Key factors for today's physician compensation formulas

Most physicians today, even those employed by hospitals or health systems, are no longer paid a straight salary. Rather, physicians' compensation is determined largely by a host of productivity targets and other factors. Although institutions currently buying physician practices are wiser than their predecessors in the 1990s, a recent article in the American Medical News notes, there are a number of key considerations physicians and employers should address when setting or evaluating compensation formulas.

The process of developing financial and productivity targets usually begins using benchmarks developed by organizations such as the Medical Group Management Association (MGMA) or the American Medical Group Association (AMGA) or use combinations of available data. While it maybe be unwieldy for individual physicians to purchase and analyze the data on their own, they should be ready to ask potential employers to provide the data used as a basis for an offer.

For example, according to MGMA's Physician Compensation and Production Survey: 2010 Report Based on 2009 Data, released June 22, primary care physicians are paid an average of 52 cents for every dollar collected by a hospital-owned practice, but only 47 cents in a nonhospital-owned practice.

As for year-over-year increases, AMGA's 2010 Medical Group Compensation & Financial Survey found that 76 percent of the specialties experienced increases in compensation in 2009, with the overall average increase around 3.8 percent. The primary care specialties (excluding hospitalists) saw about a 3.8 percent increase in 2009, while other medical specialties averaged an increase of 2.4 percent and surgical specialties averaged around 3.8 percent.

After looking at industry data, employers should next turn to a physician's track record, according to AM News. If a physician already is established in a community, productivity targets should factor in financial information from the doctor's past three years in practice. For new doctors, projections can be made using other available demographic information.

Another piece of the puzzle is the actual demand for a particular physician's specialty in a given community, which should be commensurate with what the physician is expected to achieve. "I have seen physicians who are put on production and are willing to work hard, but the demand is not there," said Jeff Milburn, one of MGMA's principal consultants.

Finally, there should be a plan in place for when productivity targets are missed."We don't fire people for low productivity," said Adam Singer, MD, chair and CEO of IPC: the Hospitalist Company based in California. "If a physician has minimal volume, there are usually other stressors" in his or her life, he added. "We work with him or her."

Sometimes, however, lower productivity is a choice--either for physicians who desire better work-life balance or employers who set caps on compensation formulas to avoid burnout and maintain quality, which may lower the risk of medical malpractice.

To learn more:
- read this article from American Medical News
- see the press release from AMGA

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