Typically 20 to 30 percent of what you earned as an owner, according to the Commonwealth Fund's April 2026 review. The buyer subtracts that share from physician pay to create the profit it is buying. The cut can be larger if you also lose income from ancillaries such as a surgery center, imaging, or pathology that the platform now controls.
" - q: "What is income repair?" a: "Income repair is the industry's term for getting your pay back toward pre-sale levels through practice growth, production bonuses, new ancillaries, or incentive equity. It is a description of what the buyer hopes will happen, not a guarantee. Very few employment agreements commit to a return to your prior income by a set date, and the levers that would drive it, such as scheduling and payer contracts, are now controlled by the platform.
" - q: "Why is my purchase price based on my own pay cut?" a: "Because a physician-owned practice usually has little profit left after paying its physicians. To have EBITDA to buy, the buyer has to create it, and the only large expense it can cut is physician pay. So the buyer sets your new salary lower, calls the difference EBITDA, and pays you a multiple of it. In effect, you are being paid today, at capital gains rates, for income you would have earned over the coming years at ordinary rates.
" - q: "Will I be paid on wRVUs now?" a: "Usually yes, at least for part of your pay. A work relative value unit measures the work in each service you bill. Platform employment agreements reported in 2025 and 2026 pay $40 to $70 per wRVU above a threshold, with a base salary covering 40 to 50 percent of expected total pay. Ask for the threshold, the rate, and whether the rate can be changed without your consent.
" - q: "Do I lose my ancillary income?" a: "Often, yes. Income from a surgery center, imaging, physical therapy, pathology, or infusion that you owned as a partner is usually purchased as part of the deal or redirected to the MSO. If it is purchased, it should be priced in your offer. If it is simply redirected, you are giving it up without payment. Check the offer for how each ancillary is treated.
" - q: "Can I go part-time or retire early after the sale?" a: "Not without cost during the lock-up. Standard agreements run at least three years and claw back part of the lump sum if you leave early or drop below a minimum schedule. After the term, part-time work is usually possible under a new agreement, but the non-compete still applies if you leave. Read the good leaver and bad leaver terms, which decide what your rollover is worth in each case.
" - q: "What happens to my retirement plan?" a: "Your practice plan, including any cash balance plan, is almost always terminated at closing and rolled to an IRA. You then join the platform's 401(k), which typically allows the standard $24,500 deferral for 2026 plus catch-up and a modest match, often with no cash balance option. The drop in annual retirement savings capacity can be several hundred thousand dollars for a physician in their late fifties. Our cash balance page explains how to use the final year of ownership.
" - q: "Does a lower salary help my taxes at all?" a: "Somewhat. A married physician whose pay drops from $900,000 to about $675,000 moves from the 37 percent federal bracket to the 35 percent bracket under 2026 rates, which opens room for Roth conversions at a lower rate than before. You also lose owner deductions such as self-employed health insurance, the home office, auto, and the ability to fund a large cash balance plan. The net effect is usually a lower total tax bill on a lower income, not a saving.
" llms_summary: "Explains the scrape in private equity physician practice sales: buyers take 20 to 30 percent of practice profit out of physician compensation to create the EBITDA they purchase (Commonwealth Fund, April 2026), so the purchase price is a multiple of forgone income. After closing, base salary typically falls to 40 to 50 percent of pay with production pay at reported wRVU rates of $40 to $70, ancillary income often goes to the platform, and income repair is a goal rather than an enforceable term. Covers three-year lock-ups with clawback, cash flow planning for mortgage, college, and savings, the tax effects (lower bracket and Roth conversion room versus lost owner deductions and the practice retirement plan), and a worked illustration of a physician earning $900,000 with a 25 percent scrape sold at 8x." ---The scrape is the share of your current income that the buyer takes out of physician pay to create the profit it is buying. Private equity buyers typically take 20 to 30 percent of practice profits this way, according to the Commonwealth Fund's April 2026 review of physician experience under private equity ownership. Physicians tend to call it the pay cut or the haircut. Bankers call it compensation normalization. It is the same thing.
The scrape exists because of how a physician-owned practice works. After the practice pays its staff, rent, and supplies, whatever is left goes to the physician owners as salary and distributions. There is usually very little profit left over, because you were the profit. A buyer cannot pay a multiple of zero. So it resets your compensation to a lower number, treats the difference as EBITDA (earnings before interest, taxes, depreciation, and amortization), and pays you a multiple of that.
