When a physician employment contract is offered, often the first thing physicians look for is the compensation section to see how this offer stacks up against others. What physicians sometimes find, is that rather than a simple 3-sentence paragraph outlining the annual compensation, and the payroll policy, there is a reference to an exhibit at the end of the agreement that sets out, over multiple pages, the compensation methodology according to which they will be paid. While every individual agreement is different and should be reviewed by your individual lawyer, it is helpful to generally review some possible scenarios in order to gain some understanding of what payment methodologies are commonly used.
100% STRAIGHT SALARY GUARANTEE
One of the most common physician compensation methodologies is the 100% straight salary guarantee. In a time of hospital systems sweeping up private groups left and right, and physicians becoming employed in the majority of instances, the straight salary guarantee is a hugely common payment method. This type of payment methodology is pretty much exactly how it sounds- the physician is guaranteed an annual salary of a certain amount, and such total salary is paid to the physician in accordance with the employer’s regular payroll policy. With this methodology, there is no incentive or bonus pay tacked on based on productivity.
SALARY GUARANTEE + INCENTIVE COMPENSATION
In a payment methodology that includes a salary guarantee, plus incentive compensation, the physician is guaranteed a minimum annual base salary to be paid in accordance with the employer’s payroll policies, and they are also eligible for additional compensation that can be based on a variety of factors. Such incentive compensation can be paid on a quarterly or end of year basis, and may be based on factors such as wRVUs billed, wRVUs collected, quality incentive measures, or a variety of other factors. When the incentive compensation is based on production, such as according to wRVUs billed or collected, the incentive compensation only kicks in once the physician has produced enough to cover his or her minimum base salary. At that point, the methodology often calls for payment to the physician of a bonus in the amount of a certain percentage of his or her collections above the minimum guaranteed salary. Take, as a basic example, a physician who has a minimum base annual salary of $100,000 per year, and an incentive payment of 30% of the collections the physician brings in over $100,000. In this instance, if by the end of the fiscal year the physician has brought in collections of $200,000, he or she would have surpassed the base salary threshold, and would be paid a $30,000 bonus.
How the incentive compensation is structured exactly can vary widely depending on the specific agreement, and sometimes is dependent upon a base number of billed or collected RVUs or wRVUs, any excess of which can earn a bonus payment of $xx per RVU or wRVU billed or collected above the base amount. Again, these are only a limited set of basic examples.
PURE PRODUCTION COMPENSATION
A third compensation methodology is one based purely on production, sometimes referred to as “eat what you kill.” This methodology is most commonly seen in private practice settings, and within those, it is mostly partners of the private practice who are compensated this way. Under this methodology, a physician is paid a certain percentage of what he or she brings into the practice. The remaining collections are typically paid to the practice in order to cover overhead expenses, such as real estate, malpractice insurance, support personnel, equipment, and supplies.
In this scenario, as well as the Salary Guarantee + Incentive Compensation methodology, the details of your employment or partnership agreement are critical. Differentiation in single words can make an enormous difference in the compensation you end up being paid. Therefore, it is highly recommended that you obtain a detailed legal review of your physician employment agreement to ensure that you are receiving the terms most favorable to you.
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About the Author:
Leigh Ann spent over six years practicing as a health care attorney with two major health law firms before she founded Lauth O’Neill. In her legal practice, Leigh Ann represented physicians and other health care providers in a wide array of legal matters, including employment contracting, provider reimbursement, regulatory compliance, and payment reform. Leigh Ann earned her B.A. from DePauw University, and her J.D. from Indiana University. As an attorney licensed in multiple states, Leigh Ann handles the legal aspects of the services she provides almost exclusively, and is able to consult with other local attorneys when necessary. Leigh Ann can be reached at firstname.lastname@example.org or Visit www.lauthoneill.com.
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