How Are Physicians Compensated?

How are physicians compensated? Physicians are compensated in many ways, and I’ll walk through each. The easiest way a physician is compensated is through a straight-based salary. They would receive a certain amount just like any other employee, and they do the work. They get paid biweekly or whatever the employer’s payment structure is, and that’s it. There’s no bonus opportunity, no productivity incentives. In that case, It’s just a straight base, do the work, and move on. That’s the simplest way of doing things. I would say. Indeed, productivity is worked into many employment contracts, especially with physicians in hospitals or health networks.

Physician Compensation

Physician compensation varies significantly depending on factors such as specialty, experience, and geographic location. On average, physician salaries have increased over the years, with the latest figures indicating an average compensation of $352,000 across specialties. However, it’s crucial to note that the COVID-19 pandemic has had a considerable impact on physician compensation and job satisfaction, leading to changes in Medicare reimbursements and staffing shortages as a result of burnout or early retirement. To obtain an accurate understanding of physician compensation in your specific situation, consider factors like years of experience, regional cost of living, and the demands of your specialty. Keep in mind that these figures are subject to fluctuations due to ongoing developments within the healthcare industry.

Different Physician Compensation Models for Medical Providers

Those organizations generally provide an income guarantee, meaning the physician will see a guaranteed minimum salary for a period, usually two years. And then, after those two years, their compensation will be a productivity-based arrangement usually based on RVUs. Straight-based salary is the first one. The second one is hourly. Suppose the physician does shift work, ED, hospitalist, critical care, or ICU. In that case, it can be paid an hourly rate, which is very simple. You can get paid per hour the amount you work, and that’s what you take home, and that’s the end. 

How Are Physicians Paid?

Physicians receive compensation through various payment models, which can include fee-for-service, salary-based arrangements, and capitation. In a fee-for-service model, physicians are reimbursed for each service or procedure performed, often using the resource-based relative value scale (RBRVS) to determine payment rates. Salary-based models involve a fixed annual income, which may be offered by hospitals, group practices, or other healthcare organizations. Capitation involves a predetermined amount paid per patient, regardless of the number of services provided. The chosen payment model typically takes into account factors such as overhead costs, location, and specialty, ultimately impacting a physician’s overall income.

Physician Productivity Compensation Model

A little more complicated a system would be, as I stated before, the productivity model. There can be a hybrid where the physician will make a guaranteed minimum base. Then there’ll be a bonus based on their productivity or base compensation tied to that. And there are usually two ways that those are calculated. One is net-collections, and the other one is RVUs. First, net-collections. Net collections are used chiefly by private physician-owned groups. Most physician groups do not use RVUs, and almost no hospital would use net-collections. If you have a net collections-based agreement and it’s a hybrid, there would be some minimum salary amount. The physician would receive it every pay period. And then they would also get a bonus based upon their net-collections, meaning how much money the practice brought in. The physician would then get a percentage.

Examples of Physician Compensation Model

Now there are two ways of handling that as well. They get a percentage of what’s collected if it’s just straight net-collections. That’s usually somewhere between 30% to 40%, sometimes up to 45%. Most employers would say that it’s a hybrid, meaning they have a base salary. Once the physician covers their base salary, let’s say they make $240,000 a year. They’re getting 20,000 a month. Once they collected 20,000, anything above that, they would get a percentage in that scenario. Usually, it’s somewhere between 15% to 25%. As I said before, if it’s an RVU-based productivity model, this is mainly with hospitals and health networks. 

Once again, the physician could have a minimum salary, and then they would get bonuses based on their RVUs. If they generate a certain amount of RVUs, usually quarterly, sometimes monthly, then they would multiply the RVUs over that base amount times what’s called a compensation factor. Usually, that’s somewhere between $35 to $80 depending upon specialty. The physician would then be paid the bonus based on their RVU production. A usual way of doing that would be, let’s say someone is in primary care, and their annual expectation is 6,000 RVUs. They’re expected to generate 1500 RVUs a quarter if it is quarterly. Then any RVU generated over that amount, the employer will give them a bonus by multiplying how many RVUs times the compensation factor.

Hybrid Model of Reforming Physician Payment

For primary care, I’d say probably usually somewhere between $40 to $50. That’s a hybrid model. And then some can also be compensated purely on RVUs. This means that they only get paid what they produce. So, they would take their RVU production per month and then multiply what they generated by the comp factor they would receive. And in those scenarios, there would usually be an agreed-upon draw. There’d be some amount. Let’s say they’re making 10,000 a month as a guaranteed draw, and then whatever they produced above would receive. If they produced less than that, the negative balance would be carried forward into the next month, quarter, year, whatever. 

