When looking for the most common physician compensation models, there are several that doctors can choose from.
How a doctor is compensated matters, as it affects the running of the practice, just as much as the financial stability of the individual physician.
With this in mind, here are the most common physician compensation models used in medical practices:
1) Minimum-income guarantee or Salary plus Bonus Compensation Model
Most often seen in large Health Management Organizations, or in large medical group practices, these closely related models are perhaps the most straightforward.
In this physician compensation model, the income level is set and physicians know how much they’ll earn. When a bonus or incentive is offered, physicians should inquire about how, when, and under what conditions the sum is paid. The minimum-income guarantee, with or without bonus, is the most prevalent model today, especially for new physicians starting out.
These salary models are essentially worry-free for young physicians, and can offer a sense of security. However, if there is no ownership track, they may ultimately discourage entrepreneurship or support minimum-effort work standards.
2) Equality or Equal Shares Compensation Model
This model, considered the easiest from an administrative standpoint, is based purely on economics: after expenses, the remaining revenues are allocated equally among the group’s physicians.
On the plus side, this structure can discourages over-utilization and doesn’t require complex formulas to estimate. The possible downsides are that the model presumes all physicians are equally skilled, equally productive, and most importantly perhaps, equally motivated to work in the group’s best financial interest. This means high producers have little long-term incentive and low producers may be allowed to ride on the financial coattails of the more productive physicians.
3) Production-Based or Productivity-Based Compensation Model
This model, with its myriad variations, can become complicated to understand. Essentially, physicians are paid a percentage of either billings or collections, or they are paid based on the resource-based relative value scale (RBRVS) units assigned to procedures or patient-visit types. The overhead costs (both fixed and variable )of the practice are allocated among the physicians.
The advantages of this model is that it both encourage and reward extra effort by individual physicians. However, the disadvantage it can create a competitive group environment that some physicians might not find appealing.
Patient mix also matters in productivity-based compensation, so it is advisable for a new physician to inquire about percentage of commercially insured, Medicare or Medicaid insured, and uninsured patients seen in the practice.
4) Capitation or Productivity plus capitation.
The concept of capitation became prevalent in the late 1980s and early 1990s. Capitation is still present in HMO intensive markets, such as California, Minnesota, and the Northeast.
Translated into a compensation model, capitation involves distribution of health plan payments among physicians in a nearly equal manner or based on some type of formula.
Capitation rewards group medical practices, and the individual physicians who deliver cost-efficient, effective care. From an economic standpoint, capitation-based income is dependent on marketplace factors and the medical group’s negotiating power, which means that overall income levels may fluctuate from one year to the next.
Regardless of the physician compensation models in place, the young physician should calculate their living expenses and monthly personal budgets based on the compensation amount that is guaranteed. It is never a good idea advisable to be dependent on a year-end bonus, even if it looks likely, because unforeseen factors could affect whether the bonus actually materializes.
