What is a Physician Incentive Bonus?
What is a physician incentive bonus? It can be calculated in several ways, and we’ll walk through each. Some physician contracts are just a base salary, meaning you make $200,000 a year. There is absolutely no productivity bonus, and there’s no way to make any more money. 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 means having more encounters or maybe doing higher acuity cases. It depends, but the two usual ways of giving a physician an incentive bonus are either through a percentage of net-collections or RVU production.
Physician Net Collections Bonus Incentive
Let’s kind of hit both of those. In some physician contracts, there will be an incentive if the physician takes in. The practice collects a certain amount of money from the physician’s health 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 generally 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, or they could do it semi-annually. It’s rare to do it annually. 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 usual way of doing a net-collections bonus incentive.
Physician RVU 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.
Summary
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 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 receive much more. And it just makes sense. Incentivizing employees in any business is just an intelligent way of handling things. It’s a good business model; I find most employees also appreciate it.
Salary vs. Bonus
How Physicians are Paid in a Productivity Model?
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.
Physician Moonlighting
What is an Example of Physician Moonlighting?
I’m going to talk about some examples of moonlighting for a physician. There are two things to consider. When a physician signs an employment contract, a clause is included and listed as exclusivity or outside activities. This prohibits the physicians from doing any moonlighting, locums, or side work involving the practice of medicine without getting the employer’s written approval. We’re going to get into that in a second.
What is Moonlighting?
Now, moonlighting as a physician means they are working for another employer outside of their main full-time job. Shift work and specialties are probably the ones that do this the most. So, suppose ED and hospitalists work seven-on/seven-off. In that case, it is a regular schedule for emergency medicine physicians or hospitalists. 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, if a physician is employed, let’s take a hospitalist employed by a hospital.
Can a Physician Moonlight Work While Employed in a Hospital?
The physician is employed with a hospital and signs an employment agreement. The employment agreement will state that this is your exclusive full-time employment. And this is the only job you can have without getting our written approval to do something else. If the physicians 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 you’re allowed to do this.
And it’s okay. 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 and medical malpractice insurance to their employer. Suppose a physician is working outside of their full-time job. In that case, that employer will say, look, yes, you can work elsewhere. Still, it would help if you showed us that you have medical malpractice insurance for that job specifically.
Malpractice Insurance Coverage and Non-Compete
Medical malpractice insurance is employer-specific for a medical physician. A physician doesn’t just have one medical malpractice policy that covers any practice of medicine anywhere at any time. That’s not how it works. It’s employer specific. So, the medical physician will have a medical malpractice insurance policy for their full-time employer. And then, if they’re going to moonlight, locums, whatever, they would also have another professional liability insurance policy that covered that employer. Many employers don’t want to deal with issues if that physician isn’t insured. Maybe the physician doesn’t even understand that they need insurance for that position. Whoever is hiring them to do moonlighting should also know that they need a different policy.
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 contract term and after the contract terminates. It can say expressly that 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 take effect after the agreement ends. Let’s take the hospitalist as an example as well. The hospitalist works for one hospital. The employment agreement could state that you can’t work as a hospitalist within the county that the hospital is in, within 15 miles, or something like that.
Why Do Employers Not Like Moonlighting?
If you think about it, there’s no competition among shift work physicians and people that work in the ED or as hospitalists. It’s not like you’ll steal a patient base from a hospital or anything like that. The biggest concern would be, let’s say, someone was a primary care medical physician employed by a hospital. Their clinic is off campus somewhere. They wouldn’t want to have physicians work at another primary care practice in the area. Maybe on the weekends or something like that, build up at least some patient base.
And then potentially terminate the contract with the employer, 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. Still, in the non-shift work positions, the employer fears that they will establish a presence somewhere else if they moonlight, ultimately taking those patients with them when they leave the original employer.
When Is Moonlighting Generally Acceptable by Hospitals?
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 more extensive network. And then there are other hospitals within the network that they could also pick up shifts at. In that scenario, usually, you would not need written approval to do that. Most contracts will state that providers can pick up shifts within the network without needing approval. Because usually, the medical malpractice policy would cover all the networks, not just one hospital.
And so, in that scenario, it would be acceptable 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 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 work 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 earn 2200 shifts, something like that. So, physicians would want to work outside the organization simply because they can make more. Anyway, that are some examples of moonlighting physicians.
