How does physician compensation work

Values may vary between hospitals, as there are various physician compensation surveys from which to gather information. Related: What is Sullivan Cotter? What Physicians Need to Know. Using an RVU compensation model results in different benefits for employers versus physicians. For one, it creates transparency. The conversion factor is standard.

There is no flexibility to pay less or more to one doctor over another at least not in terms of straight wRVU compensation. Most physician contracts require that a physician have a minimum number of wRVUs per month or per year. And in order to meet these requirements, physician work needs to include a certain amount of patient care.

This encourages physicians to have a steady stream of patients. This model also leads to a more sustainable and competitive group of physicians. Most physicians find that they need to retain their patients and acquire new ones to meet their minimum amount of wRVUs. This often causes physicians to compete for patients, keeping the hospital as busy as possible.

The wRVU compensation model is a value-based compensation system, which employers love. It encourages physicians to be more productive, which means that doctors are likely to see more patients and perform more evaluations and procedures. You are paid for your wRVUs based on codes submitted, not codes collected and paid for. In some cases, wRVUs are paid on a sliding or graduated scale. This method can be beneficial to physicians but difficult for hospitals and health groups to administer.

In general, wRVUs offer more benefits for employers than for doctors. There are significantly more cons than pros for physicians. Mentoring younger physicians and handling other tasks outside of patient care are not billable in this format. In most hospitals, wRVUs create a highly competitive situation among physicians in the same field.

Colleagues tend to compete with their equals rather than support them. This is especially the case if your hospital offers a sliding scale payment model. I know that no two groups resemble one another enough that the same exact formula could work for both, but I share this model and our group's experience with the hope that other primary care physicians can adapt it for their own groups — or at least use our approach to arrive at their own formula.

It's been said that money problems are like medical problems: They can fester until they become difficult to cure. As practices make the transition from fee for service to capitation, many are finding that their physician compensation systems are no longer relevant and no longer seem fair.

Many physicians feel they are working harder and longer while being paid less. And many more physicians, myself included, are seeing little incentive to continue working so hard. Two additional factors were prompting our group to revisit our compensation formula. First, we were getting more heavily involved in managed care, with over two-thirds of our patients being part of managed care plans.

Second, our old compensation system of equal shares and straight salary was indebting our group; we were essentially overpaying ourselves in relationship to our actual revenues. Third, it should not be excessively difficult for management to monitor and administer, and it should be flexible enough to allow for possible future modification. And finally, it should stimulate its physicians to be effective, with definable financial rewards for behavior and activity the practice needs and wishes to encourage.

With the above qualities in mind, the first basic decision for any group is what type of compensation model to follow. These models range from equal shares to straight salary to fully productivity-based, and each has its own pros and cons see " Six compensation models ". The assets of this model are several:. It allows for a known base income that can be set to be generous enough to support a reasonable middle-class lifestyle for the physicians without making the group as a whole go into debt.

It is flexible in the weight it assigns to nonsalary pay determinants, so the formula can be modified as needed to reflect changes in income streams, different values assigned to an activity, increasing sophistication of accounting methods, etc.

There are essentially six different models of physician compensation, each with its own pros and cons:. This is the simplest arrangement administratively. It is based on an economic model that presumes all participants are equally skilled and motivated and are performing at the same level.

This model discourages overutilization but offers no incentive for productivity, however measured. The disadvantages are that it feeds intragroup competition, requires substantial accounting management to assign overhead burden fairly, encourages overutilization and can even discourage citizenship, such as practice governance and management, teaching and other activities not connected with patient visits.

Straight salary is easy to administer but can disincentivize entrepreneurship and may indebt the corporation if actual revenue is less than what is being paid out. A significant advantage to this method is that it offers security. It also enables physicians to increase their income through performance. On the down side, this method may cause minimum work standards to become de facto norms. This method also places a large component of income at risk, depends on subjective measurements in apportioning that at-risk portion, and can be complex to design and administer.

This method recognizes the different revenue streams coming into a practice, rewards physician activity appropriately per stream and encourages efficiency as physicians move into pure capitation. However, it is complicated to administer, and the two-tiered practice style it encourages can create a dichotomy within the practice, with differential treatment levels based on patients' payment streams.

Capitation rewards certain physician behavior, such as appropriate utilization, and encourages physicians to have an interest in appropriate and efficient provision of care.

The danger is always that it may encourage under-utilization, and it requires complex tracking of data. The next major decision, then, is establishing what that base salary will be. Base salaries vary widely, ranging from 20 percent to 99 percent, depending on the group's objectives and needs. For our group, the base salary needed to be livable for the physicians, but it also needed to be affordable for our practice and fit comfortably within our budget.

Additionally, we wanted a significant portion of the compensation to be tied to incentives so that it would truly motivate us to be more efficient and productive a little bit of greed can go a long way toward making a group stronger economically. What I recommended for our group was that the base salary be set at 75 percent of the group's previous year's mean W-2 earnings.

While it is a salary, there are some strings attached. 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. 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. All of this said, doctor pay is driven, in large part, by production.

But that may shift as care value is measured, monitored, and reported, and revenue is more closely aligned with quality of care. The crux of evolving compensation models revolves around the idea that compensation and quality will be woven into a tight tapestry where, at some point, there may exist a shift of a greater level of compensation from production to quality.

As with most things in healthcare, there is no one right answer to compensation. Even with provider compensation, some things are local. This is a BETA experience. You may opt-out by clicking here. More From Forbes. Nov 11, , pm EST. Nov 10, , pm EST. Nov 10, , am EST. Nov 9, , pm EST. Nov 9, , am EST. Nov 8, , pm EST. Edit Story. Feb 25, , am EST. Private Practice Gorke.

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