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 student loans for them? Well, the answer to that is yes, they can. The better answer is how often do they do that? And then how is it structured? I would say it’s rare for any organization to agree to pay off student loan debt for a physician. I’d probably say less than 20% of the contracts I review include student loan assistance. And then also, there is easily a cap to how much the organization is willing to pay. I will say 150,000 is probably the max that I’ve seen.
Student Loan Debt for Doctors
Usually, it’s somewhere between fifty to a hundred thousand. Let’s kind of talk about how that is structured. It’s usually one of two ways: if a physician signs an employment agreement with the hospital or network, there will be language in there that says, we will provide you with this amount of student loan assistance. And in that case, normally the physician is not just like provided a check and then they pay off the loans. The organization will pay an amount directly to whoever the physician has a loan with. And as I said before, the two most common ways that it’s done is, the organization will just simply cut a large check, so a hundred thousand dollars, and then they will just pay that directly to the loan provider. And then the physician would then have to stay for a period, or they would have to pay back an amount of that money.
I would say a normal amount would be anywhere between two to four years for forgiveness. And then how that would be forgiven would be, let’s just say it’s four years. Every month that the physician stays with the employer, 1/48 of that student loan forgiveness would then be forgiven. Meaning, 1/48 of 100,000 would be forgiven every month. And then they would work until it was completely gone. That’s one way of doing it. The other common way of doing it is, the employer will just set a standard amount. Let’s once again, just say $100,000 and then they will say, alright, over a three-year period, we will just pay 1/36 of that $100,000 each month directly to the loan provider. The benefit of that is that the physician doesn’t have to worry about having to pay anything back. Other blogs of interest include:
Obviously, the downside to that is with interest, it just makes sense to get a big chunk up front, pay it all off, and 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 certain they want to stay there for a while, or it’s very possible 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 then must repay it. There are some tax implications with that. I mean, it’s kind of a mess, so it depends upon the situation of the physician. If they’re certain they’re going to stay in the community, there’s no way they’re going to leave, and getting that big lump sum upfront makes complete sense.
Repay Federal Loans
And then if someone’s maybe iffy than the other, the monthly amount provided to the loan company would be a better option as well. You can certainly ask for loan forgiveness. It’s very unlikely if the physician is getting a job with a private physician-owned group that they’re going to 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. 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 them paid off. So, I’ll make another video about that at some point. So, 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.
Student Loan Repayment and Compensation Models
What are the most common types of physician compensation models? Spoiler alert! There is no common model. I’d say from contract to contract the way that people are compensated varies the most, it’s kind of the most variable part of any kind of physician contract across contracts. I mean, I review hundreds of physician contracts a year, and it just blows my mind how many ways the different organizations compensate physicians. But there are probably three main types and I’ll go through those right now. The easiest and simplest way of compensating a physician is just a straight-based salary. There is no productivity attached to it, no volume expectations.
It’s just you do the work; you get paid a base salary and that’s it. For people who are just coming out of training, it’s not uncommon for them to receive a guaranteed base with no productivity for the first year or two. And there are many jobs where they just pay the base and that’s it. However, there are also different ways to compensate physicians that kind of introduce some productivity. I’d say the first one is RVUs. When someone enters an organization, they just said, no matter if they’ve been out for a long time or just coming out of training, if you’re entering an organization and this goes mostly for hospitals and big healthcare networks. It’s rare to have a physician-owned practice use RVUs, so they’ll have an income guarantee usually for a year or two and then their compensation many times will then switch completely to RVU production.
Meaning, how much they make each year is entirely dependent on how many RVUs they generate. I’m not going to get into what an RVU is or how it’s calculated. I do have a couple of videos. If you’re interested, you can look at it. I go through kind of what an RVU is and how a physician is compensated for it. But on the basic level, they just multiply the number of RVUs you generate times compensation factor, like a monetary amount that kind of varies by specialty. Usually, it’s somewhere between 40 to $80. And then they just multiply that times your RVUs, and that’s how much you make for the year. Now, obviously, there must be some details that go into that. Usually, there’ll be base draw, so the physician will continue to get a normal salary each month, but then it’s reconciled quarterly.
For instance, let’s just say they’re taking home 20,000 a month. At the end of the quarter, they’ve been given 60,000 from the employer. And then they’ll do a look back on how many RVUs they generated times the compensation factor if there is a surplus. Meaning, they generated more RVUs than they made, then usually they’re then given a bonus. Most employers in that scenario will not give a full percentage with a base draw. Let’s just say in the previous year, someone just via RVUs generated like $240,000, right? So, it’s 20,000 a month. The employer is not going to just give them a base of 20,000 a month because there’s going to be variables involved. If someone takes a two-week vacation, but they keep getting paid 20,000 per month.
