When reviewing a physician contract, they’ll often mention the industry standard numbers. And then how do we find them out? One tool that I think is very helpful is the MGMA physician’s compensation data, and I’ll go through what it includes and how I use it. First, the MGMA is the medical group management association. It’s an association for professionals that manage or assist with physician practices. Then each year, they will survey physicians by specialty. It is gathering a lot of information about the process of compensation. What goes into the numbers?
Physician Compensation With a Salary
First, they’ll do the total compensation of the average salary for physicians in a specialty, RVUs. The total RVUs generated in that specialty and the average compensation factor. I’ll get into the specifics of that in a second. Lastly, what are the average net-collections for physicians in that specialty? And I kind of break down each one and then how I use it. Suppose physicians receive a contract that has a base salary. No productivity at all, then it’s helpful to investigate the MGMA numbers. See the average amount of physicians in that area. The MGMA numbers are distributed by region. You have Eastern, Midwest, Southern, and Western. It’s also broken down into a physician-owned practice versus a hospital/healthcare network because those numbers fluctuate dramatically.
Once we get into those numbers and see what the average is, it’s a helpful tool. Should it be the only thing relied upon? Not. I think it’s a terrible idea for physicians to base whether a job is worth pursuing or not just based upon compensation. You have several other factors. What are the benefits? What’s the non-compete like? Is it easy to get out of the contract if things go south? What’s the non-solicit? Do they pay tail insurance? It’s not just compensation. It’s kind of the totality of things. Still, certainly, the compensation is the wow factor numbers, and it’s probably the first thing that physicians think about in determining whether a job is good or not.
MGMA and Healthcare Coding
If they have a base offer, we can look at those numbers and see if it’s industry standard. I would also suggest that any physician talks to colleagues. See what offers they’re getting, especially for people in residency. Comparing offers is the best way to determine whether an offer you’re getting is fair or not. Next, let’s talk about collections. Suppose a physician receives a contract based purely on net-collections. That means that the physician gets a percentage of every dollar the practice receives, usually between 35% to 45%. In this case, let’s say someone has a 40% net collection. Each month, whatever they collect, they get 40% of that.
And it’s simple. How the MGMA data is helpful is knowing what the average collections are annually for a specific specialty. In that way, the physician can at least forecast what they’re going to make. Now, it is volume-dependent upon the practice and how efficient they are in billing and collecting. But having these numbers certainly is a good base point. Another way of being compensated is via RVUs. They are just talking about the collections quickly. I find that physician practices utilize net collections-based models, and hospitals use RVUs. It would be infrequent to see a private physician in practice use RVUs. And then alternatively, it also would be infrequent to have a hospital use net-collections. That doesn’t happen very often. In this case, if they have an RVU contract, I mean there are different hybrid models.
The Importance of Knowing the Data for an Average RVU
Let’s say it’s straight RVUs. You take the RVUs generated by the physician, multiply them by a compensation factor, and that’s what they make. So, it’s helpful to know the average RVUs generated per year in your specialty, in your area. What’s the average compensation factor? As I said before, the compensation factor is just the dollar value, and it varies by specialties, usually between $35 to $65. And you multiply that number times the RVUs generated, and that’s how much you make. Sometimes, we can negotiate the RVU thresholds and the compensation factor number in contracts. Many places will be kind of tier.
They’ll say, alright, if you generate 5,000 to 6,000 RVUs. You’ll get $50; anything from 6,000 to 7,000, you get $10 above or $5 above. That’s a normal way of doing it. That’s why this data is so helpful. Now, the downsize, in some specialties, the sample size is so low that it can’t be relied upon or isn’t statistically significant. When you get into the real subspecialties that took three or fellowships, there aren’t that many out in the country. It isn’t easy to have many people respond to the survey; therefore, some of the numbers are provided. I don’t think it can be completely relied upon. It’s a great tool. Is it the only tool? No, other places have Merritt Hawkins. It’s another one that provides data.
How to Access the MGMA Data?
