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.

Other Blogs of Interest

• How Do Physicians Earn a Bonus? | Physician Bonuses
• What is the Most Common Physician Compensation Model?
• Does a Physician Have to Repay a Sign-On Bonus When They Leave?

How to Negotiate a Physician Contract | Contract Negotiation Tips for Medical Doctors

How do you negotiate a physician contract? What are the goals to consider during the contract negotiation process to win the terms of the negotiated agreements? So in my mind, there are three different scenarios. One, you’re either just coming out of training. Two, you’re switching jobs to an area of the country that you’ve never been to before, or three, you’re moving from somewhere within the area where you already live. So negotiation is always based upon leverage. Do you have it, or do you not? So let’s just take coming out of training, for instance. For the most part, in negotiating job offers, the only leverage someone has when they’re coming out of training is in a specialty that’s hard to recruit for? I mean, that’s just the honest truth.

Negotiating a Health Contract by Physicians

You are not bringing in any established PA patient base. You’re also all relatively new to being out on your own. So, a learning curve will go into moving into any position. Consider this, 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 all to bring in and is super profitable. Those are two things to consider.

When you’re looking into it, how do I negotiate the terms of the contract? 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 kind of a narrow mind. And this will apply to anybody looking for a job. There are some other goals to consider during health contract negotiations, at least in my mind, things that are more important than just the base compensation. One, what are the terms of the restrictive covenants?

Non-Compete is Important to Most People

My advice if someone lives in an area, they have family in the area, they have kids in it. They absolutely cannot move after the contract ends since they will have to also think about things related to moving – like the schooling of the kids, or your wife’s job, or if they are also running a business. Sometimes, the non-compete could be the most important thing in a contract. A non-compete says you cannot practice within a specific area for a period.

Negotiate Tail Insurance

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 have to pay for your own tail and your underlying premium is $40,000 a year, your tail insurance cost will be higher compared to other specialties, probably going to be around 80,000. So, who pays for tail insurance certainly could be the most important thing in an employment agreement during a medical contract negotiation for an OB-GYN. 

Employer Practice Negotiations

My advice if you’re being paid on production. Let’s just say you’re in a contract that’s just pure net collection. An average range for a physician is 35 to 40% of collections. Is there language in the contract that states that when the contract terminates, you will be able to collect for a 60 to a 90-day window after the medical contract terminates? If you don’t have that, then you worked for free for two or three months, which nobody wants to do.

Going back to what is important, it depends upon the person what his goals are. Having the numbers is important when you’re looking at base compensation. They’re not always easy to obtain. Most places, or the majority of the places, use MGMA numbers. That’s a medical group management association. Most of the time, you have to pay for that, and it’s expensive. So no physicians, at least most physicians, will not do that. 

You could 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 the average RVU production and average compensation. It is broken down into areas of the country. I honestly don’t think those are accurate when determining exactly how much in what part of the country. There’s a feel for what someone is getting in this area, but you also have to consider all the other things I said. If someone has a base that’s $10,000 less, but employers will not make you pay for tail insurance, or the non-compete is extraordinarily small, that’s worth way more than $10,000 in some instances. That are kind of a few factors during contract negotiation to think about.

Physician Employment Contracts

If you’re just coming out of training, let’s say you’re established in the community, either you’re a primary care PE, it’s cardiology, you have an established space, and you’re just moving into a new practice. Well, this is the highest leverage you can have during contract negotiation. There’s gonna 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 weekly patient encounters. Those are absolute hard numbers that you can use to negotiate compensation terms, moving to a different practice. 

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 for your health contract negotiation strategies.

One, are you moving to an area of the country that’s difficult to recruit to? Very rural communities certainly pay more simply because it’s harder to find physicians in certain specialties to come and make them move and live in those areas. Or two, if you’re in a specialty that is just simply hard to recruit to or extremely profitable. So obviously, surgeons are difficult to find, or some of the other GI subspecialties are always difficult as well.

Medicare Doctors Can Negotiate Effectively

If you’re moving to a different part of the country, then the same analysis applies to some kinds of training. However, you benefit from having some numbers of what you produced in your previous position. You can tell them during your contract negotiation that this was the net collection that I generated in my last position. Now, it doesn’t always translate from one state to another or one situation to another, and maybe you’re going from private practice into an employed group.

But having any kind of data to back up what your production was is essential during contract negotiation in determining your new total compensation in a new position. So, those are some tips on things to think about. I mean, honestly, just doing this video, I can think this could be broken down into ten different videos, but this is just kind of an overview on negotiating.

