This article was updated August 29th, 2024 to reflect the most recent data.
Show me the money. While most physicians don’t go into medicine solely for the high compensation, the six-figure income doesn’t exactly hurt. That said, physician compensation can range significantly depending on a number of factors. A physician’s specialty obviously impacts income, as does geographical location, but what many residents don’t know is how the different types of physician compensation models can also influence income.
Residents spend years learning their profession, but many remain unclear about the various physician compensation models and what to expect when it comes to getting paid. Sure, they may have seen average salaries referenced online or heard their attendings talk about what they earn, but as for what part of the compensation is guaranteed versus what is based on production or a percentage of profits–these details aren’t typically shared.
The complexities of physician compensation models could be covered by a semester-long class in medical school. Instead, it is often left to physician recruiters to explain the various nuances of how a physician gets paid–perhaps while presenting a resident with their first offer of employment!
So, in an effort to introduce the concepts earlier in the physician job search process, we present to you this primer on the two primary physician compensation models.
Hospital Employed Physician Compensation Model
According to a 2024 report from consulting firm Avalere Health and the Physicians Advocacy Institute, 77% of working physicians are employed by hospitals or other corporate entities, an increase from 69% in the 2021 report. These physicians, when first hired by a large healthcare organization or hospital group, typically receive a guaranteed base salary for a set time period (one or two years) and then, presumably after the physician has established enough patients to be productive, compensation shifts to a productivity-based model.
Productivity is measured using wRVUs (work Relative Value Units) which are accrued for every exam or procedure a physician performs. The Centers for Medicare and Medicaid Services assign an RVU for each Current Procedural Terminology (CPT) code. The more complex the procedure, the greater the corresponding wRVU.
Accrued wRVUs are multiplied by an established dollar amount to calculate how much a physician earns. Some compensation plans offer a sliding scale to incent physicians to accrue more RVUs, that is, to be more productive. For example, the first 4,000 wRVUs are paid at a conversion factor of $40 per RVU, and then, the next 4,001-8,000 wRVUs are paid at $42 per wRVU. The amount employers will pay per wRVU varies, however, Medicare sets the amount they will reimburse per total RVU (total RVU takes into consideration an organization’s expenses and insurance), which is typically lower than what is billed to private insurance. For 2022, the Medicare rate per total RVU is $33.59.
Are you starting to see why a course in med school might be necessary to fully understand physician compensation models? In lieu of that, you can find further details in this Definitive Guide to Physician RVU Compensation from the advisory group Physicians Thrive.
Given that most physicians are employed by large health systems or hospital groups, it is crucial to understand the nuances of physician compensation models, particularly wRVU-based structures.
Pros
- The salary guarantee offers stability for new physicians and alleviates the pressure to ramp up in an unreasonable amount of time.
- Productivity-based compensation gives physicians a sense of control over their income. The harder they work, the more income they will receive.
- RVU compensation is typically not impacted by how much or how little the organization is able to collect from patients or their insurance companies. The payer mix also does not impact the physician’s income.
Cons
- wRVUs do not account for time spent on administrative work, meetings, mentoring other physicians, and other tasks without a CPT code.
- RVU-based compensation can create a culture of competition that prevents physicians from collaborating and supporting each other.
- Productivity-based physician compensation puts a physician’s focus on the quantity of procedures rather than the quality of care. Some reports suggest this type of compensation is at odds with the movement toward Value Based Care.
Questions to Ask
Is the physician salary guarantee a minimum base or is it also a cap? That is to say, if a physician exceeds wRVU expectations during the guarantee period, can they receive more than the base salary?
How many wRVUs do most physicians in this practice produce? How does the productivity of physicians here compare to national norms?
Is there a cap on RVU bonuses?
Private Practice Physician Compensation Model
“While the percentage of physicians in private practice is waning, it is still an attractive option for many residents, especially those with an interest in business or those who simply want more autonomy in their work,” says Director of Recruiting Katie Moeller. Like hospital-employed physicians, physicians hired by a private practice may also receive a salary guarantee, but the expectation is that the physician will eventually become a partner whose income will be largely tied to the performance of the overall practice. For this reason, physicians want to be sure they are joining a practice that is financially viable.
Private practices, like any business, calculate profitability by deducting expenses from revenue. Profits are then distributed among the partners, perhaps with some percentage paid as bonuses to non-partner physicians.
When interviewing for private practice physician jobs, physicians should look beyond the initial salary offered and focus on the specifics of the track to partnership and the details of how the practice is run, including its expenses. The efficiency of the practice has a direct impact on how much the partners earn, so it is important to ask questions.
Pros
- Physicians in private practice have a clear view of the factors contributing to their income, that is, the revenue and expenses of the practice. Once a partner, the physician will have some role in influencing those factors in order to increase income.
- Unlimited income potential. Employed physicians are limited to the hospital’s bonus structure, but as a practice owner, you have the ability to grow your business to the level you need to achieve the income you want.
Cons
- Research shows that Medicare reimburses physician services billed by hospitals at a higher rate than those billed by independent practices. This is one of many reasons hospitals can afford to pay higher starting salaries.
- Because Medicare reimburses at a lower rate than private insurers, the practice’s patient mix will impact its profits, and thus, partner income.
- Practicing medicine is already a stressful job. Physician partners in private practice have the added stress of running a business.
Questions to Ask
As noted, physician compensation will be tied to how well the practice performs, so ask enough questions to gain a full understanding.
How busy is the practice? What is the patient mix?
How effective is the billing department in collecting payment?
What are the overhead costs? How are staff levels determined? What salaries are given to administrators?
What can I expect to earn as a partner? Are there any opportunities for ancillary income, such as investing in an outpatient surgery center, real estate, or imaging? Is there a “buy-in” cost associated with becoming a partner?
Do all physician owners hold equal shares in the business?
Is there an accelerated track to partnership?
Are the partners currently considering selling to a hospital or corporate entity?
Why You Should Do Further Research on Physician Compensation Models
As residents and fellows enter the physician job search, it is important to have an understanding of physician compensation models. You have invested considerably in training to become a physician, and now that your training is complete, you are more than ready to reap the rewards. However, it can be difficult to weigh employment offers if you don’t have a clear understanding of how physicians are compensated beyond those first years when a minimum is likely guaranteed.
A good physician recruiter has invaluable insight to share with you regarding physician compensation. Physician recruitment firms often have access to proprietary data about physician compensation, bonuses, production, benefits, and time off. They can help you interpret this data to better understand what you can expect depending on your specialty, location, and other circumstances. Physician recruiters can also share what trends they are seeing in the market that may not yet appear in the data.
A physician recruiter can provide a wealth of information to better set your expectations in the beginning and more effectively negotiate your physician contract as your search comes to a close. The more information you have, the more confident you will feel when ultimately making your decision.
If you are embarking on a physician job search, the team at Jackson Physician Search is eager to share our insight with you and ensure you are set up for success. Search physician jobs now or contact us today to learn how different physician compensation models could impact your career trajectory..