Summary

So, those are the different ways physicians are compensated. They can also be compensated through bonuses, discretionary bonuses from the employer, signing bonuses, and relocation bonuses. They can be paid that way as well. Sometimes, there’s student loan repayment, which could also consider that compensation. There are a variety of forms of doing it. If somebody’s been doing this for 20 years, it blows my mind how many ways to compensate physicians. Some are better than others, but there’s no one standard way.

Other Blogs of Interest

• How do Physicians Earn a Bonus?
• How Physicians are Paid in a Productivity Model
• Can a Physician Contract be Terminated Early?

Physician Compensation with a Percentage of Collections

Physician compensation models are a pure percentage of collections. We’ll work through how that works and how the physician is compensated in those models. As an initial matter, if a physician works for a hospital or healthcare network, they would rarely be compensated based on net-collections. That doesn’t happen. Most of those organizations, if they’re going to use a productivity model, it’s going to be via RVU-based compensation. The organizations that use net-collections the most are smaller physician-own practices and specialty-dependent ones. I find dermatology and anesthesiology use net-collections most in their payment.It’s probably rare for peds or primary care to use pure net-collections. 

Two Types of Ways to do Physician Net Collections

There are two ways of doing the net collection model: One, you can have a hybrid where you would get a base salary guarantee. And then, you would also have the percentage of a net-collections threshold. ‘What are net-collections is probably a great thing to touch on first. Any services the physician does and is billed for and then the practice receives are net-collections. The main difference between RVUs and net-collections is that under RVUs, it doesn’t matter what the organization collects. Sometimes there are insurance companies who will then write down what is paid out. There’s terrible debt, meaning the physician will provide a service. 

Still, then a patient, for whatever reason, doesn’t end up paying. Or, as I said before, the insurance company doesn’t pay. There are write-downs. Maybe charity care-specific situations to practice will discount a bill for whatever reason. And any of those scenarios, those things are passed through to the physician. A physician could do a service, but if the company is not paid, the physician will not reap the reward of those collections. In an RVU-based compensation model, it doesn’t matter about collections. It’s what the physician does, their encounters, and then what RVUs are generated. 

How Efficient the Billing for the Practice You’re Joining Is?

That one thing to consider is how efficient the billing for the practice you’re joining is. If they are bad at collecting, it will also affect you. You need to ensure they’re using a cheerful and efficient biller. Many uses outside third-party billing companies and others have it in-house. It just depends. What are the two types? As I said before, you could have a base number, which is a common way of doing it. You have a base compensation number for the year; this scenario is usually done monthly. 

The employer will say, once you’ve collected enough to cover your salary, you then get a percentage of the net-collections above that monthly. Let’s say someone makes 20,000 a month. Once they collect 20,000, anything above that, they’ll get a percentage of between 30% to 40%, which is an industry-standard. It’s most likely not going to be more than that. I don’t recall ever seeing a net collections-based agreement over 45. In that scenario, you have a base, so there’s a minimum amount. However, if you’re ultra-productive, you’ll also reap the reward from the collections you get. 

A monthly way of doing that is the most common. They could also do it quarterly. It would be rare for a place to do that annually. The physician wouldn’t accept that because they would have a smaller amount throughout the year than they’d get. Or at least theoretically, they would get a big check at the end of the year. Most people would prefer getting it spread out over the year rather than one big lump at the end of the fiscal year or calendar year, depending on how the employer does it. 

Are net collections-based agreements fair?

Are net collections-based agreements fair? Indeed, they’re appropriate. It depends on the actual number and the different thresholds for what you get. Suppose it’s an absolute pure net-collections model, which is the second way. In that case, you get paid everything you collect and then multiply by that percentage. The problems with that are usually just at the beginning. An average accounts receivable cycle from when a physician has an encounter to when the practice gets paid is usually anywhere between like 30 to 90 days.

So, in that model, a physician comes into the practice, working, doing a bunch of counters procedures, whatever. Still, the practice isn’t getting paid for 60 days beyond that. The physician will not make any money in months one, two, or even three. I mean, it will increase over time. In that scenario, if that’s absolutely the model that the employer insists upon, then we’ll have base draw work in the first couple of months. And then that will be either forgiven or taken away over time from what the physician produces. So they don’t make zero or a minimal amount of money in the first couple of months of the employment arrangement.

