Compensation
With compensation in mind, what are some of the important issues? Today, many physician employers are converting to production-based compensation models. Consequently, it is important for new physicians to obtain guaranteed base salaries during their first few years of employment while they are building their practices.
On occasion, new physicians initially are offered production-based compensation models, which also allocate a share of practice overhead expenses to them. This is a very dangerous compensation model for a new physician. Under such a model, it is possible that a new physician could have a negative balance in his/her cost center at the end of the year, and actually owe his/her employer money.
Some physicians may be offered income guarantees by hospitals. There are several different types of income guarantees but they are frequently categorized together even though they differ significantly. The most common income guarantees offered to physicians are physician recruitment agreements (PRAs). Under a PRA, a hospital usually guarantees that a physician who relocates to the service area of the hospital collects a minimum amount of monthly revenue for 1-2 years, which is known as the guarantee period. The hospital also guarantees to pay certain monthly expenses of the physician during the guarantee period. This arrangement is actually structured as a loan by the hospital to the physician, and requires the physician to execute a promissory note with the hospital for the amounts advanced to the physician by the hospital. The promissory note is forgiven if the physician continues to practice in the service area for 2-3 years after the guarantee period. This type of guarantee provides an excellent opportunity for a new physician to establish a solo practice. A variation of this model involves a third party such as a medical group. Under this model, the hospital continues to guarantee the revenue of the new physician and pays the medical group the expenses it incurs as a result of hiring the new physician. These expenses are known as incremental practice expenses. The medical group also becomes a signatory to the promissory note. Other health care entities also have begun to offer PRAs to physicians. For example, an independent practice association in California recently entered into a PRA with a gastroenterologist.
Keep in mind that the promissory note executed by the physician may affect the credit of the physician, especially if he/she wants to obtain financing for a home purchase. Also, a hospital may seek security for the performance of the promissory note by collateralizing the personal assets of the physician instead of just his/her practice assets; this should be avoided.
The other type of income guarantee is provided to hospital-based physicians such as pathologists, radiologists, anesthesiologists, etc. Under this type of guarantee, a hospital ensures that the physicians receive a minimum threshold of collections. This type of guarantee may be necessary to attract hospital-based physicians to a hospital which has a low-income and/or Medicaid population. This is not a typical scenario for a gastroenterologist.
Some practices create incentives for physicians by offering a variety of bonuses. Most often these bonuses are production based but sometimes they are based on such quality issues as patient satisfaction. The most common types of production bonuses are based on attaining a level of collections above a dollar threshold or exceeding a minimum level of relative value units (RVUs).
To summarize, new physicians should always try to get at least a 2-year income guarantee. They should never allow an employer to allocate overhead to them during the first 2 years of employment. In addition, they should always try to negotiate realistic production-based bonuses.