Well, then there’s going to be a deficit that either they’re going to have to pay back or carry forward. Most employers will give maybe around 80% of what they made in the previous year as their base draw. And then that way there aren’t a lot of negative balances carry forward. Most physicians do not like that at all. That’s one way of doing it is just after the income guarantee straight RVU compensation. There are others that will do a hybrid of a guaranteed base in addition to RVUs. They’ll give target: monthly, quarterly, yearly target of RVUs. And then once the physician hits that amount, then they can then receive a production bonus. And as I said before, it would be just the RVUs generated above a certain number of times the compensation factor. That’s primarily used in hospitals and healthcare organizations. A different model is net collections-based and that’s used, I would say primarily from physician-owned groups from smaller practices. How that would work is, the amount collected by the practice that is a direct result of the physician’s services would be calculated. And then the physician would get a certain percentage of that.
Usually, the percentage would be between 30% to 40%, somewhere in there. Now, if you’re a physician, you think, well, that’s completely unfair. I only get 30% to 40%, but when you consider overhead staffing, supplies, payroll taxes, all that kind of stuff, it does work out mathematically to being equitable for both parties around that amount. You are not going to get net collections-based compensation. It is like 50% or anything, it’s just not going to happen. In a net collections-based compensation model, it’s like kind of an RVU based model and the fact that there’ll usually be reconciliation monthly. And then, if you were to generate whatever a hundred thousand dollars in a month, then they would just do the calculation.
If you’re on 40%, then you’d get $40,000, usually paid within 15 to 30 days of the end of the month. And that’s what you make. There are some more variables that go into and this is the tricky part, is if you just go into a job and it’s just pure collections from the very beginning, you obviously aren’t going to make a lot in the first couple months because the average accounts receivable cycle from when you do a service to when you get paid through the insurance companies can be anywhere from 30 to 90 days. You could work for the first month or two and make a tiny amount of money. And then it grows over time. Usually, in those scenarios, we try to bake in draw so that the physician isn’t just making a tiny amount in the first few months. What’s my opinion on what’s fair and what’s not, it really just depends upon the job and the specialty of the physician.
I think all the different compensation models are fair if the compensation is right. I think on a kind of motivational level, it makes sense to incorporate some production into the contract. Someone who just has a base salary and there’s just absolutely no bonus or upside in producing more, working more. It’s just human nature though, that they’re just, I don’t know if being ‘stagnant’ is the right word, but, people are motivated by money. That’s just a reality. And if an employer can incorporate some way of compensating a physician who’s ultra-productive, there’s no downside to that. It’s just, I guess probably a matter of whether the employer’s creative or not, but, I mean, there are a million ways of doing compensation. So those are the three most common models: straight-based salary, RVU based production, and net collections. And then there are so many permutations that would then kind of be a hybrid of all three of those.
Income Guarantees and Student Loans
Today, I’m going to talk about how a physician income guarantee works. There are different ways that this can work. And we’ll kind of walk through the different models. First, if you just have a straight base salary, there’s no productivity attached to it, there are no volume expectations, you could consider that an income guarantee. Most people would just consider that a base salary, but theoretically, you consider that an income guarantee, meaning, no matter what happens, you’re going to get this amount of money, completely independent of volume, productivity, encounters, net collections, RVUs generated. This is what you’re going to make. In most situations that involve a base salary with no productivity incentives, there will be some expectation from the employer.
Certainly, if a physician who comes into practice is unproductive, doesn’t see as many patients as they should, like the expectation is, at some point, the employer is either going to tell the physician they need to increase the productivity. In some contracts, there’s a language that the employer can unilaterally reduce the base salary based upon productivity, or if it’s not going well, the employer could always just terminate the agreement without cause and let the physician go for being unproductive. In a normal kind of what is an income guarantee, it would normally be thought of with a hospital. So, if a physician is employed by a hospital, there will normally be a period, usually, one or two years, where no matter what happens, they are guaranteed this amount of money. And then after that period, and let’s just say it’s two years, then their compensation will shift to productivity model.
If it’s a hospital, then it would normally be RVU based. Let’s just say someone is a hospitalist and they’re coming into work. They may just be given a flat base and say, you must work this many shifts a year. And then after that, it might be a productivity model. Now, using a hospitalist is probably a bad idea since it’s pretty volume-dependent and the hospitalists can only do so much. Let’s use a different example because that was a terrible one on my part. Let’s just say they’re in primary care. They are employed by the hospital, they set up a clinic in the area, it takes usually 12 to 18 months for a practice to reach maturity. And so, they say, no matter what happens, you’re going to get $200,000 in year one or two.
