From income guarantees to RVUs

Laurie Morgan, MBA

Table of Contents

Understanding how physicians get paid

AFTER YEARS OF TRAINING, it’s time to snag that first job—and earn some real money. Naturally, how much you’ll earn is likely one of your top priorities (if not first). But first, you’ll need to understand compensation.

As you speak with prospective employers about pay, their vocabulary may be unfamiliar. Once they start talking compensation models and RVUs, you might feel even more confused than you did in your first week of organic chemistry. You need to get up to speed quickly to understand how you’ll get paid and, more importantly, how much.

Vikas Patel, M.D., FAAD, says some physicians mistakenly assume that their first job is less important than it actually is. Patel is a dermatologist with Golden State Dermatology in Walnut Creek, California. He explains that medical training often encourages physicians to focus on the future instead of the present.

“You’re always waiting for the next thing. After med school, you have your internship. Then after internship, your residency. There’s always something else,” he says. “So some physicians start out with the mentality that it’s just the first job. But they don’t realize how important that first job is to establish yourself as a physician.”

Not understanding compensation can also cost you. Dissatisfaction with pay is one of the most common reasons physicians change jobs. As you search for that first role, there’s no better time to learn about pay packages.

The basic breakdown: Variable and fixed compensation

In the simplest terms, your compensation will be fixed, variable or some combination of the two

Some jobs offer a predictable salary that goes up and down. Others pay based on your productivity, quality metrics or other measures. Most, however, calculate compensation using a combination of fixed salary and variable pay.

Pay that varies with productivity (see sidebar on RVUS or collected revenues) is designed to reward physicians for their efforts. Those who take on bigger workloads and tougher cases can earn more. Variable pay also shields employers from the risk of paying physicians more than the revenue they generate.

This effectively transfers some risk to the employed physician. But physicians sometimes overestimate the risks and underestimate the upsides. Productivity pay typically offers a path to higher physician compensation than other models.

By contrast, a fixed salary is completely predictable. This is very appealing to many physicians, especially those with student loan or mortgage payments. But a set salary may mean it’s harder to increase your income, even as your productivity and other contributions increase.

When a job pays primarily or entirely based on productivity, an offer sometimes comes with an income guarantee. This is a variation on the base salary concept. It sets a minimum amount of compensation, usually over a limited period of time.

Conversely, when there’s a base salary, an offer sometimes includes incentive structures. You might earn stipends for extra duties or bonus pay for meeting productivity and quality goals.

In recent years, insurers and government programs have aimed to tie reimbursements to quality and value metrics. This is especially common in hospitals and integrated systems. These systems pass the incentives or penalties through to their employed physicians. Bonuses or penalties can be earned collectively (by a department or team), individually, or as a combination of the two.

Which type of pay is better? That’s up to you

Every type of compensation involves trade-offs, and each method of calculating pay has its pros and cons. What’s most important is understanding each approach. That way, you can see if a job’s particulars match your expectations and goals.

Gerard Baltazar, D.O., is a trauma and surgical critical care specialist and assistant professor of surgery. In his specialty and setting, he favors a base salary plus incentives.

Variable and unpredictable volume make productivity pay less appealing in Baltazar’s field. Even when the volume is unpredictable, the pay needs to compensate for the demands of trauma work. The field carries physical and psychological challenges and high rates of burnout. “We need an adequate base salary to cover the rigors of basic duties,” Baltazar explains.

He adds that in academic settings, leadership roles and other responsibilities increase over time. For good morale, physicians need adequate financial incentives for these additional responsibilities.

“My compensation is a combination of non-RVU-based salary and extra for additional calls,” Baltazar says. He adds non-productivity pay means less pressure “to churn out cases.” The downside is that it’s less clear how to earn more.

In Patel’s specialty, pay based exclusively on net collections is common, at least in private groups.