Another question I get regularly is, how can I see this data?
Well, it’s tough. There may be some old MGMA data online that you can find just by Googling around. Still, it would be virtually impossible to find the most current MGMA data online for free. I mean, we must pay for it every year. Just Google around for media compensation and try to find some numbers. Still, these are probably the most accurate numbers we can get. But like I said, they’re not the only number. So, hopefully, that was a brief rundown of the MGMA physician compensation data and how it can assist in negotiating the contract.
Other Blogs of Interest
- What Is the Best Physician Compensation Model? | Physician Compensation Models
- What is the Most Common Physician Compensation Model?
- Will I Be Paid My Bonus if I Terminate the Physician Contract Early? | Termination of Contracts
What to Know Before Signing Your First Physician Contract | Contracts
What should you know before you sign your first physician employment contract? This question is a broad topic, but we’re going to hit the main areas. The things to think about before signing your first employment agreement.
Ways to Determine if Compensations Offered Are of Fair Market Value
First, determine whether the compensation offer is fair market value. There are a couple of, I guess, good ways of going about trying to find that. The MGMA, the medical group management association, collects annual salary data nationwide. If you can access that, they have a lot of good information about total compensation, average net-collections, and average RVUs generated by specialty. It’s hard to get that info sometimes.
I mean, if you Google around, you might be able to find some of the compensation data that’s a couple of years old. Or you can talk to someone who has access to the data, like for our firm, we have access to the data. So, we can tell the physician exactly what the numbers say. Now, that’s certainly not the be-all-end-all. There are other services out there that offer something similar. But I also think it’s limited because some specialties have a tiny sample size. In addition, just total compensation should not be the determining factor when looking for a job. Alright, so that’s compensation.
Another way of thinking about it would be, if you have classmates in your training program, you need to ask them what they’re receiving. It’s going to vary based upon geography and then setting. Are they going into a hospital network? Are they going into the federal facility, or will they go into private practice somehow? It is good to speak to people you train with to see their offers. And then mentors are another excellent place.
How To Terminate Contracts
If someone is already out and maybe they’ve been a teacher for you or a mentor, ask them if they’re willing to talk about the type of compensation they’re receiving. Next would be how to terminate the agreement. Something you need to consider. There are four ways to terminate a contract if the initial term ends. Let’s say you have a two-year contract, and no language states it automatically renews. It just ends, and the contract terminates. You can complete a contract by mutual agreement. Then you can also terminate a contract with-cause. So if one of the parties breaches the contract, either party can terminate the contract if the other party doesn’t fix the breach. It’s called cure. And then lastly, and this is what I want to hit on, is without-cause termination.
Every contract you sign must have without-cause termination in it. There are minimal circumstances where no without-cause termination would be okay. If you’re a J-1, that one would probably benefit you not to have that in there. But without-cause termination means you can terminate the contract at any point, for any reason, with a certain amount of notice to the other party. Contracts that don’t have without-cause termination, meaning you must work out whatever the initial term is. There’s no way of terminating the contract for any reason. They would have to breach it if you wanted to get out of it.
Why Do I Need No Cause Termination on My Contract?
The reason why you need that is, let’s say, you start with the job. You are getting paid on productivity, and the volume is not there. It’s not your fault, or maybe the employer brought you in telling you it was going to be one way, and the call is just excessive. Or perhaps it’s just a terrible personality fit; whatever reason you’re not happy in that job, you need the ability to get out of it if you want. So, it would be best to have without-cause termination in the contract. Somewhere between 60 to 90 days is standard for physicians.
Legal Mistakes Physicians Make are not going through Non-Compete.
Alright, next, the non-compete. A non-compete says the physician can’t work after the contract terminates for a period within a specific area. For example, most non-competes are one year, sometimes up to two.
