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Physician Compensation Explained

Physician Compensation Components Explainer
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You’ll find an abundance of resources that address physician compensation, but they usually list only the salary, in accordance with the medical specialty market rate. Physician compensation, however, is usually negotiated, including a myriad of components. Some of the factors considered include:

  • regional healthcare markets
  • institutional policy
  • national compensation-survey data
  • practice ownership
  • state regulatory requirements
  • practice composition
  • federal regulatory requirements

These, and often other factors, which may be idiosyncratic, contribute to the composition of the compensation package which a prospective employer offers a job-seeking physician.

A physician near the end of residency is usually in salary-negotiating mode, but learning about these non-dollar constituents of potential compensation packages is usually low priority – unfortunately. Residents (and any physician who is job-seeking) need at least a basic understanding of these elements. An under-informed decision about a job can have career-long ramifications.

It is common for residents to sign-on to a position because the initial salary is high, but s/he may find that after a year or two, the initial level of income is unsustainable. This can occur when an income guarantee converts to productivity-only compensation. Ken Hertz, of the Medical Group Management Association (MGMA), which publishes the annual Physician Compensation and Production Survey states that it’s important to not only read an offer’s fine print, but also to understand how the compensation components function individually and as a package.

The hiring healthcare system must address external factors such as:

  • competition
  • national and regional physician supply and demand
  • the local (insurer) payer mix
  • regional reimbursement trends

Potential employers must address internal factors, such as the organization’s:

  • compensation methodology, including bonuses and incentives
  • philosophy
  • revenue sources
  • patient population
  • practice scope

One of the most difficult dynamics to understand is payer dynamics – how much insurers pay physicians for their services, and how much of the physicians’ charges become revenue. Base salary is discussed in a previous article, but the cash flow doesn’t stop there.

Production Bonuses

Fee-for-service medicine is still how most practices and health systems generate revenue. Often, production bonuses are the most significant income factor, after base salary. It’s also the most complex and confusing. These are some of the methods used to calculate a bonus.

  • WVRUs — Medicare (There, I said it – the “M” word) uses these to determine how much reimbursement physicians will receive for their work. Reimbursement value depends on the skill level, time use, and intensity of care required for a treatment or procedure. Each WRVU is then multiplied by a dollar multiplier, or a conversion factor, to determine the bonus pay.
  • Collections — Collections are revenue received, not billed, for the professional services provided. Physicians who treat populations with generous health insurance may do well with this model, since payments are more likely to be received.
  • Billings — Billings are the charges billed for the services rendered. This bonus equation does not include reductions from insurance carriers or deductions for uncollected billings. Billings are then measured relative to the practice’s total adjusted billings and a bonus is awarded proportionally. In this model, the physicians will not be adversely affected by poor health insurance reimbursements or charges billed but never collected.

Quality Bonuses

Quality factors are used to measure physician performance in addition to the volume of patients seen, or procedures performed. The Centers for Medicare & Medicaid Services (two “M” words in the same breath) and America’s Health Insurance Plans (AHIP) set targets based on quality of care measurements. Good patient outcomes and efficiency care are considered in setting the targets. Now you know why the M-words are called the M-words.

Call Stipends

Over 30 percent of physicians receive stipends for their on-call coverage. These are lump-sum payments that can be anywhere from $500 to $1,500 per coverage episode, depending on specialty, practice type and location.

As with any other form of compensation, if you’re not sure if you’re getting a fair market price, consult with a contract attorney or do your own research. You may feel as though your control over your compensation is limited.  As a highly skilled and valuable professional, however, you have more bargaining power than you think!

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About Faith A. Coleman, MD

Dr. Coleman is a graduate of the University of New Mexico School of Medicine, and holds a BA in journalism from UNM. She completed her family practice residency at Wm. Beaumont Hospital, Troy and Royal Oak, MI, consistently ranked among the United States Top 100 Hospitals by US News and World Report. Her experience includes faculty appointments to a family practice residency and three medical schools, as well as Director of Women's and Children's Health Promotion Programs with the NE Texas Public Health District.

Dr. Coleman is the Expert on Gifted Children for the New York Times, parenting writer for Demand Media Studios, as well as health and medical writer for several online information services. She writes professional management material for health care providers and about the personal experience of being a physician. Faith treasures most the role of mother. Her passions include the well-being and education of children and families.