It usually takes around 12 to 18 months for practice to reach maturity. Once again, it’s specialty-dependent. Still, in that case, your net-collections will continue to increase over time throughout the first year and into year two. If you join a practice and replace someone, you will have a head start. But it will not happen if you’re entering a new practice or maybe like a new branch of practice. It’s going to take time to build up. So, those are the different collection percentage models for a physician.

How Does a Base Salary Plus Productivity Model Work in a Contract? 

How does a base salary plus productivity model work in a contract? It can work in several different ways. We’ll go through that. In a physician contract, if someone is coming out of training or is switching jobs, there will likely be an income guarantee period. It doesn’t make much sense for a physician to join a practice or a hospital and go straight to production from the beginning. Now, it could be specialty-dependent. Maybe that may make sense if you’re doing some staffing or shift work with an ED or hospitalist.

However, suppose you are building a practice. In that case, it takes time to build up a patient base if you’re in primary care, cardiology, or any outpatient-based clinic practice. 12 to 18 months is an average time for practice to reach maturity. If you come in, there will likely be an income base guarantee and maybe some stretch goal production models where you’ll get a bonus if you hit certain thresholds. But in that case, after the income guarantee period, after the first year or two, it can then switch. And today, I’ll talk specifically about how a base salary plus productivity model would work. It’s a hybrid compensation model. I’ll take two scenarios and kind of walk through them briefly.

Physician Guaranteed Base, Plus RVU Productivity Bonuses

Let’s say a physician has a guaranteed base plus RVU-based productivity bonuses. And let’s talk about how that would work. Let’s say you made; I’m just going to use an example. The income guarantee is that you made 240,000 in year one and then 240,000 in year two. And after that, your compensation then shifts to the productivity model. An employer could do this instead of just paying you 240. They could cut your base guarantee in half. So, you’d be making 120, then once you hit certain productivity thresholds, they would calculate, and you would get the surplus. Let’s take RVUs as an example. Let’s say you’re in primary care and the annual RVU goal is 6,000. Most places would do maybe a quarterly reconciliation. It’s 1,500 RVUs that you’re expected to generate.

You have the 120 annual bases. And divide that by 12. And so, you have 10,000 a month, and after the quarter, they’ve paid you 30,000. In addition, at the end of that, they would say, alright, did you generate 1500 RVUs? Then anything above that, you would get multiplication where they’ll take the surplus RVUs times compensation factor. Then you would get that as a bonus at the end of the quarter. In that scenario, that’s not how most places would do it. Most physicians will not be okay with getting a small base each month and then a significant windfall at the end.

Physician Base Salary Plus Net Collections Productivity Bonuses

In addition, if you were getting half base, you wouldn’t be expected to have an average median RVU productivity to get additional comp. It would be lowered. Another way to do a base plus productivity would be through net-collections. The scenario would be the same the physician would have a base salary, and then they would have a net collection threshold. One way of doing it would be that the physician is getting paid 20,000 a month. The employer would say, okay, once you cover your base salary, and once you would get 20,000 in collections in that month. Anything above that amount, you would get a percentage of usually somewhere between 30% to 40%. Then they would get that at the end of the month.

The Biggest Variable Contract to Contract

Usually, 15 to 30 days before the end of the month would be a standard way of doing it. From contract to contract, the way a physician is compensated probably varies the most from any other term. There are so many ways of doing compensation. Is there one that’s better than the others? No, I don’t think so. I mean, it depends on the specialty, how efficient the billing practices of the business you work for are, the volume, and how established the practice is. All those variables go into. They combine to determine what type of compensation model would be best for you.

Until we can take a comprehensive look at it, there’s no way of knowing what’s the best in your situation. Then also, some employers say this is the model we’re using. And it would be best if you dealt with that as well. In that case, if you know what the model is and that they’re not going to change the model, the one variable that they can change is the numbers used. The RVU threshold, the net collection percentage, and the base straw are all things that can change and determine whether it’s an excellent opportunity for a physician. That’s a brief example of a base compensation plus productivity model for a physician.

What Can You Negotiate in a Physician Contract? | Doctors Contract Negotiations

What can a physician negotiate in an employment contract? The short answer is everything. It ultimately depends upon the willingness of the employer as to whether they’re willing to negotiate terms or not. Extensive hospital networks are less likely to change an employment contract agreement significantly. Unlike if a physician is looking into a physician with a smaller physician-owned practice, there’s much more leeway for significant changes. What are the things that are important to the physician, and then what are the things that they can get changed?

