How will you get paid?

With physician compensation models in flux, knowing your options can help you get a grasp on your bottom line.

By Jim Silver | Fall 2011 | Feature Articles

 

When Kesha Buster, M.D., was in the first year of her dermatology residency at the University of Alabama, Birmingham in 2007, she received phone calls from “five or six” job-placement services that wanted to get her information into their databases.

Kesha Buster, M.D., chose a private practice for maximum work-family balance. Photo by Brett Schauf

By her second year, she was getting an email every week from recruiters or directly from practices; by her third year (actually the first year of her two-year research fellowship), it was up to one email a day.

In fact, 94 percent of newly minted physicians received at least 10 job solicitations during their training and 40 percent received more than 50 job solicitations according to a 2008 survey conducted by Merritt Hawkins & Associates (MHA), a national physician search firm. As Buster’s experience shows, even in the recent economic downturn, new physicians are still the subject of intense recruiting efforts.

Graduating residents and fellows know that they are in for a big a pay increase when they land that first job (to get an idea of how big an increase, see the section on the income offered to the top 20 recruited specialties).

Yet they may not know much about the current trends in the physician marketplace or that there are a variety of ways in which that money can be paid to them. Understanding both the state of the physician job market and compensation models can be an important part of your job search.

The trend toward employment

One of the major trends in the current market is the move away from the traditional private-practice partnership track models. In a time of general uncertainty created by the passage of health care reform, more and more physicians are entering into employment relationships with hospitals and large practice groups.

According to Tommy Bohannon, divisional vice president of recruiting at MHA, “Changes in health care reimbursement, bundling of payments, quality incentives, general uncertainties in the economy and medical reimbursement in particular, are all leading to consolidation, where physicians are working in an employee-employer relationship with hospitals, large multispecialty groups or ACOs.” He says, “It’s rare to see a physician interested in private practice.”

And it’s not just those fresh out of residency; even experienced doctors who have run their own practice for years see hospital or large-group employment as a way to avoid the stress, administrative duties and general risks of private practice. This trend toward employment has, in turn, led to changes in the compensation models most frequently offered to new physicians.

Nathan Allison, M.D., negotiated a bonus structure based on the whole team “winning.” The flexibility of the negotiations is one of the things that attracted Allison to his new job.

Salary-plus-bonus models are becoming more prevalent

There has been a sharp increase in the use of a salary-plus-bonus model, with the bonus based on either production or quality metrics or both.
“Of the salary-plus-bonus models that MHA has seen in recent years, about 50 percent are based on production, about 20 percent are based on quality, and 30 percent are a mix of both,” Bohannon says.

Since it is likely that new physicians will encounter compensation packages that include bonuses, it will be important for them to focus on and understand how the bonus is structured. While this might take a bit of time and effort to research, with a bonus likely to make up as much as 10 percent or more of overall compensation, it could be time well spent.

Perhaps the first consideration that jumps to mind is whether earning the bonus (or a portion of it) is a realistic possibility; obviously, a bonus that is unattainable is of no use to the physician. Analyzing the likelihood of reaching that bar can take both an understanding of the bonus benchmarks as well as historical data from the group or hospital. “If the bonus is based on work RVUs, the physician should become familiar with national surveys that pinpoint median RVUs and compare this data with actual examples from the practice or hospital,” Bohannon recommends. “That’s the best way to predict if you can earn the bonus.”

And it is important to realize that a bonus structure that might work well in one setting might not be as appropriate in another. In other words, there is probably no “one size fits all” bonus model. For example, hospitals might have collection policies that differ from private practice physicians, and might tend to write off more debt. In that case, the physician would likely be better off with a bonus based on gross billings. On the other hand, depending on the specialty and other factors, a bonus based on gross collections can make the most sense.

Nathan Allison, M.D., completed a five-year residency in general surgery, and was a fellow at the University of Texas at Houston when interviewed for this article. After going on seven interviews in Texas and the southeast, he eventually found what he was looking for at Health First Physicians in Florida, where he will be starting a bariatric surgery program.

Though Allison will have a typical setup with a salary and a bonus, his bonus structure will be based on collection. He knew that because of the demographics of the area, good health insurance was the norm—and further, that given the nature of the bariatric program, many of his patients would be self-pay. In this scenario, Allison calculated that a bonus based on collections would be best for him, and the hospital agreed.

