. You will make more money on average if you’re going to go to a small rural community. That’s a fact.
Once you have a number in mind, what do you do with the employer? You ask them for more.
If you’re being offered 300 and you want 325, you don’t ask for 325. You ask for more than that. So, if they offer 300 and you want 325, then ask for 350, just kind of easy arithmetic, try to meet in the middle. Now there is a point where you will look either greedy or potentially just kind of dumb if you’re asking, if you’re offered 300, and you’re asked for 450, they’re going to say, well, that’s ridiculous for, it may even yank the offer.
You need to know your value, and then specialty is also a big part of what kind of leverage you have. Any kind of contract negotiation is based on leverage. Do you have it, or do you not? You simply have more leverage if you’re in a specialty that’s hard to recruit to or is in high demand. If you’re in a specialty that is plentiful or saturated in the market that you’re looking in, your leverage is less.
So, you need to take that into account as well. If you’re switching jobs in the community and bringing your patients with you, then you’re worth more than someone who’s coming into the community, like peds or primary care, that must build up a patient base that takes time.
Those are tips on getting a better salary and where to start. Contacting an attorney and trying to maybe get a feel for the area certainly might be helpful. It’s fairly specialized in people that just focus on physician contracts. It’s possible you won’t find somebody in the area you’re looking at, so maybe do a wider search for that. But anyway, the last point is that some employers simply will not negotiate. They’ll say it’s a take-it-or-leave-it offer, and you’ll then have to be willing to walk if you’re unhappy with salary, but there are simply people out there who say, no, we’re not negotiating.
This is what we’re offering, and I wouldn’t be offended by that. That’s just kind of the tech that they’re taking as far as employing somebody. So, don’t be surprised if you have an employer that says no, but if it’s an offer that you’re unhappy with, you need to be willing to walk as well. It’s never a good feeling to accept a deal that you think is well below what your value is. Don’t just accept that because you need a job. Find the right job.
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