In my mind, when I’m talking to a physician, the things that stick out as the most important would be:

• The signing bonus, 
• Relocation assistance, 
• How to terminate the contract agreement, 
• Making certain there’s without-cause termination that’s a reasonable length, 
• Compensation, 
• Productivity bonuses, 
• Non-compete, 
• Tail insurance and,
• Who pays for tail insurance if it’s a claims-made policy?

Physician Contract Negotiations

Let’s go through each of those and come up with some tips on negotiating. First, as far as compensation goes, the physician needs to know their and their specialty’s value. Getting the MGMA data is helpful. It is beneficial to talk to colleagues about what they’re being offered or what they’re currently making in different organizations. Sometimes, the associations for each specialty can provide information on your specialty’s average salary. That’s one way to look at it. As far as productivity goes, this is a little more difficult. It’s going to be completely based upon, I guess, the arrangement. Is it kind of a hybrid between a base salary and RVU production? A base salary and net-collections? Is it all RVU? Is it all net-collections?

This one is dependent upon the type of structure. You’re getting a base plus a certain amount if it’s net-collections or a hybrid model. Let’s say. For instance, the expectation was 20,000. Anything collected is over 20,000 by the practice, and the physician will get 15 to 25% of that. That would be a standard percentage. If the physician is purely on net-collections, around 40 to 45% is average. As far as RVUs go, there are two things you can negotiate: the threshold, meaning how many RVUs you must generate to get a certain amount, and the compensation factor, which is the monetary value associated with the RVUs. That has some leeway as well. Regarding signing bonuses and relocation assistance, the main things are the actual number, obviously, but more importantly, what’s the repayment schedule? 

Forgiveness Period in Physician’s Contract

Almost every contract is going to have a forgiveness period. Let’s say the physician gets a $20,000 signing bonus, and the initial term of the contract agreement is two years. Usually, they’ll have to stay for that initial two-year term to have the entire $20,000 forgiven, so they don’t have to pay anything back. The same goes for relocation assistance. Between $10,000 and $15,000 should be the cost of relocation assistance. The signing bonus can vary widely from 10 to 75. That one is specialty-dependent. As far as non-compete goes, this does vary state by state on what’s considered reasonable. There are a few states where it’s wholly unenforceable; California and Mexico, for instance. Usually, the non-compete shouldn’t be any longer than a year. The geographic restrictions should be 5 to 15 miles from your primary practice location. Where to negotiate with this?

Terms That Matter for Physician Contracts

You want to keep the length at one year or shorter. You want the non-compete to only apply to a few locations. Some employers will say the non-compete applies to every facility we own in the city. Instead of having one office within 10 miles, you could have 30. So, that’s very important. And then specialty as well. Some specialties can do multiple things. Let’s say you are in internal medicine. You can be a hospitalist, and you can go into family practice. You can do urgent care. If the non-compete states that you can’t practice medicine within that geographic restriction, you’re out of luck. Whereas if you keep it to the specialty of what you’re providing to that employer. Specifically, in this case, let’s say you are a hospitalist. 

You could go to family practice or urgent care for a year, and then when the non-compete ends, go back to being a hospitalist. That’s something to consider. And then malpractice insurance is always a considerable discussion with the physicians’ coworkers. First, you must identify whether it is a claims-based or occurrence-based policy. If it’s a big hospital, they might be self-insured. And after you determine what type it is, if it is a claims-made policy, tail insurance will need to be purchased after the contract terminates. And then who pays for that? Most of the time, if you’re in a small private physician-owned practice, the physician must pay for tail insurance when they leave. You rarely have to pay for tail insurance with an extensive hospital network. Now, tail insurance usually costs about twice what your annual premium is.

Physician Employment Contracts & Negotiation Tips

Your family practice’s annual malpractice premium is somewhere between $6,000 to $8,000. If you had to pay for tail insurance, it’s somewhere between 12,000 to 16,000. One thing you can negotiate is who pays for tail insurance coverage. Sometimes an employer will say if you’ve been with us for one year, we’ll pay for a quarter, then two years, half, and then three years, 75%. Some ways of getting out of having to pay the entire amount depending on the situation. Now, the first thing I talked about was whether the employer was willing to negotiate or not. Some employers will say this is a take-it or leave-it deal. I don’t think those employers will be great for getting together. If an employer is unwilling to budge on anything, it will likely be challenging to team up.