Coinciding with the progression toward employment of physicians, there has been a significant nationwide decrease in the use of income guarantees, which are typically offered in independent practice settings, particularly to new physicians joining an existing group.

According to MHA data, there has been a nearly 50 percent drop in the use of income guarantees over the past five years. Of course, this statistic doesn’t mean that a new physician won’t be offered an income guarantee. They are still used throughout the country and can be attractive to new doctors, depending on the situation.

Income offered to top 20 recruited specialtiesWhen Buster was finishing her dermatology fellowship, she ended up choosing a private practice instead of an academic program for maximum work-family balance. The offer she eventually accepted from a large multidisciplinary group in Kansas was an income guarantee for two years with a bonus.

“After the two years, the compensation will be RVU-based, but by then I should have a built-in referral base,” she says.

Her outlook is exactly the one intended by the use of an income guarantee: Giving a new doctor support for a reasonable amount of time while the physician builds a practice.

Less reliance on straight salary

The general perception among national recruiters is that salary-only is not a popular option for physicians generally, and new physicians in particular. One understandable reason is that many young doctors are in debt and want the opportunity to earn more than just a straight salary. Of course, if the salary alone is high enough, that likely will not be an issue. But the prospect of earning more money based on production or quality of performance appeals to young doctors. Nevertheless, while new physicians might generally indicate that they want more than a straight salary, sometimes it is an option that works.

During her pediatrics residency at the University of California at Davis, Olivia Griffiths, M.D., spent two of her rotations at Kaiser Permanente hospitals and had a chance to become very familiar with the Kaiser system. She liked what she saw, and after hearing the chief of pediatrics for her region give a talk about what Kaiser was looking for, made up her mind to apply to Kaiser after her residency. “I interviewed in December and thought I would have to wait a while to hear, but I was offered a job at the end of December.”

Her compensation? Straight salary with no bonus. And she couldn’t be happier.

“The salary they offered was very competitive for my specialty and the region,” Griffiths notes. But it was more than just the bottom-line figure that interested her. “They offered me the job structure I was looking for. I work three days a week and one weekend a month, which is perfect for my family.”

Griffiths also found the benefits package offered by Kaiser—health benefits and a home-loan program among others—to be a real draw. So though straight salary might not generally be as popular as some other compensation models, it can certainly be part of a package that some will find desirable.

The traditional model

Although there has clearly been a movement toward employment in large groups or hospitals, the traditional, small partnership model still exists and thrives. Michael Cohen, M.D., is president of Brazos Valley Pathology (BVP) in Bryan, Texas, and is in charge of all their recruiting. “BVP is not one of the large, publicly traded companies that provide pathology services across the country. We’re a traditional, small partnership practice that has exclusive contracts with area hospitals,” he says.

BVP hires new doctors on yearly rollover contracts (the contract automatically renews unless either party opts out) and offers a straight salary with the potential of a bonus.

“That bonus is decided by the partners based on the practice’s overall financial situation and various other criteria, such as value added to the practice. For example, a doctor volunteering to work on a committee at one of the hospitals we contract with,” Cohen says.

After three or four years, doctors may be allowed to buy into the partnership, at which time BVP calculates how much it will cost to buy in. Although BVP operates on a model that is not as widespread as it once was, the practice does not want for applicants. “Texas has not been affected by the economic downturn as much as some areas of the country and we still get about the same number of applicants per job posting,” Cohen says. “That number has consistently been between 10 to 50 per posting, depending on the time of year.”

Negotiations

Despite the fact that there is a lot of money riding on that first job after residency or fellowship and there are a variety of compensation models that can be used, there is usually not a lot of negotiating the terms of the contract.

As Bohannon puts it, “When it comes to negotiating a compensation package, it’s best to assume that there won’t be any; the initial package will be what it is.” In other words, compensation models are already established for most medical groups and hospitals, and overall pay will basically reflect what other physicians with comparable experience and skill earn in that geographic area.

And that isn’t just with large groups and hospitals.

Olivia Griffiths, M.D., was offered a competitive salary—and the job structure she was looking for—at Kaiser Permanente. Her compensation is straight salary with no bonus, and she couldn’t be happier. Photo by Tom Seawell

Cohen, who does all the hiring for BVP, notes that he doesn’t spend a lot of time negotiating with new hires; he tells them what the standard salary package is and is reluctant to spend “weeks on back and forth negotiations.”