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 employee, and they do the work. They get paid biweekly or whatever the employer’s payment structure is, and that’s it. There’s no bonus opportunity, no productivity incentive. 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 physicians-owned groups. Most physicians 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 Model

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 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 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 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 employer will give them a bonus by multiplying how many RVUs times the 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 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.

Backing Out of a Physician Contract | Physicians Contracts

What is Backing out of a physician contract? Let’s discuss the differences between signing a contract and not starting versus terminating a contract once the physician has already started providing patient care services. 

How to Terminate an Employment Contract?

Let’s take the second one first. When a physician signs a contract, begins employment and starts providing care for the employer, there will be a section in the employment agreement that states how to terminate a contract. It’s several ways. If it’s a fixed term, meaning it’s just a two-year contract, and then it ends, then it’s not renewed. That’s the contract to complete that way. The agreement could be terminated for-cause, meaning one side breached the contract and then decided to terminate the contract immediately once the breach wasn’t fixed.

There’s always going to be a without-cause termination in an agreement. It means either party can provide a certain amount of notice, usually 60 to 90 days, to the other party. If the physician is the one terminating the contract, they would have to work out those 60 to 90 days. Then they can move on after that. And then lastly, you could have a mutual agreement where both parties say, you know what, this isn’t working out. You don’t need to give notice. You can pack up and move on to something better. That’s not backing out of the contract. That’s terminating the contract. 

What is Backing Out of a Physician Contract?

When I talk to physicians, I would consider backing out if they have signed the contract but haven’t been at the job yet. And so, that’s a little trickier. There are two ways. One could go if the employer made the physician sign an offer letter. Still, the employment agreement hasn’t been signed yet by the physicians. Then it’s easy to back out. The physician says I’m not interested in signing the employment agreement. And even though they sign the offer letter, it’s non-binding unless the language there says it is binding, which is exceedingly rare. In that scenario, if you sign the offer letter but didn’t sign the employment contract, easy, you say, some things have changed.

I’m moving on. Now, let’s say you’re PGY-2 and have this great job. They offer you a position early in the process, you sign the agreement, and then something changes. Either there’s a family problem so you can’t move to the city you thought you would, maybe you get married, have children, or have an illness. I mean, there are a ton of things that can happen in a year or two. And so, in that scenario, the physician must decide. Now, they cannot be forced to work. It’s not like if you sign an employment agreement, the employer can say that you must provide patient care services for us no matter what. 

What Are the Consequences That Need to Be Considered?

However, there are consequences for the physician potentially if they back out of an agreement. Some agreements will have direct language that states that if the physician signs the agreement but doesn’t start with the employer, there may be penalties. Maybe they would have to pay back the recruitment fees or any dollars spent on credentialing or privileging. Perhaps they paid for their license and DEA registration. Maybe they forwarded a signing bonus or a resident stipend.

If the physician backs out in those scenarios, they will likely have to pay those things back. And then the other scenario is if the practice suffers damages, which means that they were relying upon this physician to start. They had a physician ready. They invested capital and maybe built out more rooms. And they could tell the physician, we did all these things, expecting you to start. You signed a contract that said you would begin to, and you didn’t. So, the employer could sue the physician and come after them for those damages. Now, that’s not something that generally happens.

The Best Approach to Take

In my opinion, the best approach to take is if you’re a physician and things have changed. You don’t like the job anymore, and you need to approach whoever the recruiter is. Maybe the practice’s owner, the medical director, and someone in a position of authority. Then say these are the problems; I cannot take this job right now. I appreciate the opportunity, but I’d like to end this amicably and move on. And if there are one of those extenuating circumstances, I find almost all employers will understand. 

They’ll likely be disappointed, but they’ll not feel any anger towards the physician. Suppose it’s a scenario where the physician just got a better offer, and they’re leaving for purely monetary reasons. In that case, the employers may not be as forgiving. I’m just saying to an employer I got a higher-paying job. So, I’m leaving. That will open them up potentially to more liability than not. Now, I wouldn’t suggest that anyone start a job if they’re not interested in being there. That’s a recipe for failure.

The physician first needs to talk to whoever the recruiter is. Second, send a letter stating they’re not planning to start. And if they’re good personal reasons, you might want to list them in the letter, although that’s not necessary. And then say, hey, I want to resolve this amicably. Then suppose you owe them back money from the stipend, relocation, and signing bonus. In that case, you must pay that back. That’s how to back out of a physician’s contract. And differences between terminating the contract and backing out of the contract.