It means they’re not going to accommodate the physician somehow. So, I caution any physician who has been given a job offer. We ask for some clarification or certain concessions, and they say no, this is it. That’s usually a red flag. And I tell the physician that you may want to continue looking for a job because this might not be a good fit for you. Anything in the contract is negotiable. You need to figure out what’s most important to you. Sometimes, a non-compete is absolutely the number one thing. For others, it’s the compensation. For others, they do not have to pay tail insurance. It depends upon the physician’s wants and needs and then tailoring the negotiations to get them to that point.

How to Negotiate a Fair Salary Contract for Physicians

How to negotiate a physician’s salary? As an initial matter, I don’t personally believe that the wage should be the driving factor in a decision for a physician. Now, if there’s an enormous gap, a hundred thousand dollars, maybe 50, but if it’s $10,000, go with the job that offers the most when the benefits are different. The work environment is different; the ability to learn, have a good mentor, and be a good teacher is all. All those things are probably more important than the absolute base salary amount, but it is undoubtedly essential. And so, when someone asks me, all right, well, what do I do?

How do I get a better salary? There are a couple of ways of doing it. 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 probably the industry standard regarding compensation numbers. Still, 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, and Southwest, and those kinds of quadrants have different salary numbers associated with them. But the base salary could be excellent or not be significant depending on whether there’s productivity compensation in the contract agreement or potential for partnership. 

Physician Potential Partnership

So, there are many scenarios where a physician is out of training, and they’ve given a two-year, three-year contract agreement. That’s probably below what’s a reasonable or average amount for someone just coming out of training. With the carrot on the stick, if you take below market for these two or three years, 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 a partnership? And then what will you make once you’ve become a partner? That’s certainly important. As far as the MGMA numbers go, they are hard to find. I mean, you can Google around and see, I would say, data from maybe a year or two old. I found that people are relying on 2020 numbers. COVID screwed them up. 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. 2019 is probably the safest and most reliable number we have right now. MGMA hasn’t released the 2021 data while I’m making this video. 

So, Google around. You can try and find some numbers, but I’d say the best way to do this is to go out there and find multiple job offers and see what is offered to you initially. And then also, anyone in training has other people in their specialty that are also looking for jobs. Talk to your colleagues and the people that serve as your training partners. What do they offer you? Where have you been offered this? One tricky thing is that some people automatically think they’re in a high-cost city and will make more.

Why Should a Physician Consider the Cost of Living in a Specific Area?

And that’s not the case. It’s almost the opposite. If you’re looking for a job in a city that’s a desirable location, usually the salaries, or at least sometimes the wages, will be depressed. I live in Scottsdale, Arizona, which is a great place to live. And when I speak to physicians moving into the area, they’re surprised sometimes because the salaries may not be adjusted to the area’s cost of living, including California. Suppose you’re in San Diego or LA or even in San Francisco. In that case, the cost of living and housing is very high, but the salaries are not commensurate. You need to be aware that just because you’re in a bigger city with a higher cost of living doesn’t mean you’ll be making more; it’s the opposite.

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, you need to look in the smaller cities that are difficult to recruit. On average, you will make more money going 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 the city offered you 300 and you wanted 325, you don’t ask for 325; you ask for more than that. So, if they provide 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 dumb if you’re asking. If you’re offered 300 and ask for 450, they will say, “Well, that’s ridiculous.” It may even yank the offer.

Leveraged Negotiation Contracts 

You need to know your value, and then specialty is also a big part of what kind of leverage you have. Any negotiation of contracts is based on leverage. Do you have it, or do you not? You have more leverage if you’re in a specialty that’s hard to recruit for 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.

Suppose you’re switching jobs in the community and bringing your patients with you. In that case, you’re worth more than someone 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 getting a feel for the area might be helpful.

It’s reasonably specialized in people that focus on physician contracts. It’s possible that you won’t find anybody in the area you’re looking at, so maybe do a broader search for that. But anyway, the last point is that some employers will not negotiate. They’ll say it’s a “take it or leave it” offer. You’ll then have to be willing to walk if you’re unhappy with your salary, but there are simple people out there who say, “No, we’re not negotiating.” This is the city 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 you’re unhappy with an offer, you need to be willing to walk. Accepting a deal that you think is well below your value is never a good feeling. Don’t just accept that because you need a job. Find the proper position.