Aside from the fact that overall compensation structures are fairly standardized, newly minted doctors may fear that too much negotiating over pay will hurt their chances of being hired in the first place, especially if it’s a job they especially covet.

That was certainly Griffith’s thinking when she applied to Kaiser. “I knew that there would be plenty of applicants, and I was even prepared to work an on-call ‘pool’ job at Kaiser until a permanent position opened up,” she recalls. When she was offered a job, she thought, “If I negotiate too much, I might lose this job opportunity.”

But that doesn’t mean there can’t be negotiations at all. New physicians can and do make deals on a variety of issues.

Chaitanya Chekkilla finishes her family medicine residency at Genesys Regional Medical Center in Michigan in October. And though she has already accepted a job, her search took her to different parts of the country. Chekkilla, who attended medical school in India and will be working on an H-1B visa, knew that not all hospitals sponsor these visas. On top of that, she needed to be near a metropolitan area where her husband, a software engineer, can work. Eventually, she interviewed at hospitals that met her requirements in four states—South Carolina, Georgia,

Missouri and Indiana, and chose a job at St. Vincent Jennings Hospital in North Vernon, Ind., where she will be paid a salary and a productivity bonus.

“I didn’t do much negotiating about the salary, the bonus or the amount of vacation time,” Chekkilla says. “But I did negotiate one thing that was important to me: Instead of receiving my signing bonus when I start, I asked to be paid half when I signed and half when I actually start work.” The hospital agreed.

By striking a bargain where her new employer would cover her medical insurance between the end of residency and her beginning of work, Kesha Buster was able to avoid having to buy insurance through COBRA during this critical period.

Some negotiations can be based on the specific specialty. Nathan Allison knows that bariatric practices are by their nature team ventures, and he negotiated a bonus structure on the whole team “winning.” In fact, the willingness of the hospital to be flexible in the negotiations was one of the main reasons Allison took the job there.

The bottom line

Finding that “right” first job after residency or fellowship will likely be based as much on factors like family considerations, degree of professional challenge and personality fit as it will be on overall compensation. But understanding the way that compensation will be structured can be an important starting point for any fruitful search.

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Basic compensation models

Compensation models vary substantially based on the criteria used and the way in which they account for and measure specific components. Nevertheless, the following is a brief summary of some models commonly used outside of the solo private practice setting.
 

Straight salary

The straight salary option is self-explanatory and is usually found with hospital employment. The physician is listed as a W-2 employee on the hospital’s payroll and benefits are also included. The straight salary option is often used when the physician will likely not be able to collect enough to cover overhead, benefits and salary.

Salary with production bonus

The physician receives a base salary with a bonus based usually on one of the following metrics:

  • GROSS BILLING: The bonus is based on annual or quarterly billings; usually used with hospital employment.
  • NET COLLECTIONS: An “eat what you treat” model. Can be based on 100 percent collections minus overhead or on a collections threshold formula (often based on physician compensation-to-collection ratios published yearly by the Medical Group Management Association), where the physician receives a percentage of collections exceeding the threshold amount designed to cover the appropriate amount of overhead.
  • PATIENT ENCOUNTERS: Physicians are paid a bonus based solely on patient encounters; used with primary care physicians, psychiatrists and other office-based practices.
  • RELATIVE VALUE UNITS: RVUs are a way in which a service or procedure is valued and payment made to the physician; there are two kinds, total and work. The work RVU is generally used in bonus models and is a unit of measure that expresses the amount of time, intensity, effort and technical skills required to perform a specific service. Total RVU consists of the work RVU and overhead costs and malpractice expense. There are published schedules of both work and total RVUs.

Salary with quality bonus

A wide variety of factors can be used to structure a qualitative bonus: patient satisfaction, peer review, administrative responsibility, service on committees, etc. These qualitative bonuses are often used for hospital-based physicians.

Income or collection guarantee

An income guarantee is a subsidy provided by a hospital to the physician for 12 to 24 months and can be based on monthly income or monthly collections. At the end of the guarantee period, any remaining balance of the subsidy not paid back are normally listed on a promissory note and forgiven over time (with the stipulation that the physician remain in the community during the forgiveness period).

Triangle agreement

A variation on the income/collection guarantee where a hospital helps a group to recruit a physician by providing a subsidy to the group instead of directly to the physician; sometimes referred to as Practice Support Agreements.

 
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Jim Silver is a teacher, writer and attorney who lives in Massachusetts with his physician wife and their three children.

 

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