By Dr. Jim Dahle, WCI FounderThe world of physician compensation is bizarre, to say the least. Yet too many doctors don't have even a rudimentary understanding of it. This generally results in them being paid less than they are worth and having a more difficult time building wealth. So, if you're sick of working too hard for too little, read on and learn the truth about physician compensation.
“Compensation”
Let's start with the word “compensation.” In every other field, this is called salary or pay. Only in medicine do we try to hide the fact that we're all actually in business and trying to make money. Get over yourself. If you're not willing to talk about what's actually going on here, why would anyone bother “compensating” you fairly for your work? And if you don't care about being paid, why are you reading this article?
More information here:
Stop Money Shaming Each Other!
There Was No Golden Age of Medicine (at Least for Physician Incomes)
No Employee Is Ever Paid What They Are Worth
The next truth you need to understand about physician pay—or any pay, really—is that employees are, by definition, NEVER paid what they're worth. At least not for long. If you generated $300,000 per year for my company and I paid you $300,000, how much profit would my company have as a result of your work? That's right: $0.
If I want to have a profitable company, I HAVE to pay you less than you're worth. How much less is highly variable and based on things like overhead, how much other people are paying employees to do your kind of work, and how little profit I'm willing to take for my efforts and risk as the employer. But it will be less. It HAS to be less long-term. If there are multiple employees I could pay a few dollars more than they're worth, I'd have to make up for it by paying most of the employees even less than I could otherwise afford to pay them if I weren't overpaying those few.
The Fairest Pay Goes to a Solo Practitioner
Want to be paid fairly and get every dollar you earn? Open your own practice. That's not even possible for many specialties, but if it is for yours and you really want to be paid fairly, this is what you need to do. That doesn't mean you'll be paid more, but you will be paid every dollar you earn. Your hard work, the patients you choose to treat, the types of work you agree to do, and your ability to run an efficient practice will determine your income. Sick of being discriminated against by employers because of your gender, nationality, type of degree, residency program, or the color of your skin? Insurance companies and Medicare don't care about any of that. Medicare will pay you $700 for an appendectomy no matter what you look like.
Beyond this, fairness is purely in the eye of the beholder. Are you willing to trade your time for some amount of pay? Is the employer willing to pay that much for your time? There may be a range within which employer and employee would both be happy with the arrangement; if you're in that range, then your pay is, by definition, “fair.”
More information here:
People Respond to Incentives
The first law of economics might be that people respond to incentives. This is a general truism. Obviously, everybody responds in a different way. I'm amazed that some nurses voluntarily choose to work night shifts for an extra $1 an hour, but it happens. Many employee pay structures, including those for physicians, are set up in hopes of incentivizing the employees to work harder. Doctors working harder can be a win-win-win. More patients get treated. The doctor makes more. The employer makes more.
Compensation Structures Are About Risk Control
There are business risks involved when you hire an employee. There are risks to being an employee. The compensation structure is about balancing those risks. The more risk the employer takes on, the less the employee should take, and vice versa. The riskiest pay structures for the employee should also be those that result in an income closest to that of a sole practitioner, who is taking all of the risk. The least risky pay structure should theoretically result in the lowest overall pay.
Consider an emergency physician working in a brand new free-standing emergency department for $220 per hour. There is very little risk for this doctor. They show up for a 12-hour shift, see whatever patients come through the door, and go home with $2,640 in their pocket. If no patients show up during those 12 hours, the employer is out $2,640, but the doctor still gets paid. If 28 patients come in during those 12 hours, they still get just $2,640 (although the employer makes a killing). There's no risk there for the doctor other than the fact that some days they might have to work really hard, wolf down a quick lunch at their desk, and have no time to empty their bladder. On the other hand, if they were willing to accept some sort of productivity-based compensation, they would make more money on that 28-patient day but make less on the zero-patient day. The employer would be shifting risk toward the employee. In return, the employee should demand additional compensation for taking on that risk.
RVUs Are a Good Idea Gone Bad
Relative Value Units (RVUs) are a method of quantifying a physician's work. The idea behind an RVU is that a doctor should get paid for the amount of work they do, not necessarily the amount of money that they generate. That seems wise, right? We don't want doctors doing wallet biopsies on patients and only taking care of those with good insurance who need profitable procedures, right?
