Understanding physician compensation
Understanding physician compensation

CV prep

What’s it worth to you?

Table of Contents


Earning a lot of money won’t make you happy, but not earning enough can sure make you miserable! But how do you know how much is “enough”? Finding the answer that’s right for you begins with understanding your own financial needs, goals and dreams.

Determining your physician compensation needs

Only you can determine how much money you’ll need to take care of your financial obligations, provide a comfortable lifestyle and achieve your family’s longer-range financial goals.

Figure out how much you need to pay bills (like student loans) and establish your home. At first you’ll likely be more concerned with what kind of house and car you can afford than with how to build an investment portfolio or retirement account.

But even a rough budget will prove helpful as you head out into today’s physician job market. You will find a very broad range of compensation packages out there. Different medical specialties provide different levels of earning potential, of course, but compensation also varies widely within the same specialty.

Compensation research

As you search for your dream job, what can you reasonably expect in terms of physician compensation? What constitutes a fair offer? Your ability to answer that question depends on your willingness to do some research.

Start your quest by simply asking around. Talk to your friends and fellow residents. Ask them what they’ve found out there in the market. But recognize the limitations of anecdotal data. Job offers are a little like snowflakes: No two are alike.

Dozens of factors affect job requirements, salaries and benefits packages. You have to go deeper to gain a more realistic picture.

Marcella Gravalese, director of practice development at Vohra Wound Physicians, says, “Graduating residents have to do their own due diligence,”carefully studying each opportunity for themselves.

Over the last two decades, a number of organizations have developed reliable benchmarking data that prove useful in determining the “going rates” for physicians serving in a variety of practice settings spread across the country’s diverse geographical regions.

The Medical Group Management Association’s annual Physician Compensation and Production Survey has become the virtual “industry standard” for benchmarking doctors’ incomes and outputs. A complex and somewhat expensive report, it breaks the data down by the major factors that differentiate income opportunities (geography, gender, practice size and ownership, single- or multi-specialty and more).

Cleveland’s Case Western Reserve University School of Medicine, for example, uses the MGMA surveys extensively. According to Family Medicine & Community Health Department Chairman George Kikano, M.D., the school and health system use the data to set productivity expectations and to make sure physicians’ salaries remain competitive.

Physician compensation throughout the nation

Your research will quickly reveal great differences in compensation between different regions of the United States.

This year’s Medscape survey showed average annual salaries (for allspecialties) ranging from $204,000 in the Northeast to $234,000 in the upper Midwest.

Figure out where you want to live and work before setting your compensation expectations, suggests Aaron Lear, M.D., a family and sports medicine specialist at Akron General Sports Medicine in Ohio.
Figure out where you want to live and work before setting your compensation expectations, suggests Aaron Lear, M.D., a family and sports medicine specialist at Akron General Sports Medicine in Ohio.

Aaron Lear, M.D., a family and sports medicine specialist at Akron General Sports Medicine in Ohio, recommends that graduates figure out where they’d like to work and live first. Then they can adjust their expectations according to location. “Busy urban and suburban markets generally have a good supply of candidates–so their pay rates will usually be lower,” he says.

Indirect and deferred compensation

Many surveys only provide data on direct compensation: salary and bonuses. Indirect or deferred compensation varies considerably, and typically includes insurance (health, malpractice, disability) and retirement plan contributions.

Study how each recruiting practice plans to pay you. Ask fundamental questions like: “How will my salary and bonuses be calculated?” and “How much can I reasonably expect to earn?”

Typical compensation today includes a base salary plus some kind of performance bonus. The base salary portion is especially important in the early years, because it provides your income floor while you build your practice.

Determine if the base meets your own minimum requirements, and get answers to the following questions:

• How did the organization set the amount? Did it use acceptable survey data? Is the number based on median figures, or did the practice set the base low in order to incentivize your production?

• Does your base salary rise or fall over time? Practices emphasizing fixed salaries usually increase the base as you gain seniority. But these days, more practices‹including hospitals and health systems employing physicians‹actually taper the base salary over time. This makes the physician more and more reliant on productivity pay. Many groups eliminate the base in year two or three, resulting in a pure productivity compensation plan.

