Understanding Physician Compensation Models

Once their training is complete, most physicians enter the profession with considerable student debt while facing mounting medical malpractice costs along with their living expenses. For this reason, it’s essential to have a basic understanding of different physician compensation models and their pros and cons before accepting a position.  

Straight Salary (Plus Bonus)

Some physicians earn a straight salary like many other professions. With this model, the physicians receive pay for performing their job responsibilities. This is a set, consistent wage that is not related to performance, productivity, or other variables.  

Some physicians prefer a straight salary because it offers security. But at the same time, there is no reason to advance their skills or participate in larger, organizational efforts to grow the practice. To ensure patients receive optimal care, a straight salary works best when employment contracts are time-limited and can be terminated if expectations are not met.

Additional bonuses for physicians who meet and exceed performance and productivity targets are one way to prevent providers from feeling undervalued. The salary-plus-bonus model is one of the most common compensation methods in the industry according to a report from the American Medical Association.

Physician Income Guarantee

With a physician income guarantee, the employer agrees to provide income support for a new doctor who is just beginning to establish themselves. This guaranteed income is not dependent upon volume, productivity, or performance.

Typically, this takes the form of a monthly stipend for doctors which is equal to the guaranteed income amount, minus any actual income the physician generates. As the new doctor begins earning more, the guaranteed income amount decreases. Payments are generally guaranteed for 12-24 months.

Once this Guarantee Period ends, these payments are forgiven if the physician continues working in the community for the next one to two years. The physician income model offers financial security for emerging doctors, but with no financial incentive for good performance, physicians can be discouraged from going “above and beyond.”

Production-Based 

Production-based, or Fee for Service (FFS) compensation pays doctors a percentage of their billings or collections. Or they can be paid based on something called the resource-based relative value scale (RBRVS.) The RBRVS assigns different units to certain kinds of procedures or patient visits.  

This model rewards highly productive physicians and offers some motivation to increase patient loads. It allows productive doctors to reap the rewards of their hard work. It also protects them from negative financial consequences when their colleagues are not as productive.

At the same time, it may foster a competitive environment where physicians potentially compete for new patients. Some experts also believe FFS compensation opens the door for physicians to order more unnecessary services simply to boost their income.

Revenue Less Expenses

This compensation model calculates the physician’s overall compensation by subtracting their share of the practice’s expenses from their share of the practice’s revenue. It encourages physicians to reduce costs, but also requires accurate and timely expense and allocation tracking. Some physicians can become hyper-focused on reducing expenses to the point of micromanagement.  

Equality Shares 

This model is one of the most straightforward pay methods for physicians. It’s similar to the revenue-less-expenses model, except that revenue and expenses are not calculated on an individual basis. Instead, after all group-wide expenses are counted, the remaining revenues are divided equally among all physicians.  

On the positive side, this model is easy to administration and does not require complex, time-consuming calculations. However, it also operates on the assumption that all providers are equally talented and productive. Low producers benefit from the efforts of their hard-working colleagues, which is understandably problematic.

Performance-Based

As the term suggests, pay for performance (P4P) provides compensation based on clearly defined performance targets. Specific metrics, best practices, and patient satisfaction are used to assess provider performance and ensure practice-wide goals are met. Value or performance-based care uses this data to regulate healthcare processes and improve the quality of patient care.  

Customers are the foundation of values-based care—one of the major benefits of this model. Also, it shifts the focus to value over volume. Unlike other compensation models, there is a financial incentive for keeping patients well with preventive care and lifestyle counseling.

There are some notable cons to this model as well. The demands of a performance-based system can be too much for some physicians, leading to lower job satisfaction and provider burnout. Also, physicians may lose compensation if they work for an organization that lacks the staff, training, and resources to track key performance data.

Compensation Is Just One Piece of the Puzzle

While a compensation model is certainly necessary to consider during the physician job search, it shouldn’t be the only factor guiding your decision. Many other variables are part of the larger financial picture for physicians and other providers.

When you are evaluating a compensation plan, here are some questions to ask:

• If my salary is fixed, can I transition to a performance-based model in the future?
• What benefits and incentives are included in the compensation package?
• Am I responsible for contributing to overhead expenses? How much per year?
• What is the pay range for other physicians in this facility? How long does it take the average doctor to earn that amount?
• I am interested in becoming an owner one day. What is the buy-in and how does that process work?

Don’t accept an offer until you have time to evaluate it carefully. Consider consulting a healthcare recruiter or career coach for their perspective. Salary negotiation services are also available for healthcare professionals.

You have worked hard to get here. You deserve fair pay for your training and experience, even if you are just beginning your career. While many people find it difficult to talk about compensation, this discussion is important for you and your financial future.

For the latest information on salaries for medical professionals, visit the Health eCareers salary center today.

Author Bio

Stacey Kelleher is a health and wellness writer and editor based just outside of Philadelphia. Her work has been featured online at Good Housekeeping and Cosmopolitan. In her downtime, she enjoys yoga, running, and spending time with her family.