The result is a trade. You give up a slice of income every year for as long as you work at the practice. In exchange you receive a lump sum today equal to several years of that slice, taxed mostly at capital gains rates rather than ordinary income rates. Whether that trade is good for you depends on how many years you would have kept earning the slice, what the rollover portion of the price turns out to be worth, and what happens to the rest of your pay. The pillar page covers the whole decision. This page is about the pay.
Think of the price as a multiple of forgone income. If the buyer lowers your compensation by $225,000 a year and pays 8 times EBITDA, your share of the price is $1.8 million. That is eight years of the pay cut, paid up front. If you would have practiced for six more years, the deal paid you for two years you would never have worked. If you would have practiced for fifteen, the deal paid you for eight of them and you give up the other seven.
This is why the quality of earnings review matters so much. That review, done by the buyer's accountants during exclusivity, is where the scrape is applied to your numbers. Many physicians calculate their EBITDA using their current pay and are surprised when the buyer's number is lower. The buyer's number already assumes your new salary. If the letter of intent said 8x and your EBITDA is redone from $300,000 to $225,000, the price just fell from $2.4 million to $1.8 million with no change in the multiple.
Before the sale, your base salary was probably 60 to 80 percent of your total pay, with distributions making up the rest. After the sale, base salary typically covers 40 to 50 percent, and the rest is production pay. Production is usually measured in work relative value units, or wRVUs, which assign a number to the physician work in each billed service. Platform employment agreements reported in 2025 and 2026 pay $40 to $70 per wRVU, often above a threshold you must clear before the bonus starts.
Three details in the formula deserve attention. The wRVU threshold decides how much you must produce before you earn anything above base. The conversion rate, the dollars per wRVU, can sometimes be changed by the employer on renewal or on notice, so check whether it is fixed for the term. And the formula may pay on collections rather than wRVUs at some platforms, which means your pay depends on the MSO's billing performance and payer mix, neither of which you control anymore.
Ancillary income is the other large loss. As an owner you may have earned income from a surgery center, imaging, physical therapy, pathology, infusion, or dispensing. After the sale those revenue lines usually belong to the platform, either because they were bought as part of the deal or because the management agreement redirects them. If they were bought, they should be reflected in your price. If they were redirected, you are giving up income with nothing in return. Reporting summarized by the Commonwealth Fund and Harvard Business School's Working Knowledge puts the ancillary loss for some orthopedic surgeons at roughly $100,000 a year.
Income repair is the industry's phrase for earning your way back toward your old pay after the scrape. The story the buyer tells is that the platform's scale, better payer contracts, new ancillaries, and marketing will grow revenue, and your production pay will grow with it. Sometimes that happens. But it is a promise, not a guarantee, and it is rarely written into the employment agreement as a commitment with a date.
Consider who controls the levers. Payer contracting, scheduling templates, staffing ratios, marketing budgets, and which ancillaries are built are all MSO decisions after closing. If the platform decides to invest in a different market, or if reimbursement falls, your income repair depends on choices you no longer make. The Commonwealth Fund review found that salary caps were among the leading complaints of physicians in these structures, which is the opposite of repair. And the research on turnover suggests many physicians do not stay long enough to find out: a March 2025 Health Affairs study by Singh and colleagues found ophthalmology clinician turnover rose from about 9 percent to about 22 percent after acquisition.
A practical test: ask the buyer for the compensation history of physicians at practices it acquired three or more years ago, compared with their pre-sale income. A buyer confident in income repair will have the numbers.
Your employment agreement will run for a minimum of three years, and five-year terms are common. If you leave before the term ends, or drop below a required schedule, a clawback usually requires you to repay part of the lump sum, often on a schedule that declines each year. The non-compete runs from your departure, not from closing, so leaving in year two can mean a non-compete that extends years past the original deal.
The lock-up interacts with the scrape in a way that is easy to miss. During the term you are earning the reduced salary and cannot leave without repaying. After the term you can leave, but the rollover equity's good leaver and bad leaver terms decide whether you keep its full value, and the non-compete decides where you can work. Our rollover equity page covers those terms.
