3 minute read
3 minute read
If you’re a young physician looking at your first opportunity to practice, you will see that many compensation packages offered to new physicians will be dependent on regional and market factors. You should therefore expect your compensation to reflect the earnings of other comparable physicians in your geographical area.
Understanding your incentive structure
For this reason, the devil is in the details of your contract when it comes to compensation! The contract items that will affect your future earnings potential as well as your quality of life are time to partnership, work schedules, repayment language, and incentive component structure. When you’re reviewing your contract, you should be asking “When or how do I receive my incentive or bonus?”
Some young physicians discover that the offered incentive bonus is unrealistic due to the impossibly high bar they need to clear to earn the bonus. Until you begin at a practice, it’s difficult to know whether the offered incentive plan is realistic. If you are offered an incentive or bonus program be sure to ask about how the plan works not only in theory, but in practice. Make sure you know whether new physicians have actually received bonuses!
How do the different compensation plans work?
The different payment models have impacts on practice dynamics, group-member relations, and long-term earnings prospects. Below the common compensation plans are described, along with their pros and cons.
Guaranteed salary plus bonuses or incentives: the most straightforward model, you will often see it used by large HMOs and in academic settings. The income level is set, so physicians know how much base pay they’ll earn along with the possibility of earned bonuses.
As an essentially worry-free salary model, the guaranteed salary brings a sense of security. But without a bonus component, they may discourage entrepreneurship or encourage minimum-effort work standards.
Equal shares: in this model, the after-expenses revenues are split equally among the group’s physicians. This structure is also fairly straightforward, and has the advantage of discouraging overutilization of services.
The downside of this model is its assumption that all physicians are equally skilled and productive. A possible result is that “low producers” in the group can rely on the work of more productive physicians for their compensation.
Productivity-based compensation: this model can be fairly complicated due to its many variables. Physicians are paid as either a percentage of billings or collections, and the fixed and variable overhead costs of the practice are shared. They may also receive compensation based on the relative value scale units (RVSUs) assigned to different procedures or patient visits.
In this model, it is important to know the patient mix. A physician serving a patient base that consists mostly of Medicare or Medicaid patients would earn less than a physician who primarily works with commercially insured patients.
While this model rewards extra effort by physicians, it can create a competitive environment that may not be appealing to all physicians. In addition, RVSUs and overhead allocation can be difficult to administer.
As a further consideration, make sure you understand any repayment terms
Ensure you don’t have any doubt about whether you will be expected to repay your employer due to productivity shortfalls. An example that we’ve seen is an orthopedic surgeon who left training and signed a contract with a listed salary of $500,000 per year.
While he ended up having fewer patients than expected, the group continued to pay him the same bi-weekly amount. However, at the end of the year the group requested that he return $300,000. He did not understand when he signed his contract that his salary had a repayment obligation based on productivity and that he owed back the net balance at the end of the year.
Had he consulted with a contract review attorney, he would have known that the productivity-based repayment option was included in his contract and could have re-negotiated or turned down the contract.
If you have any doubt about the terms of your compensation, it is advised to seek the services of a contract attorney before signing.
Click here to view a short video with more material on the topic of payment and compensation.