Guide to Understanding Physician Compensation Models

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, as there are a wide variety of compensation structures for physicians. 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

There are a wide array of physician compensation models. These models include:

100% Salary Model. Under this model, the physician will receive a pre-arranged and fixed salary. This structure is easy to administer, as 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 and internal collaboration, teamwork, and teaching, as productivity is not a factor in the model.

However, it also provides little incentive for physicians to bring in new patients or to put in more effort building a practice, and is 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 Model. This model guarantees a 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 that the practice values including quality of work, patient satisfaction, productivity, or a combination of the aforementioned. 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 innate 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 plan and implement.

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.

Equal Shares Model. This is a simple model that is easy for practices to administer. This model takes the money the practice earns, and after expenses are paid, divides it among the practice’s physicians. Under this model, there is great growth potential, as 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 if there are varying levels of experience or skills, and it may not be an option for less-experienced physicians.

Pure Productivity Model. Under this model, a physician is compensated based on 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 of the practice. However, it may also lead to some unintended side effects, which could include a competitive culture among the physicians. It also eliminates the predictability that other models offer.

Capitation/Productivity Plus Capitation Model. Under a capitation model, a provider is paid a fixed and pre-negotiated 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 be straight capitation or mixed with productivity, can be desirable when a practice or group has high bargaining and negotiation power. However, it is also dependent on the market and can fluctuate 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 is best to support his or her current status and long-term goals and expectations. Recognizing the differences can also help a physician determine what to ask before signing an agreement. It is critical for a physician to understand the proposed compensation model in its entirety before entering into an agreement. Questions a physician may 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, is there a bonus schedule that outlines possible bonus thresholds?
• What have been the average administrative costs for the practice in the past?

Of course, each model will have its own set of specific inquiries associated with it. It is, therefore, critical to have a healthcare attorney familiar with compensation structures look at a proposed compensation plan an employer offers. It is also as important to have a healthcare attorney review any type of compensation plan to ensure that it is within fair market value, is 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.

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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 sharris@mcdonaldhopkins.com.

Reprinted with permission from The American College of Rheumatology. Copyright 2018.