How Do I Get Paid? A Beginner's Guide to Physician Compensation

Last Updated on June 27, 2022 by Laura Turner

With over 30 years of experience in both medical and academic sectors, I can’t stress enough that the perception of business and patient care being mutually exclusive is one of the largest falsehoods of our time.

Most medical schools and residency programs do not adequately prepare graduates for the practice management issues they are going to face, which results in the sad truth that few physicians have the training or knowhow to successfully navigate the business aspects of successfully entering and participating in a practice.
In order for any practice to be successful, it must be run with healthy business principles in place; and understanding this now, while you are still in training, can be one of the largest advantages to your career.
However, instead of jumping directly into business principles, creating efficiencies and understanding the cost of “doing business”, let’s talk about a topic that influences the majority of physicians when first entering practice – compensation.

Understanding Compensation

With hundreds of thousands of dollars in student debt, compensation is a primary concern of most physicians. You’ll surely feel excitement upon receiving your first offer; however, before agreeing to any practice, understand the pay structure and how you will be evaluated in relation to your salary.
For example, it’s not uncommon to see a resident accept what sounds like an amazing offer, but after the first year, find themselves in an unsustainable environment due to the offer being contingent on total billings or productivity. Although quality metrics are quickly evolving, it is important to note that many practices using these methods ensure your entire income isn’t based on performance alone.
Overall, healthcare reform is changing the way physicians are being compensated, leading to more practices testing new pay structures on younger physicians. This alone is reason enough to take the time to sit down and work to understand pay structures before the job search process begins. To start your journey, below are a handful of the types of pay structures, all with their perceived upsides and downsides.

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Physician compensation models vary considerably; however, fee-for-service medicine is the compensating force behind many contracts at this time, and likely will remain that way in the very near future.
The fee-for-service model compensates physicians based on the amount of services provided to a patient. This model is the least complicated, reflecting a normal business environment – with the exception that the amount paid for services is normally negotiated between insurers and providers, as opposed to the patients themselves.
While fee-for-service compensation models work to enhance productivity, it also incentivizes physicians to provide additional treatments. Due to the focus on quantity over quality, fee-for-service has found itself in the crosshairs of healthcare reform.
In 2013, the National Commission on Physician Payment Reform presented their findings to Capitol Hill, recommending that fee-for-service be eliminated due to problematic financial incentives. Additional recommendations proposed that, at the least, fee-for-service be weakened as the primary compensation model by adding supplementary quality metrics.
With the amount of scrutiny over this payment model, the idea that it will remain a mainstay is unlikely. Payment changes associated with health reform are working to close the door on fee-for-service, which may even happen before you reach practice.

Relative Value Units

Relative Value Units – or RVUs – is a pay for performance model where the physician’s training, skillset and time expended to provide a given service are taken into account when establishing compensation. With this model, the actual care provided by the physician is the driving force of compensation more so than the number of visits themselves.
With this pay structure, a physician with a handful of high profile patients has the ability to earn more RVUs than a physician working very general cases. For example, a basic checkup would be assigned a lower RVU than an invasive procedure.
Compensation based on RVUs provides a model that focuses on value-based healthcare, more so than the fee-for-service volume-based model. As mentioned above, regardless of the quality metrics established in your contract, many practices use models that ensure your entire income isn’t at risk based on performance – and if this isn’t offered, it should be negotiated into your contract.
However, the RVU model isn’t perfect. The formula used in calculating RVUs varies by employment contract and can be complicated and ultimately flawed.

Bundled Payments

With the bundled payment model, physician and hospital expenses are joined to make a single payment for an episode of care. Although bundled payments are said to be a recent model, these have been around for decades.
A quick example would be an outpatient surgery. Many surgeons will often receive a single payment for pre-op, post-op and the surgery itself. However, unlike the example, bundled payments are much broader, encompassing longer periods of time and multiple providers.
With bundled payments, there are four models – Retrospective Acute Care Hospital Stay Only, Retrospective Acute Care Hospital Stay plus Post-Acute Care, Retrospective Post-Acute Care Only and Acute Care Hospital Stay Only. Each all of which you can learn more about here
Bundled payments encourage value-based medicine and efficiencies required by the Affordable Care Act; however, this model also creates incentives for hospitals and practices to withhold care and procedures. Additionally, the complexity and amount of overlap with bundled payments makes it difficult to produce a widespread definition for each model.

Comprehensive Primary Care 

The Comprehensive Primary Care model encourages physicians to keep patients healthy by establishing a single risk-adjusted price for all healthcare services needed by a group or individual for a fixed period of time. With this model, physicians are offered incentives based on better coordination with patient care.
The primary benefit of this payment model is that without the constraint of fee codes, healthcare providers are given increased flexibility on deciding what the patient requires and the needed resources to deliver them. However, as a physician, the concern lies in how administrators manage under such a payment system.
This may seem like quite a lot to take in, but it is extremely important to have a basic understanding of the components that make up payment systems that could be used in the practice you decide to join. Fee-for-service reimbursement is potentially on its way out, which means more complex payment models will continue to emerge.

Prepare Yourself for More than Compensation

Many new physicians make compromises for a higher salary and, unfortunately, ignore what may be most important to them, including their quality of life. For young physicians, it is important to understand every clause of your potential contract, always determining if it actually fits your debt situation, lifestyle and ultimately your career goals.
For example, a physician who obtains a job thousands of miles from home may require additional vacation time to visit family, while a physician bogged down by debt may need to trade additional on-call hours for a higher salary.
Just a few of the most prominent clauses in physician contracts include:
1) Call Schedule
Don’t expect the best hours being a new physician; however, avoid agreeing to on-call hours that are specified by your employer at a later date. If so, you may find yourself working weekends and holidays until your contract ends.
2) Non-Compete Agreement
According to Medical Economics, nearly 50% of physicians leave their first job within 2 years of joining the practice. This is highly important for those who want to stay in a certain area.
3) Tail Coverage
Tail coverage protects physicians from malpractice claims following their departure from a practice. If this isn’t in your contract, you may find yourself bound to an employer because of the high cost of purchasing your own coverage.
As you are currently awaiting your first major job opportunity, it is important to begin determining what is important to you, as it related to your career goals. Right out of residency, you will have a plethora of options to consider, and realizing now that compensation is only a small portion of your contract could save you much time, effort and sleepless nights.

Hire a Specialized Attorney

With the complexity of payment structures and benefits packages, many residents hire attorneys specializing in physician contracts to ensure they are adequately covered. For those considering legal guidance, remember the attorneys – like physicians – have specialties. An attorney practicing criminal law isn’t going to have the same experience as an attorney who sees physician contracts on a daily basis.
Ultimately, hiring a specialized attorney will help protect the interests of all parties, and provide you with the peace of mind necessary when weighing your employment options.
The bottom line is that recognizing the role of different compensation models and their interplay with contract benefits, coverage and your personal life is crucial to successfully negotiating a compensation package that will remain viable in the foreseeable future while meeting your professional goals.