How does a physician earn a bonus? Bonus is a broad topic, and there are many different bonuses. Well, first, if we’re going to take a bonus at the general level. You could have a signing bonus when the physician signs the agreement. You could have a relocation bonus, meaning they’ll cover the costs of your move. Then aside from that, you would have real bonuses that you would receive for compensation due to productivity. Let’s kind of break down each one. As far as signing bonus goes, if a physician is coming out of training, getting a new job, or they’re even switching. Many times the practice will pay them a bonus.
Physician Signing Bonuses
Usually, somewhere between $10,000 to $50,000, and that amount is taxed. Many physicians think, oh, I’m going to get a check for $50,000 or whatever the amount is, and that’s not true. It is taxed as well. It’s taxable income. Relocation assistance bonus, most places will pay between $5,000 to $15,000 to assist a physician in moving. Once again, that amount is taxed. Sometimes, a smart way of doing this is a physician could ask the employer to pay their move directly to the moving company. And generally, in that situation, it’s not taxed. Then the company pays the amount directly, which would make a lot of sense. Beyond just the initial bonuses, there are also productivity bonuses. Let’s say a physician gets employed with a smaller physician-owned group.
There could be group-wide bonuses. If the practice is profitable to a certain level, the employer will give out a discretionary bonus. Meaning that it’s not written into the contract how much the physician will receive. Assuming things go well, sometimes the owner will then spread the wealth and give them a bonus. Don’t expect to receive a discretionary bonus. It certainly is owner-dependent. Some owners are much more generous than others. I find that the owners that put discretionary bonuses in the contract rarely follow through with them. It’s more of just a window dressing to entice the physician to sign the employment agreement and start employment with the practice. But it’s unlikely they’re going to receive a discretionary bonus.
Concrete bonuses could be kind of three things. One, you could have the net collections-based bonus. This means that once the physician collects a certain amount, monthly, quarterly, or annually. The practice would then provide them with a bonus. It could be an RVU-based bonus if the position generates a certain amount of RVUs monthly, quarterly, and yearly. The practice will also provide them with a bonus, or there could be a hybrid. It could be on some base salary, and then a certain amount of money collected over that amount will get a percentage of that. Same with RVUs, they would have a monthly threshold, and once they exceed that, they could also get a bonus. There’s a variety of bonuses available to physicians. It just depends on what the employer is offering. I find that most employers probably aren’t that creative or imaginative when it comes to bonuses.
Physicians Earning a Bonus
So, it certainly doesn’t hurt for a physician to offer some other kind of bonus alternatives to them to see if they would be okay with that. I mean, most practices or owners of practices are willing to give a bonus when a physician is ultra-productive. They may not even know of the different ways that they can do that. I’m talking to a physician about how to negotiate or what to offer to the employer. Creative ways to bonus them are certainly one of them.
Now, there are some practices, especially if you’re with a hospital or a health network. It’s unlikely they will make changes if they aren’t already there. But with a smaller physician-owned practice, at least I find they’re much more willing to make significant changes to the comp structure. That is more than the larger networks reluctant to change different contracts. Hopefully, that was helpful and kind of a quick review on how physicians can get bonuses.
Physician Compensation Models
What is a physician incentive bonus? The computation is available in several ways, and we’ll walk through each. Some physician contracts are just a straight base salary. This means you make $200,000 a year, and there’s no productivity bonus. There’s no way to make any more money. It’s just you get this money; you do the work, and that’s it. Then there are other models which I think are smarter, incentivizing the physician to be more productive. That means either have more encounters or maybe do higher ACU cases. It depends, but the two typical ways of giving a physician an incentive bonus are through a percentage of net-collections or RVU production.
Let’s kind of hit both of those. In some physician contracts, there’ll be an incentive that states. Suppose the physician takes in, meaning the practice collects a certain amount of money from the physician’s services. The physician will get a percentage of that. A few usual ways of doing it is for the physician to make $240,000 a year. The practice will state that once the physician has collected 20,000, covering their base salary. They will get a percentage of what’s collected after that. In that scenario, it would normally be somewhere between 20% to 30%. I would say 25% is probably the average amount in that scenario. And that would be a monthly way of doing it. The employer could also do it quarterly. They could do it semi-annually; it’s rare to do it annually.
Breaking the RVU into Quarter
Most physicians don’t want to wait until the end of the year to receive a giant bonus check. They would prefer to have it doled out throughout the year. That’s a normal way of doing a net-collections bonus incentive. With an RVU model, the employer will set a base threshold of RVUs. If you don’t know what an RVU is, it’s a relative value unit. I do have a few videos that you can investigate, but each specialty has an average annual RVU production. And let’s say the employer says you must produce 6,000 RVUs in a year. They would then likely move that down to monthly or quarterly production.