However, the problem with an RVU-based compensation structure is that it is incredibly opaque. Unless you know the payor mix and the procedure/visit/coding mix, you can't convert RVUs into cash. Well, guess who has all that information? That's right, the employer. Prospective employees come in and get presented with an RVU-based contract. Should they sign it? Not without having all of the same information the employer had when they drafted it. And what are the odds of getting that in an honest and transparent manner? Not too high. So, lots of doctors sign RVU-based contracts, and then they are shocked after a few months or even a year or two to realize they're making a lot less than they were led to believe they would make. That might not be the employer's fault. Maybe the payor mix went bad or people stopped coming in because they all got insurance that can't come to that clinic. Or maybe the doctor is lazy and inefficient or won't chart right. But nobody is happy in this situation. The doctor leaves. The employer has to spend tens of thousands to replace that doc. Meanwhile, patients can't get in, and even if they can, they lose continuity of care. It's bad medicine all around.
There are some situations where productivity-based pay can make sense. Imagine a big emergency department where four or five doctors are working at a time and it is left up to them to pick up new patients when they're ready for them. If they were all just paid by the shift, they might find that a few doctors took advantage of the system and only saw eight patients in a shift while their partners were seeing 18. A productivity-based system uses incentives to encourage all of the doctors to work hard and to be efficient by actually rewarding those who do so.
However, a more transparent way to do this is simply to pay people a percentage of what was billed or even collected on their behalf. Sure, that will encourage people to pick up the quick, high-reimbursing nursemaid's elbow reductions and avoid the painfully exhausting weak and dizzy, non-English speaking 90-year-old, but that's no different from an RVU-based system. The only reason to use an RVU-based system is to hide from the doctors how much of the money they're generating with their work is being taken from them for overhead and profit.
More information here:
Should Doctors Be Organizing and Striking for Better Pay and Work Conditions?
Some Doctors Are More Efficient Than Others
Here's another news flash for you. Some doctors are actually more productive than others. That doesn't mean they're better doctors. Heck, patients love a doctor who sits down and chews the fat with them and then goes over all eight of their acute and chronic medical problems over the next 45 minutes, then spends another half hour the next day on the phone with them going over results for free. But the doctor doing that isn't generating much income for the practice.
When considering a job and its compensation structure, you should really consider how you and the way you practice stack up against your peers. Do you usually finish cases 25% faster than your peers? In residency, could you admit three patients at once while keeping the other 25 patients on the service moving along? Or were you the “black cloud” that always seemed overwhelmed on call night? Or wondered how anyone could possibly see a patient and chart in just 20 minutes. Guess which type of doctor should choose a productivity-based compensation structure and which one is likely to do better on a salary or flat hourly rate. Know thyself.
Information Is Power
Comparison might be the thief of joy, but it really is the only way for employees to know they're being paid fairly. You should look at every salary survey you can get your hands on and talk about compensation with everybody else in your specialty who will talk to you about it. If the average income in your specialty is $275,000 per year, why are you still only making $150,000 working full-time, doing your charts at home in the evenings, and being the laughing stock of the hospital administrators behind your back? Bad jobs go away when doctors stop taking bad jobs. You're hurting all of us when you work for less than you're worth.
Get your contracts reviewed, too. There are two benefits to using a contract review firm when considering a job change or partnership. The first is to understand all of the terms in the contract. The second is to get more information. That firm just reviewed six other contracts in your specialty and geographic area in the last week. Wouldn't you like to know how those contracts compared and contrasted with yours? Contract reviewers also usually have access to proprietary (paid) databases of physician compensation, such as the MGMA database. You can buy access to that database yourself for $3,200, or you can hire a firm for $500, get the data relevant to you, AND have your contract reviewed and explained to you. The choice is yours, but it doesn't seem like a hard decision to me.
The best returns on investment that I know of are
- Spending a few hundred dollars to have your contract reviewed by one of our recommended firms, and
- Spending a few hundred dollars to get advice on a complex student loan situation.
Both of those have the potential to be worth hundreds of thousands of dollars in exchange for very little time and money. Knowing more is a good thing, not a bad thing, and the information you get using these services would require many hours of your valuable time to obtain. It may not be obtainable at all. Don't be penny wise and pound foolish.
What do you think? What do you think are the best and worst physician compensation structures? How have you been burned by a bad structure?
Thanks Dr. Dahle for the nice overview.
I have worked in various different kinds of compensation models. I am in a specialty that doesn’t allow me to open up my own practice. I am a neurocritical care doctor and currently I am compensated by a flat hourly rate.
