How Physicians are Paid in a Productivity Model | Physician Salary

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 multiple ways to compensate them for that. I think there are four main areas, and we’ll hit all of them. You have just a straight net collections-based contract, a straight RVU production contract, a hybrid of base salary plus net-collections, and then a hybrid of base salary plus RVU production. We’ll go over the basics of all four of those. 

Straight Net Collections Physician Contract

First, straight net-collections contract. That would mean that the physician would get a percentage of anything that is collected by the practice for the physician 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% up to 45% if it’s only based on net-collections percentage. Some of the downsides are that the physician will see almost no compensation for a period at the beginning of the agreement. 

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 none of that money is collected 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 so that 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 your practice. Some specialty, dermatology, comes to mind, where these seem to be much more prevalent than others, but that’s the net-collections productivity.

RVU Production Only Physician Contracts

 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 is specialty-dependent, usually between $35 to $80.  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, so insurance write-offs default on patients who don’t pay the bill. As I said before, there is 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 are only 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 because all the bad debt doesn’t matter. Now, most private practices don’t use RVUs.

Hybrid Base Salary and Net Collection Physician Contracts

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. Third, a hybrid of base salary and net-collections. A couple of ways of doing this would be. First, the physicians would get a base compensation, and each month that their net-collections exceed their base salary, they would get a percentage. 

That would generally be a smaller percentage, usually between like 20% to 30%. If they’re making $10,000 a month, once their net-collections exceed $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 standard way for a hybrid net-collections model. 

Base Compensation Plus RVU Production Physician Contracts

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 that they generate above a certain threshold, so if 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 they will have a base so that there’s a minimum amount that the physician will make. Still, then there are also bonuses on top of that. 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, let’s say, someone takes a two-week vacation. Well, 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 a steady state; if they outperform, they will get more. So that’s kind of how physicians are paid under a productivity model.

Other Blogs of Interest

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• How is Physician Productivity Calculated? | RVU and Net Collections
• Backing Out of a Physician Contract | Physicians Contracts

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 physicians 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 job 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.

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 job employee, and they do the work. They get paid biweekly or whatever the job 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.

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. 

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 Models

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 job 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 incentive 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 physician 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 job employer will give them an incentive bonus by multiplying how many RVUs times the physician 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 incentives 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.