And then, a reasonable mileage would be 10 to 15 miles from your primary practice location. Often, the employer will try to tag multiple locations. So, maybe if you worked in three outpatient clinics in a hospital or something. They try to attach it to all four of those, or perhaps the employer has many facilities in the area. You’ve only worked at one of them, and they might try to attach it to all the facilities they own. That’s not fair either. You want to try to get it to one year, 10 to 15 miles from maybe at most two locations. Anything beyond that would be considered unreasonable. There are a few states where it’s entirely unenforceable to have a non-compete. But for the most part, most states allow non-competes for physicians.
Health Care Malpractice Insurance, Do Not Practice-Without It
Lastly, the employer should almost always pay for your underlying annual premium with health care malpractice insurance. How much must they pay each year to insure you? Depending upon the policy, whether it’s a claims-made or an occurrence-based approach, it will determine if you must pay what’s called tail insurance.
If it’s a claims-made policy, tail insurance is necessary. A good rule of thumb is that tail insurance costs about twice your annual premium. In some specialties, it can be costly. OB-GYN, some of the higher-level surgical things could have tails that are fifty to a hundred thousand dollars. You want to avoid having to pay for that. So, ensure that there’s a fair split between the employee and employer. Or having the employer pay the total cost of the tail insurance, or there’s also insurance called occurrence-based coverage. And in that scenario, tail insurance is not needed at all. It’s about a third more expensive than claims-made, but you won’t have to pay for tail insurance.
Now, you probably need to think about dozens of other things. I would say, in my mind, those are probably the foremost important. But you have benefits, bonus structure, contract length, other restrictive covenants with the non-solicitation agreement, non-disparagement, confidentiality, your hours worked, and the call. I mean, you need to think about a ton of things. So, I would suggest reaching out to someone with experience reviewing contracts. When you’re signing a contract that could be worth a million dollars, I think it would be foolish not to get it looked at by someone who knows what they’re doing.
How Is Physician Productivity Calculated? | RVU and Net Collections
What are the different ways of calculating physician productivity? As someone who reviews contracts daily, I find that the two most likely methods of calculating productivity are either net-collections or RVUs. And so, let’s break both of those down. Suppose someone is an employee of a hospital network. In that case, their productivity will likely calculate through RVUs.
What Is RVUs (Relative Value Unit), and How Is It Computed?
RVUs are relative value units. CMS, Center for Medicare Services, issues a list every year and has different RVU values associated with the different types of encounters that the physician has. In most scenarios, whatever RVUs generate is multiplied by a conversion factor, and that number can also vary. It’s usually somewhere between $35 to $80, based on the physician’s specialty.
A Scenario for RVU Measuring Physician Productivity
Let’s take a scenario where a physician has been employed in the hospital network for a couple of years on an income guarantee. Then their contract will switch to just pure RVU production. Usually, they will choose the base salary level below what they would’ve made the year prior. So, if somebody made $240,000 and their RVU production matched that in year two, they switched to production. Maybe they’ll back down whatever the draw is, like their payment per payroll. So, if they’re receiving 20,000 per month, perhaps they would back that down to 15,000. And then if the physician, when they did the RVU calculation, exceeded that, they would get paid that amount at the end of the month, or quarterly as well as a usual way of doing it.
If they’re doing RVU production, it’d rarely be less than quarterly or monthly. That’s how a physician gets paid for RVUs. You take the RVUs generated, multiplied by a conversion factor, and that’s what they get. And then, at some point, there’s always a reconciliation to ensure they are getting what they burn. And there are scenarios where a physician may make less than what they had been earning. Then, in that case, most contracts will carry forward the the deficit. So, a physician could have a negative balance in a month. And if so, the contract will likely state that the negative balance will be carried forward into the next month until a physician exceeds the negative balance.
The other way is through net-collections. Net-collections are literally what the practice collects for the physician services. Now, net-collections are utilized for the most part in private physician-owned practices. The difference between why someone would use RVUs versus net-collections is a hospital network operates RVUs because there are many times when a physician must provide care. They know the person they provide care to can’t pay the bill.
