What is a physician incentive bonus? This can be calculated in several different ways, and we’ll just kind of walk through each of them. There are some physician contracts that are just a straight base salary, meaning, you make $200,000 a year, there is absolutely 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 kind of smarter which incentivizes the physician to be more productive, meaning, either have more encounters or maybe do higher ACU cases. I mean, it really depends, but the two normal ways of giving a physician an incentive bonus is either through a percentage of net collections or RVU production.
Let’s kind of hit both of those. In some physician contracts, there’ll be incentive that states, if the physician takes in, meaning, the practice collects a certain amount of money from the physician services, the physician will get a percentage of that. A few normal ways of doing it is, let’s say, the physician makes $240,000 a year. The practice will state, once the physician has collected 20,000, covering their base salary, they will then get a percentage of what’s collected after that. In that scenario, it would be normally somewhere between 20% to 30%. I would say 25% is probably the normal 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.
Most physicians don’t want to wait until the very 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 kind of 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 just say, the employer says, you must produce 6,000 RVUs in a year. They would then likely move that down to either a monthly or quarterly production. So, if they had to do 6,000 a year, then that’s 1,500 a quarter, and then, they would say, alright, any RVU produced over 1,500 in a quarter, then you would just multiply the RVUs above that times a compensation factor number. That’s specialty dependent.
It can be anywhere from $35 all the way up to $80. Let’s just say the physician was to produce 2,000 in a quarter, then you would just take the 500 RVUs above that threshold, times the compensation factor. And then, the physician would receive that as a bonus. Once again, normally, 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. There are also some physicians who just get paid on production, so they just get net collections percentage, or they just get the RVUs they produce.
I think a hybrid is maybe for morale purposes, the best way of doing it. The physician has kind of the security of, alright, this is the minimum amount that I will make, however, if I am either productive or ultra-productive, I can then receive much more. And it just makes sense. I think incentivizing employees in any business is just a smart way of handling things. It’s a good business model and I find most employees appreciate it as well.
Salary vs. Bonus
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. One, you have just a straight net collections-based contract, you have just a straight RVU production contract, you have a hybrid of base salary plus net collections, and then a hybrid of base salary plus RVU production. We’ll just kind of go over the basics of all four of those. First, straight net collections contract. What that would mean is, anything that is collected by the practice for the physician services, the physician would get a percentage of that.
The general percentages are somewhere 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% all the way up to 45% if it’s only based on net collections percentage. Some of the downsides of this are, at the beginning of the agreement, the physician is going to 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 who is 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, just 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. You also must rely upon the billing and collecting efficiency of the practice that you’re with. Some specialty, dermatology comes to mind, where these seem to be much more prevalent than others, but that’s kind of the net collections productivity. Second, the RVU production only. I have several videos on RVUs if you don’t know what those are, but essentially for every encounter, there is an RVU value 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 all the way up to $80, it 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, in net collections-based agreements, it’s only what the practice gets, so insurance write-offs, defaults by patients who just simply don’t pay the bill, as I said before, 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.
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 kind of 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 physician would get a base salary, and then each month that their net collections exceed their base salary, they would then get a percentage of that. That would normally be a smaller percentage, usually between like 20% to 30%. So, if they’re making $10,000 a month, once their net collections for that month exceeded $10,000, then they would get 20% to 25% of what was collected after that.
That’s a normal way of doing kind of a hybrid base salary plus net collections. They could also just come up with threshold. Maybe their base salary is less than the amount. Let’s say, even though their base salary would be $10,000 a month, they may say the net collection’s threshold is $20,000, but then they get a much higher percentage, maybe 50% of net collections after that. Once again, kind of depends upon the situation specialty, but that’s a normal way of doing it for a hybrid net collections model. And then, the last model would be base compensation plus RVU production. Once again, they would have a base salary and again, let’s just 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, and the baseline is 6,000 RVUs per year, then they would just 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 just divide 6,000 by 12, and 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 obviously are, there’s kind of less variability and the fact that they will have a base, so that there’s a minimum amount that the physician will make, but then there are also bonuses on top of that as well.
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 who is taking a lot of time off in a month, there is a good chance that, let’s just say, someone takes a two-week vacation, well, if you’re being paid purely on collections or RVUs generated in a month, that month is going to be much less than you would make in other months. And some people would prefer just kind of a steady-state and if they outperform that then they would get more. So that’s kind of how physicians are paid under a productivity model.
