Physicians, like all professionals, expect to earn a fair salary, and employers expect to hire skilled providers at a fair price. But as the late, great Yogi Berra once groaned, sometimes it seems like “a nickel ain’t worth a dime anymore.”
Salary expectations and the healthcare industry itself are constantly changing. For both physicians and employers, determining what’s fair can be hard.
Who calculates physician payment?
The prevailing physician compensation models complicate this debate. Most physicians don’t set their own prices. Instead, third-party payers (government and commercial) determine the price and the physician payment for each service.
Since most physicians rely on these payers for the vast majority of their revenue, they have little control over their economic destinies. The shift from fee-for-service medicine to a focus on quality outcomes and population health management worsens the problem.
In this climate, physicians must be informed as they make job decisions and enter salary negotiations. So here’s some financial wisdom from sage thinkers along with practical advice from physicians in the field to help you along the way.
“An investment in knowledge pays the best interest.” –Benjamin Franklin
Before signing employment contracts, physicians should invest time in understanding their agreements and hire counsel to review each clause. They can negotiate best if they understand the job market and their value.
Supply and demand influence how much a physician can expect to earn, so job applicants should research a few key questions:
- How many graduates in your specialty enter the marketplace each year?
- How many of these specialists retire each year?
- How strong is the community’s need for your specialty?
- Where did you complete your residency or fellowship, and how highly is it regarded?
- At what point in the hiring season were you hired?
Between medical school, residency and fellowships, physicians spend more years in training than virtually all other professionals. Many do not begin practicing until their early 30s, and by that point, they often owe six-figure sums in debt. This makes signing bonuses and relocation budgets especially beneficial.
“As a penniless graduate emerging from 10 years of training, I was exuberant when I got my first signing bonus,” says Allen Silvey, D.O., a pulmonologist in Turnersville, New Jersey.
If an employer wants a great candidate to commit, a signing bonus or other perks could make a huge difference.
Factors to consider other than money
“Happiness is not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort.” –Franklin D. Roosevelt
Money isn’t everything. Physicians should not only consider salary but also workplace culture. In fact, Michael Schutz, M.D., cofounder of Jersey Urology Group in Somers Point, New Jersey, says, “Culture of the practice is probably one of the most important factors a prospective employee should consider.”
A culture that does not value teamwork, professionalism and hard work could offer great compensation but guarantee terrible morale.
Financial compensation often means less than quality of life or professional autonomy. Many physicians want the freedom to direct patient care and set their own schedules.
Silvey notes, “When a physician has little say in the day-to-day affairs of the practice, no amount of bonus money can effect real change.” Money can’t make up for a lack of respect or autonomy.
Paid and unpaid leave time have a huge influence on quality of life and workplace culture. Pay attention not only to a practice’s vacation policy, but also to how it affects compensation.
At practices that base pay on productivity, physicians may hesitate to take their vacation time because it means less income. And if physician-owners are able to take excessive paid vacations, it could decrease a practice’s profitability.
An employer’s business model and long-term stability make a huge difference in employee satisfaction. Some practices are under tremendous economic pressure because of payers’ reimbursements or patient demographics, while other practices thrive because of skilled physicians and business managers who maximize revenue while minimizing expenses.
If practice or hospital leaders lack incentives to work harder, be more efficient, increase referrals or expand the patient network, it may be unwise to stay with that employer.
Before signing any contract, consider your prospective employer’s company culture and financial health. Decide what culture factors are nonnegotiable for you and how much risk you are willing to take on.
After all, no amount of money can make you love a miserable job, and a good salary is only good if your employer stays in business.
“Not everything that can be counted counts, and not everything that counts can be counted.” –Albert Einstein
Prospective physicians should ask employers how they determine salary packages. Many practices use national surveys that report compensation averages.
These surveys take many factors into account, including years of experience, specialty, practice setting, geography and practice size, and help the employer ensure that physician compensation is consistent with fair market value.
Jennifer Coren, D.O., president and owner of Hatboro Pediatrics in Philadelphia, says, “When deciding how to compensate our physicians, we looked at the local average salary for our specialty and then tried to be competitive. We reviewed national rates to see where we fall.”
What salary structure is best for you?
Physicians should also consider what salary structure fits them best. A guaranteed salary provides certainty, but it can put a damper on entrepreneurial spirit.
For physicians who earn base salaries, bonus opportunities can provide additional motivation. Schutz says, “We encourage bonuses for employees as a way to encourage hard work.” And Coren notes, “Bonuses are rewarding to the employee as well as the employer. Everyone feels good when the practice is able to provide this extra compensation.”
Bonuses sometimes translate to a lower annual salary, so understand how your employer calculates them. If incentive goals are out of reach and bonuses are illusory, you could be accepting a lower base salary on false pretenses.
Additionally, if you work part time or have outside responsibilities, you may find yourself less motivated to achieve what you consider to be marginal compensation gains.
Some practices adopt an “eat what you kill” compensation system, which bases physicians’ pay on the revenue they generate for the practice. This generously rewards high producers but can cause tension and reduce incentives for collaboration. If not managed properly, it creates an environment of haves and have-nots.
Other hospitals base pay on work relative value units (wRVUs). This eliminates the incentive for physicians to cherry-pick patients whose treatment generates more revenue.
Silvey says, “Compensation at most every job I have looked at over the past couple of years involves models featuring wRVUs as the core measurement of productivity.”
If wRVUs or other productivity measures determine your compensation, work with your employer to set a reasonable benchmark. You should understand ahead of time how much work is required to meet that goal and whether or not it is attainable.
“Money often costs too much.”–Ralph Waldo Emerson
A compensation package typically includes two elements: salary and benefits. It’s easy to overlook benefits, but the salary isn’t the be-all and end-all.
Sometimes a competitive benefits package can more than make up for a modest salary, and if you focus only on your base salary, it may come at the cost of good benefits.
“Benefits like health insurance and 401(k) plans are essential for any business these days,” Coren says. “For a small practice to stay competitive, we need to offer reasonable benefits.”
To attract talent, some employers get creative with the benefits they offer. For example, Schutz says Jersey Urology Group negotiates different call schedules for salaried employees to accommodate their needs. For some physicians, taking fewer calls is far more valuable than having a higher salary.
Tail liability insurance is another valuable benefit for medical providers. This can easily save a physician thousands in out-of-pocket costs. And even if a physician purchases his or her own long-term disability insurance, hospitals can add value by allowing them do to so through the business. This generally allows physicians to receive this benefit tax-free.
“The only place where success comes before work is in the dictionary.”–Vidal Sassoon
Success is difficult to measure quantitatively or qualitatively. For some physicians, success has to do with income. Others are more interested in quality-of-life measures.
Buying equity in a practice can lead to financial success, but it comes with additional responsibilities. Practice owners “have the challenge of balancing the complex business and financial decisions with staff satisfaction and compensation,” Coren says. She adds, “This is not an easy feat to accomplish.”
Be a smart businessperson
Whether or not you own practice equity, being a smart businessperson is almost as important as being an excellent physician.
A physician “must determine what his or her time is worth and how to maximize its value and compensation,” says Schutz. Ideally, a physician employee earns a competitive salary with viable bonus opportunities and also receives a comprehensive and generous benefits package.
No matter how you define success, there’s no surefire way to ensure or maintain it. A successful physician must not only work hard but also have colleagues who share the same goals, energy and philosophy. A bit of luck doesn’t hurt either.
As Thomas Jefferson said, “I’m a great believer in luck, and I find the harder I work the more I have of it.”