And then after that income guarantee period is over, we’re going to compensate you due to how productive you are. So, they will track your RVUs for the first year or two. Most places would do it. They would say, alright, you generated this many RVUs in year two, which then equals this amount of money, so then we’re going to give you a base of this in year three. And then, if you generated a certain amount of RVUs over that amount, then you’ll get compensated either monthly, quarterly, or annually. Most places would do it quarterly. I mean, it is frustrating for a physician to work all year and must wait the entire year to get any kind of productivity bonus. I would suggest making certain it’s smaller than a year, but quarterly is kind of a normal amount.
Is there any negotiation in an income guarantee? Well, certainly you can negotiate the amount of the income guarantee, but if you’re in a health network or a hospital, you’re not going to be able to change the model with how they compensate all their physicians. You should be aware of how it’s calculated, different places do it very differently. You should talk to someone who can walk you through, alright, here’s how this is going to work after the income guarantee ends.
And then this is what you should expect, during the kind of moving forward after that. If you have a job that you come into and its immediately productivity-based, that’s a big red flag for several reasons. Well, one, let’s just say, if it’s RVU based, it’s a little fairer because in work RVUs, you’re paid for what you do, not what’s collected. If you’re in a pure net collections-based agreement, it usually takes 60 to 90 days for a normal accounts receivable cycle. You could be working for 30 days and not see a dime. And then it slowly trickles in and builds up over the course of the year to 18 months, as I said.
In that situation, you need to be very careful. Normally, we would work in short-term income guarantee in that situation, so that they would at least get a certain amount, and then it would likely be forgiven over time as the collections come in. Hopefully, that was helpful and just a basic of what is an income guarantee.
Stark Recruitment Exception and Student Loan Forgiveness
Today, I’m going to speak about recruitment agreements and then the interplay between the employment agreement that the physician will sign as a new job, and then what is a recruitment agreement, then the downsides, and the upsides of it as well. What is a recruitment agreement? The stark law and anti-kickback laws allow for 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 physicians or are people newly out of training, they will sign an employment agreement with the practice itself.
However, there are also some opportunities for a hospital in the area to essentially supplement the income of that physician for the first year and providing some other incentives as well. So, you could have a recruitment agreement that will have 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 bonus, student loan repayment, they could also cover expenses 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 a medical practice simply couldn’t financially afford to bring in a physician without these supplements or it’s also just a smart way for a practice to not have to pay as much money as they normally would.
In most of the specialties, it would be someone who must build up a practice and most physicians who are 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, I mean, it normally takes 12 to 18 months for practice to reach maturity. If you’re in family care and you were to join a practice, you would continue to see more volume for the first 12 to 18 months. What are the rules that dictate what a hospital can do? What are 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 physician specialty, it needs to be in writing. There will be a contract given by the hospital to the physician and to the practice as well, and they will both sign it. The physician must relocate their medical practice to the area, they must move into the geographic area served by the hospital. What is the geographic area? For the most part, 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 and basically, the physician must serve those zip codes, for the recruitment agreement, the physician must move at least 25 miles from 25 miles into the geographic area.
There are also some exceptions for rural communities, and then also those residents that have been in training that want to stay in the area. There are a few minor exceptions, but for the most part, the things I just went through are what dictates 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 provide and then most importantly, what the forgiveness period is. The hospital does this so they can bring in a specialty and then down the road, or 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, let’s just say they provide an income guarantee, a signing bonus, and overhead expenses for the first year, which is standard.
Well, then they will require forgiveness period, which means the physician must stay in the area for several years, usually three, sometimes four, and then each month that they’re in that area providing care, a fraction will be deducted 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 will be usually one year, will then be, let’s just say, three-month forgiveness. So, 1/36 of that 200,000 will be forgiven every month. And which means, no one must pay it back if the physician will stay for the forgiveness period, in this case, if it was three years, then no one will owe any money back to the hospital.
The hospital, like I said, will hopefully gain more by having that physician in the community and utilizing the downstream revenue from 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: one, depending upon how the agreement is written, if they do leave the area, then 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’re going to have to pay back that money. And for some physicians and some specialties, it can be a significant amount of money. I mean, I’ve seen up to 500,000 after the first year, not that it’s specialty-dependent obviously, but it could be a lot of money.
And let’s just say the relationship goes south with whoever the employer is and maybe there aren’t opportunities in the area for the physician 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 job 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 job 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 physicians’ salary supplemented by a hospital. I mean, they absolutely would normally take advantage of that if they could, and some practices are savvier than others in utilizing that. 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 then the contract is terminated with the original employer, but there’s a non-compete that forces them out of that area, well, that is a huge problem for the physician.
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