Guide to Understanding Physician Compensation Models

by Steven M. Harris, Esq. •

Pure Productivity Model. Under this model, a physician is compensated based on 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 of the practice. However, it may also lead to some unintended side effects, which could include a competitive culture among the physicians. It also eliminates the predictability that other models offer.

Capitation/Productivity Plus Capitation Model. Under a capitation model, a provider is paid a fixed and pre-negotiated 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 be straight capitation or mixed with productivity, can be desirable when a practice or group has high bargaining and negotiation power. However, it is also dependent on the market and can fluctuate 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 is best to support his or her current status and long-term goals and expectations. Recognizing the differences can also help a physician determine what to ask before signing an agreement. It is critical for a physician to understand the proposed compensation model in its entirety before entering into an agreement. Questions a physician may 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, is there a bonus schedule that outlines possible bonus thresholds?
  • What have been the average administrative costs for the practice in the past?

Of course, each model will have its own set of specific inquiries associated with it. It is, therefore, critical to have a healthcare attorney familiar with compensation structures look at a proposed compensation plan an employer offers. It is also as important to have a healthcare attorney review any type of compensation plan to ensure that it is within fair market value, is 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.