At one of my former employers they were very transparent in monthly department meetings showing me exactly how much I billed, how much was collected, what the payer-mix was. This was my first job and I thought that this was standard as I had no comparison. It turns out that this appears to be a very unusual practice as since then there has been little to no transparency in regards to if I am being paid fairly in regards to my productivity. I wish I could remember how much was being skimmed off the top to cover overhead and profits for the hospital. I wonder if there are other people in the WCI community who work in that kind of setting in which the actual individual level data of how much you bill and the hospital collects is provided for you.
I have found that when I have worked before in RVU based model that there is an incentive to perform procedures to generate RVU even when they are not always medically appropriate. I think that is the other hazard of RVU based compensation.
Happy to hear other people’s thoughts on this important topic.
“I have found that when I have worked before in RVU based model that there is an incentive to perform procedures to generate RVU even when they are not always medically appropriate. I think that is the other hazard of RVU based compensation.”
I’d say that’s true under the collections-based framework that the author seems to be advocating for as well – maybe even moreso since wRVUs are payor-agnostic and collections very much aren’t.
Otherwise I agree that transparency should be the norm.
This is the hazard when people are paid for what they do. The problem is the other models also have malincentives. For example, if docs are incentivized to order fewer tests/do fewer procedures, they might underorder tests and not do procedures on borderline cases that maybe could have benefitted from them.
Completely agree, no system works well for every actor.
I’ve worked in both academia and PP eat what you kill. In academia, we had multiple “gray hairs” making 2x/3x the younger guys while (I kid you not) generating about 1500-1800 rvu annually… compared to my 12000-13000. When I complained I was told I could always get another job and when I did, they promptly hired a new grad because…academia.
In large PP, I’ve also seen some colleagues toe the gray line or even live on the gray line of overly aggressive with interventions to generate that extra $. I’m willing to bet that if certain procedures didn’t bill the way they did they wouldn’t do them, but they’ve convinced themselves that said procedure is also better for the patient. I don’t think anyone maliciously is out to hurt patients, but there’s a tendency to intellectually accept some dubious data/behavior when $ is involved…
Hi Jim,
Thanks for the nice overview which looks super helpful for employed physicians. Please post a part 2 for physician owners in a group. I work with 20 other doctors and our compensation model has evolved. We previously all took home the same percent of our own collections, but now we vary the percent based on efficiency. We’ve found that this can be very rewarding to the higher/more efficient partners but almost punitive to the less efficient (or less surgical or more patient-loved!) doctors. Would love your input on what would seem most fair in a practice with varying practice styles and doctors at different stages in their career, where all doctors are equal shareholders.
Thanks for all you do.
Every group will be different. That’s the fun thing about a partnership is being able to work something out that works for your group. “Fair” is in the eye of the beholder.
Contract review has been both helpful and rather limited. You mention this briefly in the RVU section, but we are a percentage of collections. Despite “transparency”, it can still vary widely depending on productivity, the types of procedures a doc does, insurance reimbursement rates, and overhead.
I’m glad we used Contract Diagnostics, but I remember the percentiles they gave us a few years ago ended up being way off (they were underestimates, fortunately, so it was a nice surprise after those first few quarterly bonuses!).
Another great article. I do have a small nit to pick. You like to say that no employee is paid what they are worth. In our era of big medicine I don’t think I really agree. At bigger medical centers some specialties are loss leaders for the center as a whole. The doctors and perhaps the whole unit cost more than they bring in. Think rural birth centers. Further, as government has cut reimbursement to physicians but increased reimbursement to hospitals, the only rational option in many fields is being employed by a hospital. Can you really say you aren’t being paid what you are worth if it would be impossible for you to earn that much money on your own?
Good points. Weird economics in health care. A primary doc or hospitalist might only generate $150K in direct revenue but controls $5 million in revenue a year. Some % of that needs to be ascribed to the doc.
So you’re saying that these primary care / hospitalist doc should be paid based on the volume/value of their referrals to the system?
I think to some extent they already are. My hospital cannot hire hospitalists just for their direct value even if it gave them the entire value of what their services bill for.
But yea, the total value of the doc should be recognized. For example, having hospitalists allows the orthopedists to spend more of their time operating instead of rounding and taking calls on hip fracture patients. Yet too many short sighted administrators assume all the value of those hip surgeries is coming from the work of the orthopedists. Some percentage of it is coming from the work of the hospitalists.
