Understanding Physician Compensation in Private or Multi-Specialty Practices

You may have received advertisements and flyers in the mail highlighting attractive starting or base salaries. This is the way many practices lure young graduates. A high base salary is great, but often these base salaries are only guaranteed for one to two years. After that point, you are likely to be compensated on some form of a production model that takes into account your work output or how much revenue your services bring to the employer. Keep in mind that a typical general dermatologist who works four to five days a week and sees an average of 30 patients per day will generate for their employer approximately between $900,000 to $1,200,000 yearly on average. This is not the money you take home, but the money that your employer is making directly from your professional services. And this is the reason why many dermatology practices and multi-specialty practices are eagerly looking to hire dermatologists. Interested in the rise private equity models? Click here.

Comparing compensation models

It is important that in addition to the base salary, you look carefully into the specifics of the productivity-based compensation model that will likely take effect once your guaranteed base salary expires. If you are a busy dermatologist, your total productivity-based compensation will likely far exceed your base salary. You may agree to work at a practice that offers a very attractive base salary only to find out later that the production-based compensation is not as competitive. Productivity-based compensation is based on either net collections (the total amount of money you bring in for the practice — payments made by patients and insurers) or total number of work RVU (a metric of work output).

In the collections model, you are paid a certain percentage of the total money that you generate for the practice. The common range can be anywhere between 30-50 percent — obviously the higher percentage the better for you. For example, if you negotiate to keep 40 percent of net collections, and if you generated $900,000 in collections, your salary would be $360,000. A downside of this model is that the payor mix of your patient population (the types of insurance your patients have) will affect your net collections and thus your net pay.

In the work RVU model, you are paid a set amount of dollars per work RVU that you generate. A little explanation of work RVUs (wRVU): Each procedure or activity that a physician performs is associated with a wRVU value. This value is fixed by national committees and takes into account the amount of time, skill and effort required for each activity. For example, the wRVU value of an established patient level 3 visit is 0.97. A new patient level 3 visit is 1.42 rRVUs. A biopsy is 0.81 wRVUs. In the wRVU compensation model, the physician compensation is calculated by multiplying the total wRVUs performed by a variable called the conversion factor (CF). The CF is set by your employer and may be negotiated. The CF may be anywhere between $47-60 dollars per wRVU (sometimes even higher) — of course, the higher the better. For example, if your conversion factor (CF) is $52 per wRVU, and if you produce a total of 7500 wRVUs in a year, your total salary will be $390,000. As compared to the collections model, the benefit of the wRVU compensation model is that you consistently get paid the same amount for each service regardless of the patient’s insurance type.

There are several databases that are available such as the MGMA physician survey that can help you understand the median compensation of dermatologists by geographic region, the median total number of wRVUs generated, and the median value of the conversion factor. These values can help you determine whether the offers you receive are competitive and can help provide data to help in your negotiations.

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