Thoughts on Salary (part 3) – Example

clientLet’s take a deeper dive into RVU based compensation. Suppose that an organization that wants to recruit you is offering the following salary proposal: two years at a fixed salary, followed by a third year in which it converts to a fixed component PLUS an RVU based bonus. Let’s review the rationale and then look at actual MGMA numbers upon which the offer might be based.

Employer Perspective

The employer knows that it must offer a competitive salary, along with other forms of compensation and benefits, in order to entice you to sign on. For most specialties, there is still moderately fierce competition among employers for solid, well-trained physicians. The number of established physicians available is relatively small in comparison, so most recruiting is aimed at physicians coming out of residency and fellowship training programs.

In order to establish a reasonable offer, most employers are going to use one or more salary surveys to inform them as to what other organizations are paying. In the past, my colleagues and I tended to consult the MGMA (Medical Group Management Association) survey, but there are surveys collected and published by the American Group Management Association (AGMA), by consulting firms like Jackson and Coker, by publications like Medscape, and by many of the larger recruiting firms. Each one has its strengths and weakness, and the results of each are never exactly the same. But they are fairly consistent, taking into account expected differences between the expected respondents to each of the surveys.

The surveys generally present both salary means and salary medians. Employers and recruits tend to focus on the medians because they are less impacted by outliers. The surveys, in addition to listing means and median salary levels, generally provide salary data at the 25th, 75th, 90th and 95th percentiles.

Example

Let’s walk through a simple example in which a salary survey might be used to determine an offer.

Below is a table with hypothetical data about internal medicine physicians. Note that the actual survey has much more information, including collections, total RVUs, worked RVUs, encounters and ratios of the various components, not to mention information about salary variation by years in practice and other factors. But, we need to start somewhere.

Total Compensation
Provider Specialty Geographic Section 10 %ile 25 %ile Median 75 %ile
Hospitalist: IM Eastern 187,950 213,579 240,002 277,429
Midwest 199,346 236,542 270,805 318,437
Southern 199,992 240,248 271,035 329,055
Western 211,319 233,859 266,208 313,180
IM: General Eastern 156,718 192,580 234,115 302,498
Midwest 149,247 189,974 229,430 292,203
Southern 161,125 201,736 255,336 343,348
Western 161,832 190,255 231,346 290,152
IM: Ambulatory Only Eastern 172,119 198,656 252,795 336,068
Midwest 156,170 182,524 215,196 254,747
Southern 148,679 180,468 214,427 263,215
Western 160,866 191,234 214,926 260,329

If you look at this small part of the survey report, you will notice several things. There is a pretty big difference between the highest and lowest paid physicians in every geographic area. And the median salaries for hospitalists are higher than those of traditional internists which are higher than those of outpatient internists.

Further Analysis

If I were a hospital looking to recruit a hospitalist, and my facility was located in the Midwest, I would consider offering a salary close to the 25th percentile for a new graduate, because I know that the new physician will not be able to actively manage as many patients as a more experienced physician, and will therefore generate less billable services.

I would consider other survey data if it they are available. And I would review the compensation for my existing hospitalists.

Here is another set of data to review as we consider how a salary might be considered.

Internal Medicine Salary Analysis – MGMA 2014 Data

Median Values – Midwest Region

Total Comp Comp/RVU Encounters wRVUs wRVU/Enc
Hospitalist $270,800 $71.90 1,870 3,919 1.93
General IM $229,430 $50.94 3,190 4,670 1.50
Ambulatory Only $215,200 $49.96 3,075 4,500 1.43

Here I am trying to provide some insight into the reasons for the varying salaries noted above. The median salaries differ significantly between the three types of internists. Since the hospitalists take care of  a more complex and ill patient population, the average wRVU per visit (1.93) is higher than that of the other two subcategories of internal medicine practices (1.5 and 1.43 wRVU per encounter). That accounts for part of the difference in compensation. But it is also true that the hospitalists are paid more per wRVU. 

The variations in compensation per wRVU among various specialties and locations is a bit more difficult to explain, without looking at specific examples. But I can offer some possible reasons. If there are billable activities occurring that are not captured in the individual physician’s work, some of the revenues and collections may be attributable to the physician and subsequently justify paying a higher payment per RVU. For example, the hospitalist might supervise an advanced practice nurse (APN). The APN would assist in patient care, allowing the physician to see more patients. But the RVUs might be attributed to the APN rather than the physician. Additional collections will be generated for the employer, making it appear that there are more funds generated per physician RVU, even after covering the costs of the APN. If so, then it is reasonable to assign a higher payment per RVU to the physician.

Similarly, in a primary care practice, if the physician is able to see more patients and generate more volume and income by using his staff more efficiently, he/she may be able to generate more billings and collections, which can then be reflected in a higher compensation per wRVU.

I would be very reluctant to agree to a higher salary for a new physician than my current staff, unless the new recruit brings special new skills that the other physicians don’t have. If possible, I will try to construct an offer that pays the same amount per RVU as other physicians, with differences in base salary related to expected productivity.

So, I might agree to pay a fixed salary of about $235,000 per year for the first two years, and an amount during the third year of $60.00 to $70.00 per wRVU above a threshold of 3,000 wRVUs (which correlates with the 25th percentile level of wRVUs for hospitalists in the Midwest). This productivity bonus will generally be paid at the end of the third year, although we might consider paying some of it on a quarterly basis if it looks like the wRVUs are likely to exceed the threshold.

As a good employer, I will help you to get established and build your volume over your first two years of employment. I will also be sharing reports with you that show you your visit volume, your visit distribution by CPT codes and your worked RVUs. And I will be teaching you to understand how your documentation affects coding, which in turn determines the billable amount and the RVU value attached to each patient encounter.

In this way, I hope to offer a fair salary that encourages us to  work together to be productive, while providing some income security during the first two years.

Disclaimer: I am not an attorney and I do not provide legal advice. My role is to provide education and coaching to physicians to help them find a great job and avoid costly mistakes as employed physicians. I strongly recommend that every physician entering into an employment agreement, or any contract, engage an experienced local attorney to assist them in their negotiations.

About johnjurica

Former Senior VP and CMO writes about physician leadership.
This entry was posted in Salary Considerations and tagged , , , , , , , . Bookmark the permalink.

One Response to Thoughts on Salary (part 3) – Example

  1. Pingback: What Physicians Need to Know About Maximizing Income | contract doctor

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