Understanding Your First Contract: A Practical Guide for PM&R Residents

As you begin interviewing for your first Physiatry attending position, you’ll quickly realize that medical contracts use a different language than residency. Understanding that language is not optional, it directly affects your income, autonomy, and long-term career trajectory.

Below are some of the most important terms you’ll encounter:

Independent Contractor vs. Employee

Physiatrists are typically hired in one of two ways:

Employee (W-2)

You are employed by the hospital, health system, or group practice.
They control your schedule, staffing, billing, and workflow.
They withhold taxes and provide benefits.

Independent Contractor (1099)

You are a private physical medicine and rehabilitation physician contracted to provide PM&R services, independent from the entity.
This is common for:

• Medical Directors
• Rehab unit PM&R physicians
• Locums and coverage contracts
• Some outpatient practices

You:

• Pay your own taxes
• Buy your own benefits
• Often earn higher gross pay
• Have more autonomy—but more risk

This structure also exists because federal laws (Stark & Anti-Kickback) require hospitals to avoid controlling physician referral patterns. Independent contractor status preserves legal separation.

Salary vs. Income vs. Guarantee

These words sound similar—but mean very different things.

Salary

A fixed amount you are paid regardless of volume. Most hospital-employed PM&R physicians start this way.

Example:
$260,000 per year, paid bi-weekly.

Production-Based Income

Your pay depends on:

• How many patients you see
• How much you bill
• How much the practice collects

This is common in private practice and outpatient groups.

Income Guarantee

A temporary safety net during your ramp-up period. The hospital or group guarantees that you will make at least a certain amount while you build your patient base—typically for 6–24 months. After that, you transition to production-based pay.

This is extremely common in 2026, especially in Physical Medicine and Rehabilitation.

How Income Guarantees Actually Work

An income guarantee is not free money. It is an advance against your future earnings. If you earn less than the guarantee, the hospital makes up the difference. If you earn more, you keep the excess. But if you leave early, most contracts require you to repay the shortfall.

There are four ways guarantees are structured:

1. Direct monthly payments from the hospital
2. Hospital-backed bank loan
3. Guarantee against billings
4. Guarantee against collections (most common today)

Billings vs. Collections (This Matters More Than You Think)

These two words are not interchangeable.

Term	What it means
Billings	What you charge
Collections	What you actually get paid

In today’s insurance environment, collections are what count.

Most modern contracts use a collections-based guarantee, because insurance denials, delays, and patient non-payment are real.

Example: A Modern Income Guarantee

Let’s say your PM&R contract says:

“Guaranteed minimum compensation of $300,000 per year ($25,000 per month) for 12 months against collections.”

If you collect:

Month	Collections	Hospital Pays
Jan	$12,000	$13,000
Feb	$18,000	$7,000
Mar	$22,000	$3,000
Apr	$25,000	$0
May	$28,000	$0

If over 12 months the hospital advances you $90,000 to reach the guarantee, that amount is usually:

• Forgiven if you stay
• Repaid if you leave early

This is where many physiatrists get trapped.

Why Income Guarantees Trap Doctors

When a hospital offers you a “$300,000 guaranteed salary,” it sounds like:

“We will pay you $300,000 no matter what.”

But in most PM&R contracts, what it really means is:

“We will loan you up to $300,000 while you build a practice — and you will repay the difference if you don’t earn it.”

That difference is called the guarantee deficit.

Step 1 — What actually happens each month

Let’s say your contract says:

“$25,000 per month guaranteed against collections for 12 months.”

That means:

• The hospital promises you $25,000/month
• But you only earn what you collect from patients

If you collect less than $25,000, the hospital covers the shortfall.

Example:

Month	You Collect	Hospital Pays	Deficit
Jan	$10,000	$15,000	$15,000
Feb	$15,000	$10,000	$10,000
Mar	$18,000	$7,000	$7,000
Apr	$20,000	$5,000	$5,000

After 4 months, the hospital has advanced you $37,000.

You still received your full paycheck — but now you owe $37,000 on paper.

Step 2 — The debt is invisible

You never write a check. You never sign a loan agreement. HR never calls it debt.

But in the contract it’s called:

• “Guarantee deficit”
• “Advance”
• “Draw”
• “Forgivable loan”

And it quietly keeps growing.

Step 3 — Why you’re stuck

Most contracts say:

“If the physician leaves before the contract term ends, any unpaid guarantee balance must be repaid within 30–60 days.”

So now imagine:

• You’ve been there 10 months
• You’re unhappy
• Your volume was slow
• The hospital owes you $90,000 in advances

You want to quit — but you can’t.

Because quitting means: Write a $90,000 check. Most new attendings don’t have $90,000 sitting around. So they stay. That is the trap.

Step 4 — Why hospitals structure it this way

Hospitals know:

• New doctors take 6–18 months to ramp up
• Referral flow is slow
• Marketing is weak
• Scheduling is inefficient

They give you a guarantee so you won’t leave while volume is low.

But they protect themselves by turning it into a repayable loan.

So:

• You carry the financial risk
• They control the referrals
• You are economically locked in

Step 5 — Why PM&R is especially vulnerable

Physiatry is heavily dependent on:

• Referrals
• Facility access
• Therapy volume
• Inpatient census

You cannot control these.

So when your collections are low, it is often not your fault — but you still carry the debt.

The BEST way to structure a guarantee:

The safest structure is:

• Non-repayable guarantee
  or
• Forgiven monthly regardless of collections

But many hospitals won’t offer that unless you ask.

Bottom line

If your contract includes:

• A guarantee
• Against collections or billings
• With repayment if you leave

You are taking on hidden six-figure financial risk. This is one of the largest hidden financial risks in PM&R physician contracts. That’s why this clause matters more than the salary number.

Why This Matters to You

Understanding these terms allows you to:

• Negotiate smarter
• Avoid repayment traps
• Compare offers accurately
• Protect your financial future

The best job offers are not just about salary—they are about how that salary is funded and protected.

Reach out to Farr Healthcare for PM&R opportunities or search advice. Our 30+ years of experience will help you find your next position.