Income Guarantee/Recruitment Valuation

Recruiting physicians under income guarantees allows healthcare systems to ensure adequate coverage to meet service line needs and/or attract qualified physicians to areas of physician shortage, while enabling them to establish private practices via a compensation advance against their commitment to practice in the service area. Such arrangements allow physicians to have autonomy and flexibility to grow their practices while providing an earnings stream consistent with an established practice.

Understanding the Requirements and FMV

While an income guarantee is not an employment agreement, the recruiting healthcare system along with the recruited physician are subject to specific requirements to ensure compliance under Stark, Anti-Kickback Statutes, and Internal Revenue Service rules. HMS Valuation Partners has extensive experience in assisting clients through these recruitment arrangements while considering certain requirements including, but not limited to the following:

• In most cases, the physician must relocate to the facility’s service area from their prior practice more than 25 miles away.
• Compensation terms must not be based on patient volumes or referrals to the facility.
• Facility may not limit the physician’s ability to seek and maintain privileges at other facilities in the area.
• Operating expenses used to derive the Income Guarantee must be reasonable and consistent with FMV.
• Should a physician join an existing group, the operating expenses factored into the Income Guarantee may not exceed the actual incremental expenses incurred by the recruited physician joining the group.