A married physician earns $900,000 a year as a practice owner, all of it from the practice. The buyer applies a 25 percent scrape and pays 8 times the resulting EBITDA. The price is paid 70 percent in cash and 30 percent in rollover equity. The physician's tax basis in the practice is near zero, the whole cash portion is allocated to goodwill and taxed at the 20 percent federal long-term capital gains rate, and state tax, payroll tax, holdbacks, and fees are ignored. These are simplifying assumptions for illustration, not a projection of any actual deal.
| Item | Amount |
|---|---|
| Pre-sale compensation | $900,000 |
| Scrape (25 percent) | $225,000 |
| Post-sale compensation | $675,000 |
| EBITDA created | $225,000 |
| Purchase price at 8x | $1,800,000 |
| Cash at closing (70 percent) | $1,260,000 |
| Rollover equity (30 percent) | $540,000 |
| Federal tax on cash at 20 percent | $252,000 |
| Cash after federal tax | $1,008,000 |
| Forgone income per year, after 37 percent federal tax | about $142,000 |
| Years of after-tax forgone income covered by the cash | about 7 |
Read the last two rows together. Under these assumptions, the cash portion of the deal replaces roughly seven years of after-tax income the physician gave up. If she practices for seven more years and the rollover is worth nothing, she comes out about even on cash flow, having taken the risk of the platform for no gain. If she practices longer, the rollover must deliver for the deal to have been worth it. If she retires in three years, the deal paid her for four years she would not have worked, and the rollover is upside. Change any assumption and the answer moves: a 9x multiple adds $225,000 to the price, a 30 percent scrape lowers her salary to $630,000 and raises the price to $2.16 million, and a state income tax on the sale shortens the coverage period. The calculator lets you change them.
Most physicians set their fixed costs at their owner income. A mortgage, private school or college tuition, a second home, and a savings rate were all built on $900,000, and now the paycheck is $675,000 and less predictable, because half of it is production pay. The lump sum arrives at the same time, which makes the cut feel painless for a year or two. The trap is spending from the lump sum to hold the old lifestyle, and then finding in year four that the cash is gone and the salary is what it is.
A sound approach is to treat the after-tax cash as capital, not income. Set aside the tax you owe on it first, since it is due with estimated payments and not next April. Decide how much of the rest replaces the practice retirement plan you just lost, how much pays down debt, and how much is invested for the long term. Then rebuild the household budget on the new base salary alone, treating production pay as a bonus rather than a floor. Our page on life as a W-2 employee goes through this in detail.
Two things move in opposite directions.
In 2026 the 37 percent federal bracket begins at $768,700 of taxable income for a married couple filing jointly, and the 35 percent bracket runs from $512,450 to that point. A physician whose taxable income falls from around $900,000 to around $675,000 is now in the 35 percent bracket with roughly $90,000 of room before reaching 37 percent. The years after a sale, when you have W-2 pay but no practice income, are often the lowest-bracket years you will have before retirement. Converting part of a pre-tax IRA to a Roth in those years, especially if you have moved to a state without an income tax, is one of the few planning moves the sale makes easier rather than harder.
As an employee you can no longer deduct self-employed health insurance, fund a health savings account through the practice, deduct auto, CME, travel, and home office costs through the entity, or use a state pass-through entity tax election to get around the SALT cap. Larger still is the retirement plan. A practice cash balance plan could allow credits of roughly $253,300 a year at age 55 and roughly $325,100 at 60 on top of a 401(k) and profit sharing, depending on the actuary. The platform's 401(k) allows a $24,500 deferral in 2026, an $8,000 catch-up at 50 or older ($11,250 at ages 60 to 63), and whatever match the plan offers, up to a total of $72,000 including employer contributions. Starting in your second year as a W-2 employee, if your prior-year wages exceeded $150,000, your catch-up contributions must be Roth. The cash balance page explains how to use the final year of ownership to fund as much as possible before the plan terminates.
The result is a lower tax bill on a lower income, plus a lost shelter. The bracket drop is real, but it is not a reason to sell.
If you are retiring at closing and signing no employment agreement, the scrape shapes your price but not your future pay, and the relevant questions are the allocation and tail coverage. If your practice already pays its physicians a market salary and shows real profit above that, because it is large or has strong ancillaries, the buyer's normalization may be small and the price is more nearly what it appears. And if the offer includes a written compensation floor for the full term, which is uncommon, income repair is a contract term rather than a hope, and this page's warnings are less pressing. Check whether the floor survives a change in the platform's ownership.
Base salary, wRVU threshold and rate or collections percentage, whether the rate can change, how ancillaries are treated, and the term and clawback schedule. The letter of intent is where these can still move.
Your compensation, the buyer's scrape, the multiple, the cash and rollover split, and your state tax. Then count the years the after-tax cash replaces and compare it with how long you plan to practice.
A cash balance or profit sharing contribution in the last year of ownership is one of the few deductions that offsets ordinary income from the deal, and the plan disappears at closing.
Treat production pay as a bonus, treat the lump sum as capital, and map the Roth conversion room your new bracket opens. Our W-2 planning page walks through each step.