A Physician working on complex problems on a chalkboard. Symbolizes how easy it is to misinterpret a Physician Compensation Model.

Physician Compensation Models

The majority of today’s physicians earn their compensation, not by issuing medical bills, but by complicated formulas put in place by insurance companies and Medicare.  Misunderstanding the compensation model can leave a physician underpaid and overworked. Read on to learn how physicians are paid and what each of these models entails.

At Gardner Employment Law, we have experience in the various facets of physicians’ employment. If you are about to sign a new contract and want to know exactly how you will be compensated, reach out to us today.

What is the Base Salary Model?

The base or “straight” salary model is the most straightforward compensation model by which the hospital or clinic pays a physician. This is a pre-set base salary without any incentives for productivity or other common add-ons. The base salary is uncommon for new physicians.  We covered the base salary model and other similar models in our blog “How to Negotiate a Physician Employment Contract.”

While this model is the simplest and may be the most desirable in some cases, it is not without drawbacks. Large physician associations, hospitals and conglomerates tend to disfavor this model because it does not incentivize physicians to be more productive.  They believe that paying physicians a salary will allow the less active physicians to “coast” on the work of other, more active physicians.

A similar compensation model that includes some incentive is called the “equal sharing” or “equality model.” While this model does not have a set base salary, it functions in a stable manner and does include some built-in incentives. The equal sharing model pays each physician an equal share of the revenue generated by the entire practice, minus the total expenses. Physicians will be paid a relatively stable amount, but they will be incentivized to keep expenses low. This model may be ideal for a smaller practice of equally skilled physicians of the same specialty who want to include small incentives not found in the base salary model, but still can still provide a stable income.

Another stable compensation model with added incentive is the base salary “plus.”  If you are seeking compensation that equals the stability of the two models explained about but with more incentives, the base salary “plus” model may be ideal for you. As its name implies, this model has a set base salary, but also includes specific incentives based on any number of factors (the “plus” component). These “plus” factors can be based on productivity, the number of patients seen, the quality of care rating, or any number of factors outlined in the physician employment contract. This model can be ideal for a physician who wants the stability of a base salary, but also wants to be rewarded for meeting certain benchmarks. However, it is important for you to understand the basis of each “plus” factor and that you are capable of meeting the required benchmarks. If you sign what appears to be a lucrative contract, but later find out that the plus factors are unachievable, you may receive far less than you had hoped.

What are Productivity Based Models?

Today’s hospital conglomerates pay physicians primarily based on productivity.  In other words, the hospital or large medical practice pays no salaries but compensates physicians based on certain productivity metrics.  This is called a purely productivity model.  The formula for this model most often uses RVU’s (relative value units) or wRVU’s (working relative value units) to calculate what exactly a physician will be compensated for.  RVU’s evolved from Medicare’s former term, “usual and customary rate,” which usually did not accurately compensate physicians in the various specialties in different parts of the country. RVU’s were developed to fairly compensate physicians practicing in the same specialties.  RVU’s often are tied to specific billing codes and are connected to values based on how much revenue the physicians bring to the practice. Adaptive Medical Partners, a Texas based physician recruiting firm, estimates that in half of the employment opportunities it finds for physicians, the healthcare provider used an RVU-based incentive structure.

Healthcare providers tend to prefer a purely productivity based model using RVU’s because it strongly incentivizes physicians to be productive and maximizes the providers’ profits. Physicians may prefer this model as well since they will be compensated based on their hard work.

Despite being the most common physician compensation model, the purely productivity model also has drawbacks. By basing physician compensation solely on productivity, in this “eat what you kill” style, some experts argue that physicians may rush through patient appointments or be less prepared than they should be. Also, physicians may be less willing to work together each other.  The work becomes competitive rather than collaborative.  A physician who is paid solely based on RVU’s may be less likely to share patients or opportunities with other physicians in an effort to maximize his or her own compensation.

Because of their commonality and broad nature, purely productivity models are not one size fits all. A physician must carefully understand what is expected as that relates to specific the tasks to be performed.  This goes hand-in-hand with the job description, which should be described in some amount of detail the physician’s employment contract. While RVU’s are common, this compensation model is highly variable because of how RVU’s relate to different types of patients and different types of medical services. Even under the same physician compensation model, one physician may earn only $80,000 annually while another may receive $200,000, depending on what treatment they actually provide and what type medical conditions are involved.

Additional consideration must also be given to the number of uninsured and Medicare/Medicaid insured patients that a particular healthcare provider expects to comprise the patient population. These two classes of patients generally do not yield as much revenue as others, since government payors usually pay less per service than private payors.  That can result in lower compensation to physicians, causing these physicians to be less willing to see uninsured or Medicare/Medicaid patients as readily as other patients.  A purely productivity model may be based on nebulous terms.

What is a Capitation Based Model?

The capitation based model pays for medical services in allocated payments on a per-patient basis, per capita.  The American Academy of Family Physicians describes capitation as “a payment arrangement for health care services in which an entity receives a risk adjusted amount of money for each person attributed to them, per period of time, regardless of the volume of services that person seeks.” Capitation based models are mainly found in HMO (Health Maintenance Organization) heavy markets such as California and the Northeast. A physician compensation model using only capitation can be highly variable.  How large the practice is, the prowess of its physicians, and a multitude of factors affect how lucrative these contracts are.

While a purely capitation based model may be found in HMO heavy markets, capitation payments may be a part of other models as well. A practice which does some of its work with HMO’s may use an RVU-based productivity model with an additional capitation component. Any specific physician compensation model may blend aspects of several other models to meet the needs of a specific practice. Understanding how each of these models work is the first step, but understanding what your specific physician compensation model is can be a whole different story.

A Physician’s Compensation Is Complicated

Physician compensation models are not easy to understand and are often specifically tailored to a certain healthcare provider. There is no one size fits all. Before you sign the dotted line, make sure you consult with an experienced attorney who can help you understand your specific physician compensation model.

If you want to know more about physician compensation models or how to understand your specific compensation model, contact us today.

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