Hospitals make lots of money off imaging. But who is ordering the imaging? Without them, there would be no imaging dollars.
This is a huge point and I think missing from the discussion of the article. I’m in academics. We get paid per rvu with some other metrics for professorial role. It does not take into account incentives received from the state to have us on hand, imaging, other tests, services, Medicare incentives etc. Facility fees, etc. In private practice you often. Get this “kicked back” in some way, rent, call pay, hospital contracts, imaging reimbursement, PT ,etc etc. My understanding is that in some practices, this can be quite exspansibe. In academics we don’t share in that, yet often are given metrics to say look at what you billed and what you collected. What we get compensated is very close to collections, which ignores those things.
The reality is they’ve done the math. You need to keep that in mind when you negotiate.
Prior to 1974 in Florida at least a group of doctors can get together and build a hospital, home health agency, nursing home whatever and we did all three. Hospitals are buying doctors practices _I refused to sell twice, didn’t want a boss,even though money was good.We need to get legislation passed to get more competition in healthcare. Payors set the price anyway . We should own pharmacies as pharmacies are competing with private practice with clinics in the pharmacy we have the clinics let’s add pharmacies, home IV care, whatever.
Good summary of Das Kapital by Marx.
I think there is a large benefit to RVU structure in that it is payor agnostic. It allows doctors who work with large swaths of medicare, medicaid, and uninsured patient’s appropriate reimbursement (if negotiated reasonably based on average RVU pay in the geography). Having seen my partner work previously in RVU model and now a collections based model, the stress from knowing you are getting paid $0 to take care of an uninsured patient (who are usually also the most complex) has a very real psychic cost (at least for some people).
I do agree that overall the good idea of RVUs has been corrupted to make administrators more money and take money away from doctors, but that is seperate (potentially addressable) problem that is not taking into account the benefits of RVUs.
If you just used the amount billed instead of collected the doc would be better off seeing uninsured patients since those patients get sent chargemaster priced bills. But I see your point that RVUs eliminate that issue. I still don’t like them.
This is an interesting topic. Is there consistency on what physicians make relative to what they produce?
I am a dentist in private practice. In the dental field, the long-time compensation standard has been 30% of production/collection (although there is certainly deviation). Often this will include a daily minimum to reduce the risk to the employee. I do appreciate that dentistry has stayed more privatized and able to avoid some of the headaches (like RVU’s) that medicine has faced. Although I worry for the future of dentistry with more and more corporate groups entering the industry.
That would be terrible for an emergency physician. 30% overhead is the ridiculously high amount skimmed off by contract management groups. Our group’s over head has historically been in the 4-7% range.
Wouldn’t be surprised to see many specialties with numbers more similar to dentistry’s though.
How is overhead only 4-7%? What is the secret sauce? I work in a derm practice and although I do not know the specific numbers, I can guarantee our office overhead is between 35%-55%. The clinical staff alone is 10-15%. 10 medical assistants, two receptionists and one triage nurse who answers phone calls/does PAs etc for two busy dermatologists and one busy PA.
You have an office and clinical staff, I’m an emergency doc. Yes, there are some “office people” for a big EM group but they’re not there 24/7/365 with us and there are like 5 of them for 200 docs. Our nurses/techs/clerks etc are hospital employees, not our employees. That has its pluses and minuses. I don’t have to pay for them, but I also don’t get to determine their staffing and hiring practices.
Quick search confirms what I have always been taught for primary care. Overhead is about 60%. (Crazy that ED is so much lower). For direct access primary care (membership fees, smaller clinics that don’t have to jump all the hoops for insurance b/c of pay structure), they aim for 30-40%. DAPC seems the only way for primary care to survive independently now days. As Dr Dahle alluded to above, we are kind of a loss gainer for the system now 🙁
You know more about healthcare economics than academics who spend decades publishing in Health Affairs. Why do they refuse to acknowledge the role of incentives?
Beats me. But I agree I have a pretty good view from the frontlines of health care.
Academics likely don’t have access to this information or data. I’m also a bit paranoid that groups funding this research don’t represent doctors.
From my personal experience, private practice offers better pay than the MGMA “average” suggests. I think MGMA has been distorted downward. Whether this is because those on the high end are not submitting data and MGMA is doing the best with what it can gather, or whether nefarious actors are colluding to screw doctors with garbage information, is something I cannot confirm. But I can definitely say that MGMA is too low and tricks doctors into thinking they are getting a “fair” paycheck. I love Dr. Dahle’s perspective that when you run your own practice you get to determine your own salary by how hard your work – exactly true!