• How will the practice fund your salary until your production grows enough to cover it? Is it relying on a hospital guarantee? Physician career coach Jack Valancy says, “I’m not a big fan of hospital guarantees for physicians recruited to private practices.”

Compliance with federal laws requires hospitals to treat income guarantees as loans to doctors they don’t directly employ.

A first- or second-year guarantee “loan” may be forgiven over time (three to five years) as long as the physician remains on staff at the hospital. In other words, if it turns out that you can’t produce enough revenue to cover your personal income, you might personally owe the hospital some big bucks (Valancy says $300,000 is not unusual). And if you decide you want to leave the area before the forgiveness period is complete, you’ll have to pay it back.

“Despite these risks, should the physician feel strongly about the opportunity, he or she should perform due diligence to assess how his or her practice might develop, estimate the loan balance at the end of the guarantee period, and anticipate whether he or she can maintain, if not increase, compensation,” Valancy says. “This requires a degree of financial disclosure that is typically absent from such arrangements.”

What is “enough” compensation?

It’s absolutely critical that you find out what the practice expects of you in terms of minimum productivity levels. What do you have to do to earn the base salary? At what level does the productivity bonus kick in?

Valancy advises job candidates to make sure that the expected productivity and the base salary are in sync.

For example, if the base salary is based on the 25th percentile level reported in the MGMA survey, make sure the minimum required productivity is also at the 25th percentile. If your productivity bonus doesn’t start until you rise above, say, the median level, you will in effect get nothing for your output between the 25th percentile and the median.

Understanding how a recruiting practice calculates physician bonuses can be far more confusing than its base-salary standards. While you¹ll see a lot of different ways to do the math, productivity bonuses are designed to award physicians a share of the revenue they generated by treating patients. To find out what your share will be and how you can earn it, ask:

• How does the practice measure productivity? Few practices today use gross charges as the measure, because there is hardly any connection between what you charge for a service and what you can collect for it. The emerging standard is total work RVUs. RVUs are more objective than net collected fees, because different sources pay different amounts for the same service.

• How does the practice convert physicians’ work output into compensation?
If, for example, your new employer awards a quarterly bonus based on your RVU production, how much money will you receive per RVU? If the practice doesn’t have a set dollar/RVU rate, ask to see historical data–what was the average for the past year?

• What percentage of your total direct compensation depends on productivity, and how will that change after your initial term of employment?

Physician compensation models

Find out if any of the salary is based on hours worked. Ask whether you get paid for night and weekend call duty, or whether the group simply participates equally. A departure from years past, an increasing number of practices offer opportunities to take pay reductions for more time off, or increased pay for more clinic or on-call time.

Ask whether the practice offers financial incentives for other measures besides productivity. Most physician employers have started incorporating quality measures in their compensation plans.

An increasing number of practices conduct patient-satisfaction surveys and award cash bonuses to physicians for good ratings. Doctors in some practices receive additional compensation for so-called “good citizenship”: participation in administrative duties, marketing and public relations, and other time-consuming activities.

Ask about fringe benefits

You can expect some fairly standard fringe benefits, too. Health insurance may include family coverage‹but you may be responsible for the additional premiums to cover dependent family members. Most practices offer participation in a retirement plan–usually optimized for physicians to defer the maximum allowed in pre-tax contributions.

Practices sometimes offer better-than-average disability benefits, but doctors typically supplement the company-offered plan with a personal policy to protect their high earning potential. You can expect a professional development allowance, too. Practices usually allow time off for CME events along with a financial allowance to pay for associated costs (like tuition, travel, subscriptions and membership dues).

Time off can vary considerably between practices. In a pure (non-production-based) salary position, you can expect a set limit for paid time off (vacation, sick days and personal days). But groups that pay on a purely production basis may allow more generous time off–after all, you will pay for it with reduced productivity pay.

Case Western’s Kikano says, “I hardly track time off anymore–if our physicians are meeting productivity goals and service standards, what difference does it make if they take a few more days off for vacation or CME?”

Upfront money

Depending on the competition for your chosen specialty, you might see some generous upfront incentives from practices hoping to attract you to their opportunities.

Signing bonuses have become a fairly standard recruitment strategy Payment schedules can vary, too. They might write one big check when you sign on the dotted line or pay part of the bonus at signature and the rest after you start working.