The hospitals and physicians also don’t think that’s fair that they are part of the job of giving that charity care. However, they still provide that care and want to get paid. And RVUs only consider the work that the physicians do. It doesn’t consider what’s collected. Whereas, with net-collections, most physician-owned practices utilize net-collections because almost everyone they’re providing care to in practice has insurance or private pay.
Most smaller physician practices aren’t going to provide that charity care. They want to know, will the physician be paid for what we receive? Now, why can it be different? Well, there could be write-downs from the insurance companies. There could be write-offs from patient care issues where they give a refund, something like that. So, even though the physician may provide care, what the practice receives could be less. And in a net-collections productivity model, usually, it would be monthly productivity.
Guaranteed Minimum Base Pay for RVU Model
The physician would likely much like the RVU scenario where they’d have a small, guaranteed base, or maybe it’s not even guaranteed, but just like a draw. Let’s take the same amount of money. Let’s say 20,000 a month for a physician. Most practices will say, okay, once your collections exceed your salary for the month. You will get a percentage of whatever collection after that, usually somewhere between 20% to 35%. And once they reached the threshold, as far as they go up, let’s say they collected 40,000 in a month and had a 25% net collection with a 20,000 threshold. Then they would get 25% of 20,000.
Are Physicians Paid Purely for Net Collections?
Now, I’d say rarely is a physician paid purely on net-collections, meaning there’s no minimum guarantee or draw. It’s just whatever they do in the month, that’s what they receive. Those scenarios are challenging, especially when the physician is starting because there’s no guaranteed payment for the first couple of months. And so, they could be working for 30 days without receiving any money. I mean, the average accounts receivable cycle is somewhere between 30 to 90 days.
In that scenario, the physician wants to ensure a minimum draw, so they make at least a little bit of money in the first couple of months. Then it will ramp up over time. The last consideration is, for both RVUs and net-collections, if a bonus structure is involved. There will be language in the contract that states if the contract gets terminated, how is the physician paid? There are times when it will state that the bonuses will only get paid if the physician is an employee at the time of the payment.
So, even though they may have earned the bonus. If terminate the contract or the employee who made it leave and it’s paid. They won’t get any of it. Strategically, sometimes the physician must wait until the employer pays whatever bonus is coming. Then they can give notice and leave. I mean, that makes the most sense. So, that’s how physicians measured productivity, or at least the two main ones are RVUs and net-collections.
Family Medicine Contract Negotiation Tips | Negotiate Physician Contracts
Negotiation tips for family medicine physicians who have a new employment contract. There are two scenarios. If you’re coming out of training, the second would be if you’re an established physician in an area. You are either moving into a new practice in the area or potentially getting bought out by a larger practice or hospital network. The negotiation tips may be a little different for both, but I guess the general strategy is probably the same.
Contract Negotiation: Look at the Compensation
For anyone in family medicine who received an employment agreement, you first need to consider the compensation. If you’re entering a new area with no ties, you must ensure a guarantee for the first two years. That means that many organizations are now requiring productivity components either through RVUs or net-collections.
So, if you immediately start a job and are productive from the beginning. You will make less than you would if given an income guarantee because it takes time to build a practice. Usually, somewhere between 12 to 18 months for practice to reach maturity. If you get paid, let’s say, on net-collections. If the average accounts receivable cycle for a claim is 30 to 90 days, you could be working for a month before you see a dime of that. You need to ensure an income guarantee for the first two years. Then if it does shift into maybe just RVU based, or as I said before, just net collections-based, you’ll be able to gauge your compensation.
And they’ll usually use the second-year data to indicate what you’ll make in years three and beyond. You need to identify the compensation structure and ensure that it guarantees you for the first two years.
It was finding out what kind of going rate in the area is beneficial. MGMA data is what I generally use. It’s not the be-all and end-all. That means that the numbers help know the median salary for a family medicine physician. It can still vary significantly in the south or the east or the west or hospital-owned versus private practice.
