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What is a Physician Incentive Bonus?

Blog, Physician Contract Review

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 acuity 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 will 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.Other blogs of interest:

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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.

Physician Incentive Bonuses

How does a physician earn a bonus? This is a broad topic and there certainly are a lot of 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, and then aside from that, you would have actual 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 either coming out of training, getting a new job, or they’re even switching, many times the practice will just pay them a bonus.

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 just pays the amount directly which would make a lot of sense. Beyond just the initial bonuses, there are also productivity bonuses. Let’s walk through those: one, sometimes, let’s just say a physician is employed with a smaller physician-owned group.

There could be group-wide bonuses, meaning, if the practice is profitable to a certain level, the employer will just give out a discretionary bonus, meaning, it’s not written into the contract how much the physician will receive, but 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, and I find that the owners that put discretionary bonuses in the contract honestly rarely follow through with them. It’s more of just a kind of 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.

Physician Incentive Plans

One, you could have net collections-based bonus. Meaning, once the physician collects a certain amount, a month, a quarter, a year, the practice would then provide them with a bonus. It could be an RVU based bonus, meaning, if the position generates a certain amount of RVUs monthly, quarterly, yearly, the practice will then provide them with a bonus as well, or there could be a hybrid, it could be on some kind of base salary, and then, a certain amount of money collected over that amount, they will get a percentage of that. Same with RVUs, they would have like a monthly threshold, and then once they exceed that, they could get a bonus as well. There’s a variety of bonuses available to physicians. It just kind of depends on what the employer is offering. I find that most employers probably aren’t that creative or imaginative when it comes to bonuses.

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, certainly, most practices or owners of practices are willing to give a bonus when a physician is ultra-productive. They just may not even know of the different ways that they can do that. When I’m talking to a physician about how to negotiate or what to offer to the employer, creative ways to bonus them is certainly one of them. Now, there are some practices, especially if you’re with a hospital or a health network, it’s unlikely they’re going to make changes if they aren’t already in there. But with a smaller physician-owned practice, certainly, at least I find they’re much more willing to make significant changes to the comp structure versus the larger networks who are kind of reluctant to make changes to different contracts. Anyway, hopefully, that was helpful and kind of a quick review on how physicians can get bonuses.

Signing Bonus for Physicians

Do physicians get signing bonuses? And the answer is yes. And we’ll kind of get into who gives signing bonuses, what’s an average value of a signing bonus and then do you have to pay it back ever? 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 and many of those will pay it directly to the moving company, but that’s not the same thing as a signing bonus. There are some places that will then kind of combine it to call it commencement bonus, and then it’s up to the physician how they want to use it. They could use it for relocation assistance, for a down payment, for whatever they want. But let’s just talk purely about signing bonuses right now. How does it work? Well, I would say now this is specialty-dependent but normally, signing bonuses are somewhere between 10,000 to 50,000 and then when it’s paid is an important part of that as well. Some employers will pay it upon signing the agreement. I would say most employers won’t pay until usually the first pay period after the physician actually starts practicing with that employer.

The reason why the timing of that is important, sometimes people just coming out of training, either residency or fellowship simply don’t have a ton of money. You don’t get paid a lot in either of those scenarios. And if you must move to a city and put a down payment in a house or security deposit, having some of that money upfront certainly can help the physician to make things more comfortable. That’s one area that we can negotiate is when is the bonus paid? How much you get? Well, there is no hard and fast rule of like this specialty gets this amount. It is absolutely employer dependent. Some are willing to pay a decent amount and others are just saying, no, you’re not getting one, no matter what, and this goes for any kind of contract negotiation.

If you’re in a specialty that’s in high demand and has kind of a not many out there, certainly have more leverage. If you’re going to a town that’s harder to recruit to, you certainly have more leverage in that scenario as well. I would ask classmates, others in your residency, what are you looking at as far as what your bonuses are? 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 all the time can probably give you a decent idea, but I’m telling you, it really can vary wildly between cities and states and different employers. Another thing to think about is almost every signing bonus is going to have repayment obligation attached to it.

Physician Compensation Models

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 the signing bonus must be paid back to that initial term, and then they’ll have forgiveness associated with it. So, I’ll just use a couple of examples. Let’s say a physician joins the practice, its three-year initial term, then the employer could say, for every month that you’re here, 1/36 of that signing bonus is forgiven. 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, could be two, kinds of depends, but it’s rare that you would get a signing bonus.

Then if you left in the first year, you wouldn’t have to pay something back. That’s something to think about when you’re accepting a job is, how much am I getting upfront, and what am I going to have to pay back if I decide to leave the job before the initial term ends. In addition to assigning bonus, some places, I would say under 10% could also offer student loan forgiveness. That’s another thing to investigate. It would be extremely rare for a physician-owned practice to offer student loan assistance just doesn’t happen. 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.

And in that case, there’s usually no repayment obligation. It’s just the employer would say, we’re going to give you a hundred thousand for student loan forgiveness and then we’re just going to pay a certain amount of that a hundred thousand over the course of three, five years, whatever it is. And then they’ll just pay it at the end of the month and that’s kind of the forgiveness. The physician would never have to pay anything back. It certainly is worth negotiating signing bonus. It needs to be reasonable. The worst thing a physician can do is ask for something that’s just like completely unreasonable that either makes them look like they have no idea what’s going on or greedy. That’s kind of you got to like thread the needle.

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February 24, 2022/by admin
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