So, if they had to do 6,000 a year, that’s 1,500 a quarter. Then, they would say, alright, any RVU produced over 1,500 in a quarter. You would multiply the RVUs above that times a compensation factor number. That’s specialty-dependent.
It can be anywhere from $35 up to $80. Let’s say the physician was to produce 2,000 in a quarter. Then you would take the 500 RVUs above that threshold times the compensation factor. And then, the physician would receive that as a bonus. Once again, usually, I’d say the most common way of doing it is quarterly. And then there may be reconciliation at the end of the year. But those are the two most common ways for a physician to receive a bonus incentive.
There are hybrid models that you could do as well. Some physicians get paid on production, so they get a net-collections percentage or the RVUs they produce.
I think a hybrid may be the best way to do it for morale. The physician has the security that this is the minimum amount that I will make. However, I can receive much more if I am either productive or ultra-productive. And it just makes sense. Incentivizing employees in any business is just a smart way of handling things. It’s a good business model; I find most employees also appreciate it.
How are physicians paid in a productivity model? First, there are multiple ways of calculating productivity for a physician. And then, of course, there are various ways to compensate them for that. I think there are four main areas, and we’ll hit all of them. One, you have just a straight net collections-based contract, a straight RVU production contract, a hybrid of base salary plus net-collections, and a hybrid of base salary plus RVU production. We’ll go over the basics of all four of those.
Straight Net-Collections Contract
First, straight net-collections contract. What that would mean is that the physician receives a percentage from a collection made out of physician’s services.
The general percentages are between 35% to 45% of their net-collections if it’s a pure net collections-based agreement. 45% is on the high side, but I’ve seen from 35% to 45% of net collections-based percentages. Some of the downsides of this are at the beginning of the agreement. The physician will see almost no compensation for a period. The average accounts receivable cycle for an insurance claim is somewhere between 30 to 90 days. And so, a physician just being paid on net-collections could be working for a month. But no collection of that money for two months afterward. So, the physician could theoretically make $0 in the first couple of months of the agreement. In that situation, sometimes we’ll have a base draw, maybe for the first three to six months.
And then that money given to the physician will be taken out over time. They’re not working for no income for a period. Is this a fair way of being compensated? Sure. I think it’s also volume-dependent. It would help if you also relied upon the billing and collecting efficiency of the practice that you’re with. Some specialty, dermatology, comes to mind, and these seem to be much more prevalent than others. That’s the net-collections productivity.
Straight RVU Production Contract
Second, the RVU production only. I have several videos on RVUs if you don’t know what those are. Still, essentially for every encounter, an RVU value is assigned to it. And then, the physician is paid their RVUs produced times a compensation factor. So, a numerical or monetary value, usually between $35 to $80, is specialty-dependent.
And whatever the physician would then produce in RVUs, usually monthly, the calculation is simple. That would be RVUs times the comp factor, and that’s how much they would make. The benefits of RVU versus net-collections are that in net collections-based agreements, it’s only what the practice gets. The factors affecting physician’s income are insurance write-offs, defaults by patients who don’t pay the bill, inefficiency in billing and collecting. All those things can affect what the physician makes. If it’s a net collections-based and RVU-based contract, the physicians get paid for what they do. Collections have nothing to do with it. So, the physician will likely benefit from an RVU-based production model versus collections. That is because all the bad debt doesn’t matter. Now, most private practices don’t use RVUs.
They use net-collections. It’s the hospitals and health networks that would use RVU-based compensation. Keep that in mind. Is one better than the other, meaning, net-collections versus RVU? It’s situational dependent, but those are the first just pure product productivity-based agreements.
Hybrid of Base Salary and Net-Collections
Third, a hybrid of base salary and net-collections. A couple of ways of doing this would be. First, the physician would get a base salary. Then, each month their net-collections exceed their base salary. They would get a percentage of that. That would typically be a smaller percentage, usually between like 20% to 30%, so if they’re making $10,000 a month. Once their monthly net-collections exceeded $10,000, they would get 20% to 25% of what was collected.
That’s a usual way of doing a hybrid base salary plus net-collections. They could also just come up with a threshold. Maybe their base salary is less than the amount. Even though their base salary would be $10,000 a month, they may say the net collection threshold is $20,000. Still, they get a much higher percentage, maybe 50% of net-collections after that. Once again, it depends on the situation specialty, but that’s a usual way of doing it for a hybrid net-collections model.
Hybrid of Base Salary Plus RVU Production
And then, the last model would be base compensation plus RVU production. Once again, they would have a base salary, and let’s say it’s $10,000 a month.
