Young physicians who are hoping to start their practice and currently exploring career opportunities must be able to know the differences between existing models of physician compensation. Understanding how each of these compensation models works will help you assess which of your job options fit the best with your short-term and long-term professional objectives and your personal goals. In this way, you can set your career expectations and kick off your medical practice at the most advantageous and well-informed position as possible.


To shed some light on the complexity of how compensation works in medicine, the following are some of the most common compensation models for physicians and what you should know about them.


#1 – Straight Salary


Similar to most jobs, the straight salary model entails paying for the expertise and services of the physicians with nothing more than the standard annual pay. This payment model is common in the academic setting and physician-owned medical operations. Large health systems like the Mayo Clinic and Kaiser Permanente are known to pay their physicians a fixed salary.


While there is no such thing as a perfect compensation plan, some experts argue for the widespread implementation of a salary-based compensation. In fact, behavioral experts published an article in the Journal of the American Medical Association Viewpoint which suggested that the straight salary model is beneficial not just for the patients, but the physicians as well. Following this physician compensation plan may reduce overall health care spending and address the job dissatisfaction of many physicians.


Practicing medical physicians themselves seem to agree with this finding. According to the Texas Medical Center’s Consumer & Physician Survey, one in three doctors are being paid with nothing more than a standard salary. It was also found that out of the hundreds of physicians that took the survey, more than two-thirds of these general physicians and specialists prefer to be paid by salary.


The problem with implementing a straight salary payment model for physicians is that it is susceptible to misuse and even under-use. Those who practice under this model will receive limited financial incentive in the long run. It may also discourage doctors to excel in their work as it promotes the idea that excellent and mediocre performances are rewarded equally.


A variation of the straight salary compensation model includes rewarding physicians with a bonus or incentive. There are several types of incentives and they are dependent on several factors, including but not limited to the following:


  • Number of patients serviced
  • Hitting the daily minimum requirement of patient encounters
  • Patient satisfaction scores
  • Net collections
  • Relative value units (RVUs)


#2 – Income Guarantee


While many starting doctors would prefer to be paid a fixed income, most physicians today are compensated for their services under the income guarantee compensation model. Doctors are assisted in starting their practice by hospitals who require their services in a specific community. In exchange for being hired as an independent contractor, the facility guarantees that the physician will earn a minimum amount per month. This guaranteed income, however, will be further reduced as the physician is also required to pay practice expenses.


The income guaranteed is set for a fixed duration, usually around one to three years. During that time, the physician may have earned more than what the hospital guaranteed to pay him. It is also expected that the physician has already built a large enough patient base by the time the contract expires. However, should the contrary turn out to be the case, the physician is required to pay back the difference.


For example, if you are guaranteed an income for one year and you are paid $110,000 for your services, your collections while in practice will have to fill that amount. If you only earned $80,000 for that entire year, you have the obligation to pay the hospital the remaining $30,000. This debt, however, can be forgiven over time in exchange for the physician’s continued service in the hospital and the community.


#3 – Equality Shares


Administratively-speaking, this payment model for physicians is probably the simplest one and the easiest one to implement. Basically, if a group of physicians are in practice together, they simply share equally among themselves the revenues earned by the group after subtracting all the expenses. No elaborate mathematical calculations are required. All physicians are treated and paid equally, regardless of their level of skill, experience and productivity.


The downside with this compensation plan for high-performers is that it does nothing to reward the best-performing physicians in the team. In the long run, the knowledge that there is very little income advancement in the group on the basis of merit could compel a highly-productive physician to search for better prospects. At the same time, those doctors that underperform will not feel that they have to improve themselves. They will simply rely on the revenues generated from the practice of their more successful colleagues in the group.


Other Existing Compensation Models for Physicians


There are myriad other compensation models with their own respective complexities, advantages and disadvantages. Some physician payment models are based on productivity and performance such as the fee-for-service (FFS) and pay-for-performance models. Some are paid according to the relative value unit (RVU) model wherein a specific value is assigned to the services of each patient encounter and every procedure performed. Another payment plan is called capitation. It involves distributing collected health care premiums among all the physicians in a medical group. One physician may receive the same compensation as the others. They may also receive varied percentages of the group’s revenues based on elaborate mathematical formulas.


As a new physician looking to start practicing your profession, you will have to adapt to the established compensation models of hospitals, medical groups and other health care organizations. Given this reality, it pays to know what type of payment plans are currently being implemented by these organizations before you accept employment from any of them. And if you feel that you don’t know enough about these physician compensation models to make a decision, don’t hesitate to ask for guidance from a senior colleague in the medical profession, a recruitment expert, or your lawyer.