“In our group, people get rewarded for working harder, but there’s no pressure to work hard,” Patel says. “I think production models are stronger than just pure salary. It seems like most [dermatology] practices are switching to this type of model.”

Patel adds that while the big advantage of a straight salary is knowing you’ll always be paid, that might come with more pressure. For example, leadership may be more interested in how you’re using your time when they’ve guaranteed your compensation.

“I knew [a productivity pay model] was what I wanted because — especially in residency — when you’re working hard and you’re not getting paid any more for it, it’s hard to swallow,” he says. “It’s nice to know that if I work a little harder and I see that extra patient, that’s extra for me. And also, my group won’t be mad if I want to take vacation because I’m not costing them anything.”

As Patel observes, production- based compensation is usually more flexible. Typically, you can decrease your schedule if you want to work less. Or you can take on more work if there’s enough demand. This can be especially useful if you’re planning for a large expense like a honeymoon or a down payment.

Of course, a model based purely on productivity has its drawbacks. It doesn’t offer paid time off, and it’s incumbent upon the physician to plan their own finances.

Patel’s practice uses a net collections model, but many other organizations base productivity pay on RVUs. This is especially true in hospitals and integrated systems. The benefit of the RVU approach is that it treats all work equally. You won’t earn more or less because different health plans pay at different rates.

Tracking productivity by RVU also takes some of the billing guesswork out of estimating your pay. For this reason, both employers and employees often prefer this approach. But RVUs don’t always simplify things, some physicians say.

“RVUs are good in theory because they allow you to be paid based on work done rather than compensation received, but they also add complexity and obscure what is really happening behind the scenes,” says James M. Dahle, M.D., founder of The White Coat Investor. “If you are being paid 60 percent of what your employer collects for your work, then everything is transparent and understandable. If you’re being paid a certain amount per RVU, nobody has any idea whether the employer or you are getting the better deal here.”

Dahle adds that physician contracts usually combine base pay and RVU-based incentives. He says this muddies the waters even more. “Now you’re really comparing apples to oranges,” he explains. “Without knowing how many patients will come in or how much staff support or OR time you will get, you have no idea how much you are likely going to be paid.”

Joseph Marine, M.D., MBA, says compensation models reflect and perpetuate organizational cultures. Marine is a cardiac electrophysiologist at Johns Hopkins Hospital, professor of medicine at the Johns Hopkins University School of Medicine, and member of the board of governors of the American College of Cardiology.

“In many ways, you get the practice that you incentivize,” he explains. “If you incentivize a lot of productivity, that may produce a certain kind of practice. If you incentivize more teamwork, incentivize value and quality, that will produce a different kind of practice environment. You should really try to understand the culture of the practice that you’re considering joining to make sure it’s a good fit.”

Culture, setting and practice type influence models in place

Marine adds that the non-academic practices affiliated with Johns Hopkins have RVU-based bonuses, but they’re calculated as pools shared by all. On the surface, this approach might seem to penalize higher producers. But Marine says that in his experience, it leads to a more cohesive group environment. The physicians who choose to work in these groups appreciate the teamwork.

“Even the higher producers I’ve talked to say that they’re happy to work in that environment because they understand that a general cardiologist seeing a lot of patients in the office is why the electrophysiologist has cases to do in the EP lab,” Marine says. He adds that revenues can be unpredictable. Team-based productivity pay gives everyone more reasonably predictable compensation.

“One year, a particular set of procedures may look relatively high, but then three or four or five years later, that could change,” he says. “[The physicians in the group] just feel more comfortable having revenues and compensation smoothed out and working as a team.”

Productivity in private groups is more likely to be based on collections than on RVUS. This is a more conservative approach for the organization. Private groups may be leery of paying out for RVUS, lest those billed amounts never materialize into money.