Physician Moonlighting
I’m going to talk about some examples of moonlighting for a physician. There are two things to think about. When a physician signs an employment contract, it’s very likely there’ll be a clause in there that is listed as either exclusivity or outside activities which prohibits the physician from doing any kind of moonlighting, locums, side work at all involving the practice of medicine without getting the written approval of the employer. We’re going to get into that in a second. Now, moonlighting as a physician in general, means they are working for another employer outside of their main full-time job. Shift work, specialties are probably the ones that do this the most.
So, ED, hospitalists, if they’re working seven-on/seven-off, which is a normal schedule for an emergency medicine physician or a hospitalist. If they have that seven days off, then many times, they’ll want to pick up shifts elsewhere. And in that case, that would be considered moonlight. Now, going back to if a physician is employed, let’s just take a hospitalist employed by a hospital. The physician is employed with a hospital and signs an employment agreement. The employment agreement is going to state this is your exclusive employment, this is your full-time job, this is the only job you can have without getting our written approval in order to do something else. In that situation, if the physician wanted to work outside the organization, maybe doing some locums or picking up shifts at another local hospital, the employer would have to say, yes, we agree that you’re allowed to do this.
And it’s fine. Now in that scenario, if an employer says the physician can moonlight, then usually there will be a couple of things the physician must do. First, the employer will likely require that the physician provide proof of professional liability insurance, malpractice insurance to their employer. If a physician is working outside of their full-time job, that employer is going to say, look, yes, you can work elsewhere, but you need to show us that you have malpractice insurance for that job specifically. The malpractice insurance is employer-specific for a physician. A physician doesn’t just have one malpractice policy that covers any practice of medicine anywhere at any time. That’s not how it works. It’s employer specific. So, the physician will have a malpractice insurance policy for their full-time employer. And then if they’re going to moonlight, locums, whatever, they would have another professional liability insurance policy that covered that employer as well.
Many employers just don’t want to deal with issues if that physician isn’t insured or maybe the physician doesn’t even understand that they need insurance for that position. Whoever is hiring them to do moonlighting should know that they need a different policy as well. But that’s one of the main concerns why employers don’t let people moonlight or do locums without having proof that they’re going to be insured in that position. Another consideration is competition. Many employment agreements will state that the employee cannot compete with the employer during the term of the contract, and after the contract terminates as well. It can state specifically, no matter what, you cannot work with a competitor organization during the term of this agreement. And that could be different than the actual non-compete, which will then take effect after the agreement ends. Let’s just take the hospitalist as an example as well. The hospitalist works for one hospital. The employment agreement could state, you can’t work as a hospitalist within the county that the hospital is in or within 15 miles or something like that.
If you think about it, there’s no competition amongst shift work physicians, and people that work in the ED or hospitalists. It’s not like you’re going to steal a patient base from a hospital or anything like that. The biggest concern would be, let’s just say someone was a primary care physician employed by a hospital. Their clinic is off campus somewhere. What they wouldn’t want to do is have that physician work at another primary care practice in the area, maybe just on the weekends or something like that, build up at least some kind of patient base and then potentially terminate the contract with the employer and then move over to whatever job they were moonlighting with and maybe take the patients with them. Now, there will be other clauses in the contract that prohibit that. There will be a non-solicitation agreement.
As I said before, there’ll be a non-compete, but in the non-shift work positions, the fear of the employer is that if they are going to do moonlighting, they will establish presence somewhere else, and then ultimately take those patients with them when they leave the original employer. Moonlighting can also take the form of, once again, let’s say there’s a hospitalist that works at one hospital, however, they’re in a larger network. And then there are other hospitals within the network that they could pick up shifts at as well. In that scenario, normally, you would not need written approval to do that. Most contracts will state the providers are allowed to pick up shifts within the network without any need for approval.
Because normally, the malpractice policy would cover all the network, not just one hospital. And so in that scenario, it would be fine that the only reason why, once again, let’s say it’s hospitalists, they would want to pick up shifts elsewhere, outside the network. Let’s say they have an opportunity to pick up additional shifts either at their own hospital or maybe in other hospitals in the system. Why would they go outside? Well, it’s money. You’ll generally get paid more if you’re working in a locum tenant’s position. And maybe you’ll make 1500 a shift within the network, but then if you work a locums job, you’ll make 2200 shifts, something like that. So, that physician would want to work outside the organization simply because they can make more. Anyway, that is some examples of moonlighting for a physician.