And then, they would come up with an annual target for their RVU production. Let’s say it’s a family practice; the baseline is 6,000 RVUs per year. They would divide that either by monthly or quarterly and anything they generate above a certain threshold. Suppose the expectation is 6,000 a year, then you would divide 6,000 by 12. Then any RVU generated above that per month, that’s when they would receive the bonus. You would take the RVUs produced above that amount times, whatever the compensation factor is. The benefits of the hybrid model are that there’s less variability and the fact that they will have a base. So There’s a minimum amount that the physician will make, but there are also bonuses.
Once again, it’s specialty-dependent, but most physicians don’t like the potential downside and variability of maybe making much less than a month than others. For instance, if you’re a physician taking a lot of time off in a month. There is a good chance that someone takes a two-week vacation if you’re being paid purely on collections or RVUs generated in a month. That month will be much less than you would make in other months. And some people would prefer just a steady-state; if they outperform that, they will get more. So that’s kind of how physicians receive payment under a productivity model.
Other Blogs of Interest:
- Does a Physician Assistant Repay a Bonus if the Contract is Terminated? | Repayment by a Physician Assistant
- Negotiating a Physician Signing Bonus | Negotiate Salary and Bonuses
- What Is a Physician Incentive Bonus?
Do Physicians Get Signing Bonuses?
Do physicians get signing bonuses? The answer is yes. And we’ll get into who gives signing bonuses. What’s the average value of a signing bonus, and then do you ever have to pay it back? First, who gets signing bonuses? Any physician could give a signing bonus if they’re coming out of training or just switching jobs. Does everyone give a signing bonus? No.
Most places will at least give relocation assistance, usually between 5,000 to 15,000. Many will pay it directly to the moving company, but that’s not the same as a signing bonus. Some places will combine it to call it a commencement bonus. Then, it’s up to the physician how they want to use it. They could use it for relocation assistance or down payment, for whatever they want. But let’s talk purely about signing bonuses right now. How does it work? Well, I would say now this is specialty-dependent. Normally, signing bonuses are somewhere between 10,000 to 50,000. When making the payment is important, some employers will pay it upon signing the agreement. Most employers won’t pay until the first pay period after the physician starts practicing with that employer.
Doctors Get a Signing Bonus and Relocation Assistance
The timing of that is important. Sometimes people are just coming out of training, either residency or fellowship, and don’t have much money. You don’t get paid a lot in either of those scenarios. And suppose you must move to a city and put a down payment in a house or security deposit. Having some of that money upfront can help the physician make things more comfortable. That’s one area we can negotiate. When is the bonus paid? How much do you get? Well, there is no hard and fast rule that this specialty gets this amount. It is employer-dependent. Some are willing to pay a decent amount, and others are just saying, no, you’re not getting one, no matter what. This goes for any contract negotiation.
If you’re in a specialty that’s in high demand and has few out there, you certainly have more leverage. If you’re going to a town that’s harder to recruit, you certainly have more leverage in that scenario. I would ask classmates and others in your residency what you are looking at regarding your bonuses. You could ask some of the attendings and say, what are you hearing about what’s a normal amount? Certainly, an attorney who deals with physician contracts can always give you a decent idea. Still, I’m telling you, it can vary wildly between cities and states and different employers. Another thing to think about is that almost every signing bonus will have a repayment obligation attached to it upon signing the agreement.
Term Length Affects Signing Bonuses
If the physician leaves within a certain period, normally the initial term of an agreement, I mean, how long it lasts, it’s going to be somewhere between one to three years. Many employers will tie whether physicians must pay the signing bonus back to that initial term. Then they’ll have forgiveness associated with it. So, I’ll use a couple of examples. Let’s say a physician joins the practice, its three-year initial term. The employer could say that 1, 30, and 6 of that signing bonus forgives for every month you’re here. So, you stay for those three years. You don’t have to pay anything back. Others can do it quarterly; some will do it yearly. And then maybe it’s only a year; it could be two, but you would rarely get a signing bonus.
Then if you left in the first year, you wouldn’t have to pay anything back. That’s something to think about when doctors are accepting a job. How much am I getting upfront? What will I have to pay back if I decide to leave the job before the initial term ends? In addition to assigning bonuses, some places under 10% could also offer student loan forgiveness. That’s another thing to investigate. A physician-owned practice would be extremely rare to offer student loan assistance. It would have to be at the hospital or healthcare network. I would say the vast majority would be through a hospital or healthcare network that would be willing to offer student loan assistance.
Student Loans Repayment
And in that case, there’s usually no repayment obligation. The employer would say, we’ll give you a hundred thousand for student loan forgiveness. Then, we’ll pay a certain amount of that a hundred thousand over three or five years, whatever it is. And then they’ll pay it at the end of the month, and that’s the forgiveness. The physician would never have to pay anything back. It certainly is worth negotiating a signing bonus. It needs to be reasonable. The worst thing a physician can do is ask for something completely unreasonable. It makes them look like they have no idea what’s going on or are greedy. That’s kind of like threading the needle.
