Understanding your compensation is critical before you decide to accept a job. In the world of medical practices or groups, however, this understanding is even more essential, because a wide variety of compensation structures for physicians exists. These compensation models can dictate not only what a physician will make in the near future, but also what his or her long-term opportunities may be.
Different types of structures can work for different physicians, depending on the applicant’s experience, skills and goals. To ensure a model is suitable for your professional goals and expectations, you should understand the different compensation models available and critically evaluate the type offered by an employer before accepting a job.
Types of Physician Compensation Models
A wide array of physician compensation models exists. These models include:
100% salary—Under this model, the physician will receive a prearranged, fixed salary. This structure is easy to administer, because the physician will be making the same amount each pay period without any fluctuation. It is also extremely predictable for physicians, which can be enticing for less-experienced physicians. This type of structure may lead to increased internal collaboration, teamwork and teaching, because productivity is not a factor in the model.
However, a fixed salary also provides little incentive for physicians to bring in new patients or put in more effort building a practice. That means it’s not necessarily the best model for creating a long-lasting and growing practice. Because of this, it may not be the best choice for a hardworking physician who wants to be rewarded for bringing in new patients or increasing a practice’s revenue.
Salary plus incentive—This model guarantees the physician a minimum base salary, which could then be supplemented with additional compensation in the form of a bonus based on personal productivity, behavior and work. The model incentivizes certain behavior; the bonus can be tied to different factors the practice values including quality of work, patient satisfaction, productivity or any combination of factors. This can help promote a practice’s specific mission or values, while also giving physicians some security that they will be receiving a specified minimum amount. However, because of the subjective nature of the incentive structure, physician satisfaction may be difficult to predict unless the model design is clear and fair, which may be complicated to design and implement.
Equal shares—This model is easy for practices to administer. It takes the money the practice earns and, after expenses are paid, divides the remainder among the practice’s physicians. Under this model, there is great growth potential; physicians may become more invested in the practice than they would otherwise because of their personal stake in the practice’s growth and success. However, this model can be complicated to implement when physicians have varying levels of experience or skills, and it may not be an option for less-experienced physicians.
Pure productivity—Under this model, a physician is compensated on the basis of how productive he or she is personally, which is commonly measured using work relative value units, net charges or net revenues. Essentially, the physician receives a designated percentage of what he or she brings into the practice. The rest of the earned money goes toward the practice’s overhead expenses, insurance, supplies and other costs associated with running the practice. This type of compensation structure rewards entrepreneurship and can facilitate an individual’s sense of ownership. However, it may also lead to some unintended side effects, which could include a competitive culture among physicians. It also eliminates the predictability that other models offer.
Compensation models can dictate not only what a physician will make in the near future, but also what his or her long-term opportunities may be.
Capitation/productivity plus capitation—Under a capitation model, a provider is paid a prenegotiated, fixed amount of money for each patient enrolled in a health plan for a certain period of time, regardless of whether that individual patient seeks care. This type of compensation arrangement—whether it is based on straight capitation or capitation mixed with productivity—can be desirable when a practice or group has high bargaining and negotiation power. However, market fluctuations mean compensation may change drastically from year to year, which could be problematic for physicians who value stability and predictability.
How to Determine the Best Option
Understanding the different types of physician compensation allows a physician to decide what type of structure will best support their current status and long-term goals and expectations. Recognizing the differences can also help a physician determine what to ask before signing an agreement. A physician must understand the proposed compensation model in its entirety before entering into an agreement. Questions to ask include:
- When are bonuses paid to physicians (e.g., monthly, quarterly, annually)?
- What are the specific factors used in determining a bonus, and how much weight is given to each?
- Is there a minimum or maximum bonus amount allowed per year, or alternatively, does a bonus schedule outline possible thresholds?
- What have the average administrative costs for the practice been in the past?
Of course, each model will have its own set of specific inquiries associated with it. Asking a healthcare attorney familiar with compensation structures look at a proposed compensation plan is critical. The attorney review should ensure the compensation plan is within fair market value, commercially reasonable and adheres to the many healthcare laws relating to compensation and fee structures, including the Stark Law, anti-kickback laws, and state and federal regulations related to fee splitting.
Steven M. Harris, Esq., is a nationally recognized healthcare attorney and a member of the law firm McDonald Hopkins LLC. Contact him via email at firstname.lastname@example.org.