Contract Negotiation Tactics Beyond Compensation
The benefits matter, health care malpractice insurance, and restrictive covenants like the non-compete can determine whether a job is good. And so, just basing it off one number is shortsighted. I find it very helpful to talk to your classmates, especially if you’re coming out of training, seeing what they’re making or being offered from their jobs. If you’re well-known, I wouldn’t say unprofessional. But most people aren’t willing to talk about how much they make after you’ve been out for a long time. So, that probably won’t be as effective, but you also know your value.
If you’ve been out for a while and know how much you make. I generate this many RVUs per year. These are my net-collections. That kind of data is beneficial. Don’t be afraid to ask for more. Now, it has to be a reasonable amount if you received a 200 offer and you ask for 400. And it’s a family medicine physician. They’re going to laugh you off. Small jumps are kind of, I think, almost expected on the employer’s side.
And then you also must think about bonuses like signing bonuses and relocation assistance. These are also things that should be in the contract as well. The signing bonuses vary wildly, based upon geography. Suppose you’re going into a city or an area that’s hard to recruit. It’s more rural. It’s not as desirable for the general population. You’re simply going to make more money and get a higher bonus.
Moving Into a Big City vs. Rural Areas
Moving into a big city or there’s a lot of competition because people want to live there. The salaries will be depressed. I know it’s counterintuitive when you’re like, well, if I’m moving into a more expensive area, the salary will reflect the cost of living. It’s not. It doesn’t because, for instance, I live in Scottsdale. People want to live here, and when you have 50 candidates applying for one position versus a rural town in South Dakota where there are two. There’s less leverage for the physician to negotiate a higher salary. So, don’t be surprised if you’re looking into a bigger city where the salary is just not going to reflect the cost of living compared to other places.
Negotiation Skills: Talk to Your Classmates
But once again, set up a meeting, talk to your classmates, and see what they offer you. There are some programs if you’re moving into a hospital network that can also offer student loan assistance. You’re not going to get that from private practice. They won’t offer you student loan assistance if they’re in private practice. So, if it’s important to you, you need to look more rural and with networks, and they may have that opportunity. Some states also offer that. If you work in certain healthcare shortage areas, that might also be something you investigate.
Negotiating the Type of Malpractice Insurance
The next thing to look at is what type of malpractice insurance they offer. Is it occurrence-based or claims-made? Or I guess if you’re with a hospital network, they could be self-insured. If you have a claims-made policy, which is more for private practice, you need to look at who must pay for tail insurance. Tail insurance is generally about twice your annual premium for family practice, usually somewhere between 6,000 to 8,000 yearly. So, your tail insurance cost would be somewhere between 12,000 and 16,000. That’s a one-time payment, but that’s one thing you don’t want to look at. You can certainly negotiate for the employer to pay for tail insurance. Or, if it’s an occurrence-based policy, you don’t need tail insurance.
An Important Thing to Know: Non-compete Clause
Another thing you want to think about and attempt to negotiate is non-compete. These vary wildly as well. Typically, one year is the maximum length we’d want for a non-compete. And then really, depending on the area, it could be anywhere from 5 to 30 miles. Two things you want to think about as far as that and trying to negotiate: one, you want the specialty as specific as possible. What I mean by that is that some family medicine physicians can do multiple things. They could do urgent care. They could do the primary practice, while some could be a hospitalist.
If you have a job, you want it narrowly tailored to that job. Let’s say you have a non-compete where you can’t be in family medicine and private practice for a year within 15 miles of your location. Well, if it’s just like, you cannot move under any circumstances. It would help if you stayed in that area. You want the specific specialty you’re in for that employer to say it’s just family practice in private practice. And therefore, you could do urgent care, be a hospitalist for the year, and then move back into private practice if you want.
You also want to limit the number of locations. Is it just your primary location? Or, if you’re working in multiple locations, is it the non-compete attached to each of those locations? Or if they’re an enormous corporation or health network. They have facilities throughout the city. Is it 10 miles from everything they own? You want to narrow that to just your primary practice location, or maybe if you’re splitting your time. Still, you’d want to completely avoid non-competes, stating it applies to everything the employer owns.
Do You Have to Repay Anything?
