Pure productivity—Under this model, a physician is compensated on the basis of how productive he or she is personally, which is commonly measured using work relative value units, net charges or net revenues. Essentially, the physician receives a designated percentage of what he or she brings into the practice. The rest of the earned money goes toward the practice’s overhead expenses, insurance, supplies and other costs associated with running the practice. This type of compensation structure rewards entrepreneurship and can facilitate an individual’s sense of ownership. However, it may also lead to some unintended side effects, which could include a competitive culture among physicians. It also eliminates the predictability that other models offer.
Compensation models can dictate not only what a physician will make in the near future, but also what his or her long-term opportunities may be.
Capitation/productivity plus capitation—Under a capitation model, a provider is paid a prenegotiated, fixed amount of money for each patient enrolled in a health plan for a certain period of time, regardless of whether that individual patient seeks care. This type of compensation arrangement—whether it is based on straight capitation or capitation mixed with productivity—can be desirable when a practice or group has high bargaining and negotiation power. However, market fluctuations mean compensation may change drastically from year to year, which could be problematic for physicians who value stability and predictability.
How to Determine the Best Option
Understanding the different types of physician compensation allows a physician to decide what type of structure will best support their current status and long-term goals and expectations. Recognizing the differences can also help a physician determine what to ask before signing an agreement. A physician must understand the proposed compensation model in its entirety before entering into an agreement. Questions to ask include:
- When are bonuses paid to physicians (e.g., monthly, quarterly, annually)?
- What are the specific factors used in determining a bonus, and how much weight is given to each?
- Is there a minimum or maximum bonus amount allowed per year, or alternatively, does a bonus schedule outline possible thresholds?
- What have the average administrative costs for the practice been in the past?
Of course, each model will have its own set of specific inquiries associated with it. Asking a healthcare attorney familiar with compensation structures look at a proposed compensation plan is critical. The attorney review should ensure the compensation plan is within fair market value, commercially reasonable and adheres to the many healthcare laws relating to compensation and fee structures, including the Stark Law, anti-kickback laws, and state and federal regulations related to fee splitting.