Still others agree to monthly stipends for second- and third-year residents who have an employment agreement well before graduation.

New graduates entering the job market today feel oppressed by the sizeable student-loan debt they have accumulated while in school. Recruiting organizations sometimes offer to repay the loans as incentives to accept a position.

Most practices provide some kind of moving allowance‹about $10,000 on average.

Compensation cautions to look out for

Medical practice brings its own unique set of issues to be cautious about. New recruits should pay attention to issues such as:

• Malpractice tail. Make sure you understand how your malpractice premiums will be paid. It’s especially important to understand what will happen if you leave the practice. Even if you quit medicine altogether or leave the state, a patient can bring a claim against you later. Most states have a three-year statute of limitations with even longer periods in pediatric cases.

Typical “claims-made” policies don’t cover you after you leave the practice and cancel the policy, so insurers offer an optional extended reporting endorsement, commonly called “tail coverage.” Tail coverage for the three years can cost up to two-and-a-half or three times your last annual premium.

If you leave the practice, who is going to pick up that hefty tab? Some doctors feel trapped in their situations because they would be personally responsible for their own tail premium–and that could easily top $200,000 in some situations!

• Signing incentives. When you look at those tantalizing incentives like signing bonuses and generous upfront offers, always consider the downside.

Sometimes you have to think like a lawyer and ask, “What’s the worst that could happen?” Make sure you know what happens if you accept upfront money but things don’t work out as planned. There’s a reason they refer to such generosity as “golden handcuffs.”

Valancy suggests taking a look at the upfront money being offered and asking the practice to reduce some of those amounts and add it to your base salary. If you don’t need thousands of dollars to get started, you’ll find more value in the long run by setting your salary’s starting point at a higher level.

• Ownership track. If you’re joining a physician-owned practice, spend extra time understanding how you can become a partner or shareholder in the group. Some practices still offer a reduced income for the first few years in exchange for a lower buy-in down the road.

But what happens if you don’t end up as a partner? You might be better off to take more salary now and start saving for the larger buy-in price down the road. At least that way you’ll still have those funds if you decide not to stay and join the shareholders.

Sage advice for job seekers

Lear tells about a graduating fellow who had big plans to work in a busy, urban practice somewhere. During his search, however, the fellow became aware of an opportunity in a more rural setting. When they showed considerable interest in recruiting him, he proposed an “outrageous” salary–at least 50 percent higher than other places he had visited.

During the compensation negotiations, he decided to keep pushing‹almost daring the recruiting practice to bail out. But they kept saying “yes,” and he ended up modifying his definition of the “ideal” practice in exchange for a four-day workweek and a very generous income. Clearly, the trade-off was worth it to him.
Lear still cautions job-seeking residents to keep lifestyle preferences and professional satisfaction at the top of your priorities.

And Kikano, who has participated in countless recruiting efforts through the years, advises new doctors not to make money the centerpiece of negotiations.

Finding a candidate who fits well with the culture is much more important. “Who cares how much money you make,” he asks, “if you don’t like what you do?”

Timothy W. Boden (TBoden@aol.com), CMPE is an experienced author and editor, a certified member of the American College of Medical Practice Executives and more. Read more about our contributors on page 12.

Job offers are a little like snowflakes: No two are alike. Dozens of factors affect job requirements, salaries and benefits packages. You have to go deeper to gain a more realistic picture.

It’s absolutely critical that you find out what the practice expects of you in terms of minimum productivity levels. What do you have to do to earn the base salary? At what level does the productivity bonus kick in?

Major Physician Compensation Methods

For all the technical language, physician compensation schemes are usually built with the following components. While some plans use a single component (flat salary, for instance), most employers use a combination of two or more. Here are the major methods:

€ Salary based: A set amount paid per work period (weeks, months, years).

€ Productivity based: A variable amount paid based on the physician’s work output (measured in RVUs, collected revenues, patient visits, charges).

€ Profit based: A variable amount paid based on the physician’s share of net profits (revenue minus expenses).

€ Performance based: A variable amount paid for the physician meeting predefined goals (quality measures, patient satisfaction scores, quotas, hours).


Timothy W. Boden

Easy to Register >> Control your visibility >> 100% free

Take control of your Job Search

Recommended PracticeLink Magazine Articles

Latest PracticeLink Issue