And then the last thing to think about, do you have to repay anything if you terminate the agreement? Suppose you received a signing bonus, relocation, or student loan assistance. Then, if you don’t stay for a certain period and were to terminate the contract without-cause. You would have to pay back some of those things. Some things to negotiate would be, for instance, if you had a $30,000 signing bonus and a three-year initial term, you want to make sure it’s forgiven. I mean, monthly would be the best. So, 1/36 forgiveness, meaning, for every month that you’re there, 1/36 of the signing bonus is forgiven. And so, if you stay for three years, you don’t have to pay anything back.
Now, some places will try to do it yearly. And in that scenario, let’s say you’re in year three, and you terminate the contract in the middle of the year. Well, if it’s yearly forgiveness, you just gave up six or seven months of forgiveness, and then you must pay back $10,000 instead of maybe four or five. Honestly, there are a million things you can negotiate in a contract. I was trying to hit the highlights and the things that are usually most important to family medicine physicians.
Can a Physician Be an Independent Contractor?
One question that comes up occasionally is, are physicians independent contractors? The answer to that depends on what kind of contract you signed. There are two types of contracts for doctors. You have employment agreements and then independent contractor agreements. With an employment agreement, you’re an employee. Then the contract you signed will specify all the terms of what the physician needs to do and what the employer needs to do. Then in an independent contractor agreement, many of those terms are the same. Still, there is much less detail in an independent contractor agreement for some employment agreements. Let’s briefly go through the two, and then we’ll get back to when a doctor is an independent contractor.
Independent Contractor Agreement for Doctors
The main differences are one, in an employment agreement, the physician gets paid via W-2, and then the employer will pay for most of the things necessary to be a doctor: licensing, DEA registration, credentialing, privileging, practice insurance, and the expenses associated with being a doctor. You don’t get paid as a W-2 employee in an independent contractor agreement. You’re paid via 1099, meaning the doctor would have to take out the taxes when they file their returns. Then, most of the time, the entity contracting with the independent contractor will not pay for the dues and fees and all the other expenses.
So, the physician will be the one that pays for the license, DEA, and continuing medical education. There are also no benefits associated with an independent contractor agreement generally. So health vision, dental, life, disability, retirement, all that stuff, won’t be provided to the independent contractor. Another question is, what’s better for me, and what’s the point of both? I find it’s very specialty-dependent. Anesthesiologists and dermatologists have more independent contractor agreements than other specialties. If a physician is self-employed, they are essentially taxed as an independent contractor, although they would not receive 1099.
Medical Practice Tax Considerations
Some of these practices only utilize independent contractor agreements because they can avoid paying employment taxes. These are essentially quasi-employment agreements. The doctors kind of act as employees, their schedules set for them. They’re using the employer’s facilities and supplies and staff. However, if a physician isn’t an independent contractor, they would generally create an LLC. Then they would run all of the payments through the LLC bank account. They would also be able to deduct the expenses. I went through all the things before licensing CME, malpractice, insurance, tail insurance, and all that kind of stuff as well. I mean, if I had to weigh one versus the other. Suppose the physician does have the choice between the two. It would depend upon the compensation structure of whether it would be worth it or not to accept an independent contractor agreement.
Physician Employee or Independent Contractor?
If it’s based purely on net-collections, sometimes it is more lucrative to be an independent contractor. Still, suppose I have to give a percentage of which way a physician ultimately benefits more. In that case, it’s probably like an 80/20 employment agreement because of everything the independent contractor has to pay for. Those provided by the employer add up over time. Then another thing to think about is some individual physicians can’t get some of the things that a larger employer can. It isn’t easy to get individual health insurance feeling it’s expensive. Then all the other things, vision, dental, life, disability, malpractice, and tail insurance, add up quickly.
Anyway, if a physician’s debating between the two, I wish I could give a better answer besides it. It depends, but that’s an overview of whether doctors are independent contractors or not. It just depends upon what kind of contract they signed.
Physician Contract Questions?
Contract Review, Termination Issues and more!