By Stacey Ritzen, WCI Contributor
Understanding physician compensation models can be a crucial part of the job hunt, as various hospitals and medical organizations employ different ways of compensating their doctors. Depending on your specialty or the number of hours you plan on working, the physician compensation model your employer uses can make a huge difference in your bank account. And here, you thought simply collecting a paycheck would be the most straightforward part of your medical career.
To help shed some light on the subject, we’ve put together this guide to walk you through the various models of physician compensation and outline the pros and cons of each.
Straight Salary (or Base Salary Plus Bonus)
Getting paid a salary, or value-based care, is probably the most straightforward physician compensation model—the physician accepts a job offer for X amount annually and signs a contract to that effect. The physician is then paid that amount regardless of the number of patients seen, the quality of care, or their overall productivity.
A base salary plus bonus model works similarly to a straight salary model while incentivizing physicians to meet specific goals in terms of quality and productivity. The bonus model may also include additional factors such as patient satisfaction, taking emergency calls off-hours, or participating in other initiatives within the organization.
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Revenue Minus Expenses
Many private practices use revenue minus expenses as a standard physician compensation model. This plan effectively determines compensation by factoring in the amount of revenue the physician brings to the practice, subtracted by their share of the overall practice expenses. While this model encourages physicians to reduce practice costs, it doesn’t allow for the transition from volume-based compensation to value-based care.
Aside from reducing costs, the revenue minus expenses model does not incentivize physicians in the way a base salary plus bonus model does, regarding patient satisfaction and other initiatives. Another downside is that the physician is also responsible for tracking and allocating funds, so they may find themselves spending a lot of their time bookkeeping instead of treating patients.
Relative Value Units (RVUs)
Relative Value Units (RVU), otherwise known as straight productivity or volume-based care, is a form of Resource-Based Relative Value Scale (RBRVS) and also the most common physician compensation model used today. But that doesn’t make the concept any less confusing. RVU-based compensation determines how much money medical providers should be paid using a system dictated by government programs such as Medicare and Health Maintenance Organizations (HMOs) or private insurers.
The RVU model is designed to incentivize physicians to boost productivity by increasing the reimbursement rate based on the overall volume of patients and the value of the service provided. This model also standardizes service charges across a variety of different medical specialties and hospital systems—more complicated procedures and services pay more, and quick appointments with easy patients pay less.
Another unique factor of RVUs is that it takes time for a practice to get reimbursed for their services. Medicare, Medicaid, and private insurers all deal with their own individual practices, procedures, and payment schedules. On average, it takes anywhere from 14-30 days for Medicare to process and electronically pay out a claim.
How Is RVU Compensation Calculated?
The formula for RVUs includes three individual RVU components: physician work, practice expense, and malpractice expense. This adds up to approximately 52%, 44%, and 4% of the total RVU, respectively.
Physician Work RVUs
Physician work RVUs (wRVUs) measure the work that goes into performing a procedure or service. These variables can include but are not limited to technical skills, patient risk, decision-making, the physician’s time, and their physical and mental effort.
Practice Expense RVUs
Practice expense RVUs factor in the overhead expenses and labor costs of the medical practice, including office supplies, staff salaries, medical equipment, rent and utilities, and other miscellaneous costs.
Malpractice RVUs
Malpractice RVUs reimburse the organization for the estimated costs of medical malpractice (or professional liability insurance).
These three individual RVUs are multiplied by a Medicare geographic practice cost index, aka the GPCI adjustment, which accounts for the disparity in wages and overhead costs across different parts of the country. In other words, a physician working in New York City is going to be making more money than a physician working in, say, Tulsa, Oklahoma.
The total of those three geographic RVUs is then multiplied by the conversion factor determined by the Centers for Medicare & Medicaid Services (CMS) to calculate the total cost for services. To make things even more tricky, CMS implements an annual change in the dollar conversion factor—which was set at $34.61 in 2022, down 28 cents from $34.89 in 2021.
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RVU vs. Salary Models
As you’ve no doubt gathered by now, there are pros and cons to the straight salary-based compensation model and the RVU model. But the primary difference is that a straight salary provides the security of a standard paycheck regardless of hours worked, while RVUs reward those physicians who are more productive. The easiest way to think about it is by comparing commission-based and non-commission-based roles in industries outside of the medical field.
Salary-based physicians may not have the same pressure to see a greater volume of patients. However, that fixed income can also limit their earning potential. From an organizational standpoint, salaried medical professionals also have less of a financial incentive to increase productivity or participate in initiatives.
Meanwhile, physicians who are paid by an RVU model may have the ability to make more money, but that can also contribute to longer hours, added stress, and an increased likelihood of burnout.
Advantages of RVU-Based Compensation
The primary advantage of RVU-based compensation is that it rewards hard-working physicians who take on more work, treat more complex patients, and perform more challenging or additional procedures. As a result, this model also encourages overall efficiency and provides an industry-wide standard to measure productivity and compensation.
On the other hand, with a standard salary model, a physician who sees three patients per hour is paid the same as a physician who sees one patient per hour.
RVU-based compensation also offers added opportunities to grow the income of a practice by leveraging the type of patients seen and services provided, and it allows that practice to choose which types of insurance to accept.
Disadvantages of RVU-Based Compensation
In addition to long hours and added stress, RVU-based models can foster a highly competitive work environment among physicians attempting to out-bill one another. The inherent complexity of the model can also contribute to administrative challenges, and they tend to benefit employers over less financially savvy physicians.
From a patient standpoint, value-based care may be more beneficial since RVU-based models prioritize procedures, testing, and documentation rather than the overall quality and coordination of care. Practices also may be discouraged from accepting lower-paying (and therefore) less lucrative Medicare and Medicaid patients.
Ancillary services such as patient outreach, postsurgical care, mentoring residents, and teaching students are also generally uncompensated using the RVU model.
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Average RVU Per Specialty
Not all medical specialties are created equal, and those looking to maximize RVU-based compensation may be wondering exactly what the breakdown looks like. A 2017 survey conducted among 92,000 physicians (via Statista.com) unsurprisingly found that the average annual RVUs skewed highest for procedure-heavy specialties, with anesthesiology, ophthalmology, and gastroenterology topping off the list.
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- Anesthesiology: 10,891
- Ophthalmology: 8,711
- Gastroenterology: 8,264
- Orthopedic Surgery: 7,848
- Urology: 7,649
- Cardiology: 7,413
- Dermatology: 7,329
- Emergency Medicine: 6,906
- Obstetrics/Gynecology: 6,853
- General Surgery: 6,736
- Pulmonology: 5,768
- Pediatrics: 5,299
- Family Medicine: 4,908
- Internal Medicine: 4,891
- Rheumatology: 4,821
- Oncology: 4,788
- Neurology: 4,737
- Endocrinology: 4,677
- Psychiatry: 4,079
Bottom Line
Learning about physician compensation, whether it's based on the complicated RVU model or the easier-to-understand approach of the straight salary, puts you in a better position to build wealth. When you know how compensation works, you can make a more educated decision about how you want to be paid, how to work with employers, and how to manage your medical practice in the future.
As a doc, you have valuable knowledge and information. Various companies want that knowledge, and they are willing to pay you for it. If you're interested in starting a side hustle as a paid survey-taker while also making a difference in the medical field, check out our favorite physician survey companies today!
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