Certain specialties, such as dermatology and anesthesiology, are more likely to use a model that’s based entirely on net collections (versus a hybrid of salary and bonuses). Others, such as primary care and pediatrics, tend to prefer a model that pays bonuses on revenues above a set threshold

Doing your research

A particular compensation model may be more popular within your specialty, practice type or local market. Even so, it’s important to do research and make sure it’s the best fit for you. If your dream job doesn’t have a compensation model you feel comfortable with, it might not be your dream job after all.

“There is such a need right now,” Patel says. “There are so many job postings and so many places looking [to hire physicians]. I think it’s a good idea to branch out and look at private practices as well as hospital- based and larger systems. Don’t just laser focus on one direction.”

Patel says he’s glad he interviewed at both private practices and integrated systems. He also notes that a lot of compensation information is easy to find online. Facebook groups and other online communities for your specialty can also help. He says having this information readily available has helped promote equity, too.

“You can find averages [of salaries and collection percentages to calculate pay] through Google,” he explains. “There are a lot of forums available where people are just very open and will say, ‘This is what’s in my contract.’”

This information isn’t just limited to message boards and Facebook groups.

“Several different firms do compensation and productivity surveys. mgma and MedAxiom are probably the best known,” Marine says. Various organizations do surveys and benchmarking for specific settings (e.g., academic or hospital practices) or specialties

Specialty societies may also have this data.

“The first place to start is to talk to your fellow physicians,” Dahle adds. “Even as a resident, talk to the graduating seniors about their job offers and contracts. Talk to others in your specialty about how they’re paid. Make sure you look at every salary survey you can get your hands on.”

A contract review firm or attorney may also give you their experienced perspective on whether an offer is fair and competitive. Plus, they can help you interpret important financial components of the contract.

“Read your contracts,” he says. “Look up terms that you don’t know. This stuff isn’t rocket science, but you do need to be speaking the same language as the person writing the contract.”

“Comparison might be the thief of joy,” Dahle says, “but it’s definitely the key to knowing you’re being paid fairly.”

Asking the right questions

With each type of compensation, you’ll want to ask questions to help you project and maximize your earnings.

For example, a straight salary offers the benefit of predictability. But will you be able to increase your earnings going forward? How will future raises be determined? Are there opportunities to improve your compensation outlook—such as serving on committees or working toward a leadership role?

“I would ask what the pathway is for increase in salary,” Baltazar says. To avoid a mismatch in expectations, he recommends asking for a specific list of requirements. That way, the job won’t change or expand without notice or adjusted compensation. Even if you’re not explicitly compensated based on production, ask if those numbers play a role in your evaluations.

When productivity influences pay, you also need to know if the benchmarks and goals are reasonable. Is there a patient base waiting for you, or will you have to build one? What does marketing support look like?

Patel says patient wait times can indicate the pent-up demand for your specialty. This is particularly important if the position is newly created because of practice growth. Are patients waiting six or eight weeks for an appointment (suggesting strong demand), or are they able to be seen immediately?

Your staffing structure and team members have a big influence on incentive-based pay. You’ll need support to meet quality benchmarks like patient engagement, population health tracking and reliable access to care. And you’ll also want to know if staff will share in bonuses if objectives are met.

It’s important to know specifically what quality-based goals are measuring. This helps you understand if the goals are achievable. It will also give you a sense of their impact on organizational culture. (For example, if the focus is cost savings, will its structure compromise patient care or clinical teamwork?) And you’ll want to know if the plan only includes bonuses or if penalties apply if benchmarks aren’t met.

With collections-based pay, ask how seasonality affects patient bookings and collections. Can you draw a salary against future earnings during slower periods? If you’re getting an income guarantee for a period before switching to production-based pay, make sure you understand how the switchover affects your income. Will you be paid based on several months prior (to allow time for collections)? Or will you need to plan for a couple of lower-income months by saving during the guarantee period?

Baltazar suggests asking what percentage of billed amounts are typically collected. Local demographics and varying types of health plans can make a big difference in how much revenue is actually received.