This is a normal amount to ask for, or it needs to be slightly over what they’re offering. So, do physicians get signing bonuses? Absolutely. The amount depends on the situation. Almost any physician should get at least some signing bonus when coming out, trading or moving.
Contract Negotiation Tips
How to negotiate a physician contract. In my mind, there are three different scenarios. One, you’re just coming out of training. Two, you’re switching jobs to an area of the country you’ve never been to. Three, you’re moving from somewhere within the area where you already live. So, negotiation depends upon leverage. Do you have it, or do you not? Let’s take coming out of training, for instance. For the most part, the only leverage someone has when they’re coming out of training is, are they in a specialty that’s hard to recruit for? I mean, that’s just the truth.
You are not bringing in any established patient base. You’re also relatively new to being out on your own. So, a learning curve will go into moving into any position. If you are either in an area that’s very difficult to recruit that could apply to any specialty, or you’re in a specialty that’s difficult to bring in and is super profitable. Those are two things. When you’re looking into it, how do I negotiate? And when people say negotiate, most of the time, they think about the bottom line, what is my base salary. But I think that’s a narrow mind. And this will apply to anybody. When looking at a job, some things are more important than just the base compensation.
Other Considerations Aside from Base Compensation
One, what are the restrictive covenants? Suppose someone lives in an area. They have family and kids in the area. They absolutely cannot move after the contract ends. Sometimes, the non-compete could be the most important thing in a contract. A non-compete says you cannot practice for a period within a specific area. Another important piece is who pays for tail insurance. Depending upon specialty, this could be an enormous part of a contract. If you’re an OB-GYN and you must pay for your tail insurance, your underlying premium is $40,000 yearly. Your tail insurance will probably be around 80,000. So, who pays for tail insurance certainly could be the most important thing in an employment agreement for an OB-GYN. If you’re being paid on production, let’s say you’re in a contract that’s just pure net collection.
Physician Compensation Models
Like an average range for a physician is 35 to 40% of net-collections is your total comp. Is there language in the contract that states that when the contract terminates, you’ll collect a 60-to-90-day window after the contract terminates? If you don’t have that, you work for free for two or three months, which nobody wants to do. Going back to what is important, it depends upon the person. Obviously, having the numbers is important when you’re looking at base compensation. So first, they’re not always easy to obtain. Most places or most of the places use MGMA numbers. That’s a medical group management association, and most of the time, you must pay for that, and it’s expensive. So, no physician, at least most physicians, will not do that.
You could either find someone with access to those numbers or try to get them. Or if you kind of Google around on the internet, sometimes you can find them the average RVUs production, average compensation. It is distributed into areas of the country. I honestly don’t think those are accurate when determining exactly how much and what part of the country. There’s just a feel for what someone is getting in this area. But then you also have to consider all the other things I just said. If someone has a base that’s $10,000 less, they don’t have to pay for tail insurance. Or the non-compete is extraordinarily small. That’s worth way more than $10,000 in some instances. Those are a few factors to think about.
Prominence as the Highest Leverage
Suppose you’re just coming out of training. Let’s say you’re prominent in the community, whether as a primary care PE or cardiology. You have an established space, and you’re just moving into a new practice. Well, this is the highest leverage you can have. There will be no, or at least there shouldn’t be much time needed to ramp up the practice. You’re just bringing people with you. Plus, when you have numbers in a community, these were my net-collections, the RVUs I produced, or the patient encounters I had on a weekly basis. Those are absolute hard numbers you can use to negotiate compensation, moving to a different practice.
Specialty Negotiations for Physicians
And in that case, you have the highest leverage possible. Then obviously, you can negotiate all the ancillary things I’ve already spoken about. The last thing would be, if you’re moving, you’re out of training. You’ve been in practice for a while, and you’re moving from one city to another. You don’t have an established patient base. That takes away some leverage. There are two factors that kind of work for you. One, are you moving to an area of the country that’s difficult to recruit? Very rural communities certainly pay more. That is because it’s harder to find physicians in certain specialties to come and move and live in those areas. Or two, if you’re in a specialty that is simply hard to recruit or extremely profitable. So obviously, surgeons are difficult to find, or some other GI sub-specialties are always difficult.
If you’re moving to a different part of the country, the same analysis applies to coming out of training. However, you benefit from having some numbers of what you produced in your previous position. You can tell them; that this was the net collection I generated in my last position. Now, it doesn’t always translate from one state to another or situation to another. Maybe you’re going from private practice into an employed group. But having any data to back up what your production was is essential in determining your new total compensation in a new position. So hopefully, those are some tips on things to think about. I mean, honestly, just doing this video. I think I can make it into 10 different videos, but this is an overview of negotiating.
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