Agree completely! I will say when I was in academics, I found out from our techs and billers how much we were billing and being compensated. As a result, I attempted to negotiate a better result, and they absolutely refused to even consider it. That was easy for me, I then refused to do any further Prior Authorizations for my procedure and went to Medicare/Medicaid (traditional) only as they didn’t require Prior Authorizations. If you are going to pay me the same for $400 or $40 and the $40 is less work for me, guess what? I do what’s easier. Eventually, I left and started my own practice. I can emphatically say that a physician who knows all the rules is far more empathetic, efficient, and provides better care than any large healthcare structure. The real reason for consolidation is the simple fact healthcare organizations can bill more for the same work, providing unfair incentives.
With work RVU, the reality is you are getting paid for the amount of “Energy” expended, not “Work” done. Some people expend more Energy due to relative inexperience, while some deliberately expend Energy to pad the RVU. Either way, the result is increased cost of care and sometimes inappropriate care or overkill. This is also true for compensation based on revenue generated. For example: a quick or straight forward diagnosis of Sternocleidomastoid “tumor” can be made without imaging by an experienced Pediatrician with prompt referral to Physical Therapy, while an inexperienced person might request series of imaging (U/S, followed by MRI which might require sedation) before eventually referring the patient to PT. The latter, bills more and generates more RVU (because the case could then be coded at a higher level of acuity) compared to the former.
As an employed physician, our value to the hospital is way beyond our rvu’s produced. We also generate all sorts of revenue from ancillaries like MRI, PT, OR time etc. In orthopedics, we generate at least 3 times our collections. Administrators that negotiate contracts will never discuss that and hope you think they will lose money if they pay you only what you generate from rvu’s.
All I can say is that this profession was once very well respected, paid more or less fairly and now with thr increase in cost of living wages in medicine are becoming ridiculous! .
As a neurologist with two fellowships and a family ( spouse is disabled and can not work) having full time job which pays around 375k in California for outpatient only I end up doing telehealth all weekends and nights for additional comp of around 200k.
I am overworked and this is a no go on a long run.
I think that our wages need to follow the economy, inflation and cost of living just like everything else!
My good friend is a psychiatrist in Oslo Norway and cN afford to take 6 minths off without significant financial setback!
I can not take a weekend off!
Thinking about leaving medicine altogether ( the quality of care is declining sharply too) and venturing into a completely different business.
Not sure you have to leave medicine, but I bet you could work half as much and live better if you were not in a HCOLA.
Academic medicine: I work probably on average 70-80 hours a week (academic time). I am only paid for 36 hrs a week. I can’t think of another profession that this would be okay. Lawyers charge by the minute.
I did 9 years of training. I am on call (have to be in the hospital) two weekends a month and 1-3 times a week. I have a limited job market. None of the decisions I have made were financially intelligent.
Thanks for sharing your experience.
Dr Dahle,
I have read all the above posts. There is a mix of experiences. With your awareness of this subject on what is best Physician pay structures, I would like your input on mine. [Personal info deleted.] How does this compare nationally? Thanks for any input.
I’m not sure why you think I’d have the information necessary to answer your question. I do know who does though if you’re serious about getting it. It’ll probably cost you $200 but the free info might be enough for you.
https://www.whitecoatinvestor.com/physician-salary-and-contract-comparison-data-from-resolve/
$220K feels low for an FP, but then again 6-15 clinic patients in 8 hours 4 days a week sounds pretty chill so maybe the pay should be below average. Dunno. Resolve can get you real data.
Dr Dahle
Sorry for the bother. Appreciate the Resolve info. Please delete my post (number 14 above). Thanks, Sir.
We generally don’t delete posted comments because people who see them later find them useful/interesting. People who want to keep details private generally just email me their questions. Any particular reason for a whole deletion or specific information you want deleted out of your post?
I just prefer to delete whole thing. I do not want there to be any way for anyone to be able to in some way ID me based on the info I submitted. I don’t ever post anything, and I should not have on this post site. Please delete, would be much appreciated. Again, sorry for the bother, and I do thank you for the Resolve info. Respectfully.
How about that? I think that resolves your concerns.
Thank you, Sir, kindly.