RVU-based pay often helps reduce the risk of bad debt affecting physician income. But be sure to ask rather than assume that this is the case. Even RVU-based compensation can be tied to collections if stipulated in the contract. It’s also a good idea to ask how often RVUs go uncompensated due to collection problems.

No matter how your productivity is measured or compensated, you’ll want to understand how to track it as you go. Will you receive monthly revenue reports to track your collections? Does the EMR track RVUs, and can you run your own reports to track your progress?

Regardless of your pay structure, ask if additional work (such as covering for colleagues’ time off or taking extra call) is compensated. And if it’s not, ask what boundaries will be placed around these unexpected burdens.

Marine also suggests asking about practice efficiency and physician turnover. “A more efficiently run practice generally is going to maximize people’s time and compensation,” he says. “And I think another good question is stability of the practice. If nobody in a practice of 20 physicians has ever left, that’s a very good sign. But if a number of partners or associates have left in the last five years, I would say that is a red flag for problems, which may include compensation and culture.”

No matter the type of compensation plan, ambiguity is worrisome. Marine says to watch out “if the employer doesn’t have a lot of good answers in terms of how they base their plan, how they ensure that it’s fair, how they ensure that it’s market-based, and how they ensure that compensation grows over time. It shouldn’t really be a secretive process. It should be a transparent process.”

Assessing what’s offered: Doing the math

Compensation isn’t the only factor you’ll evaluate in job offers. But when you’re choosing between similar offers, you’ll want to do the math and compare them objectively. The same is true if you want a clearer picture of your overall pay.

For productivity-based pay, start by firing up a spreadsheet. Use the plan terms, the data each employer provides and any benchmarks available online. You should be able to project roughly how much you can expect to earn.

Even for comparing straight salary jobs, you’ll need to ask some questions and do some math. Don’t assume the base salaries are apples to apples.

“Compensation is more than just your salary and even salary plus bonus,” Marine says. “It’s more than just what you get in your paycheck every two weeks.”

For example, academic practices may offer very valuable tuition benefits for your children. If you’re required to be on call, that may be eligible for extra compensation. Plus, larger organizations with salary-based plans usually include paid time off. And in some cases, retirement plan contributions are worth significant sums.

Consider expenses, too. How much of your paycheck will go to health and malpractice premiums? And how much will you have to contribute to retirement accounts to max out your benefits?

Other reimbursements and allowances effectively boost your after-tax income. This includes continuing education, specialty society and association dues, board certification and license fees. The same is true for relocation allowances.

Some organizations offer a signing bonus to improve their offer without locking in higher compensation rates. You should look at this the same way. It’s a nice one-time payment, but it doesn’t change your compensation after year one.

What’s negotiable?

Patel notes the transparency of the internet has made job offers more uniform. It’s less likely that you’ll receive a wildly different offer compared to your peers or to those of other employers.

“There’s so much data out there that a lot of the games people used to play don’t really happen anymore,” he says. “Employers are also too nervous about losing a good candidate [to try to underprice a physician job].”

This may mean there’s less room to negotiate. In particular, large organizations with many physicians in your specialty may have less flexibility. Changes to the compensation model, for example, will likely be completely off the table. Large organizations often keep compensation somewhat standardized, precisely to promote equity.

Even so, Patel believes there can be room to negotiate— provided you look for win-win solutions.

For example, let’s say the practice commits a certain dollar amount to advertising, but you plan to promote your own practice using social media. You might ask the practice to move some of that budget to relocation reimbursement for you. Or perhaps you’re willing to do something extra, such as taking on some evenings or weekends in the clinic. That might be something an employer can easily justify paying more for.

Marine adds that there may be more room to move on non-salary, non-bonus benefits, such as continuing education. He recommends hiring an attorney with experience in physician contracts. Legal review can reveal costly conditions, such as non-competes, that might also be negotiable.

The way an employer handles these negotiations can also be a good indicator of compatibility. •



Laurie Morgan, MBA

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