The Dangers of Physician Productivity Compensation

Some employers take a chance on hiring new physicians, shifting the risk of insufficient work to the physician through physician productivity compensation.
physician productivity compensation

Not that many years ago, every new physician got a guaranteed base salary, with perhaps some sort of physician productivity compensation program.  The vast majority of employers still provide a guaranteed salary to physicians, but recently my review of physician employment agreements (which includes an MGMA compensation analysis) indicates that the amount of the guarantee and the length of the guarantee period seem to be steadily eroding as employers feel the pinch of declining reimbursement.

In my opinion, an employer should not bring on a new physician unless that employer is certain that there is sufficient demand to keep the physician busy.  I don’t think that the risk of having enough work should fall upon the new physician’s shoulders.  Unfortunately, you will find that there are employers out there who are willing to take a chance on hiring a new physician – and “cover the bet” by shifting the risk of insufficient work to the physician solely through physician productivity compensation.

Within law firms, paying lawyers based upon the business they personally bring in is called “eat what you kill”.  For obvious reasons, this terminology is rarely used in medical practices.  However, the “eat what you kill” methodology of compensation is becoming increasing common in physician employment contracts, so you must understand how this methodology can affect you.

The concept of paying a physician based on  productivity hardly seems unfair at first blush.  After all, if you’re not “pulling your weight”, why should you bring in the big bucks?  If there is sufficient work to keep you busy, then it seems completely appropriate to penalize you if you are unable or unwilling to perform at the same level as your colleagues.

You know that the practice of medicine requires total dedication.  You also know that patients cannot be treated if they are not seen.  What you don’t know is how many patients are going to present to a given employer.  The hottest practice in town (including a hospital practice) can get hammered when a competitor (yes, this term is used, especially by hospitals) hires a “superstar”, or buys the latest medical gizmo.

I have seen medical practices decimated when one physician becomes impaired, especially when there is a spectacular burn-out.  I have been involved in situations where a surgeon was ejected from the OR when a nurse smelled alcohol on the surgeon’s breath; where a security cam picture of the physician breaking into the drug cabinet was introduced into evidence; and even an instance where a physician called to sign a death certificate at a nursing home performed what was presumably meant to be a comedy routine involving treating the corpse as a puppet in front of the family.

When patients or referral sources become leery of a medical practice, patient volume can be drastically reduced.  This reduction will impact the less senior physicians most dramatically.  The senior physicians are likely to have a patient base that will come to that physician no matter what another physician in the practice may have done (or been accused of having done).  It is the less senior physicians who are in the process of building their practices that get hit the hardest in these scenarios.

I passionately believe that an employer should base the bulk of a new physician’s compensation on a base salary.  Of course, there can be protections for the employer if the physician isn’t working.  For example, most contracts will allow an employer to terminate your employment without cause upon reasonable notice, so a turn in fortunes won’t doom the employer to paying you a salary when you simply aren’t working very hard (if it is your fault or not).

When I do a physician contract review, I always use Medical Group Management Association benchmarks to analyze the physician productivity compensation proposal.

You may also be interested in my post about the negotiation of physician employment agreements.

If you would like me to review your physician employment agreement, you can start your review.  If you would like to talk to me about your special circumstances, feel free to set an appointment.

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Dennis Hursh

Dennis Hursh has been providing healthcare legal services in Pennsylvania since 1982. Since 1992, he has been a physician's lawyer serving as Managing Partner of Physician Agreements Health Law, the first law firm in the country to focus exclusively on physician employment agreements. Dennis has devoted his life to serving physicians and medical practices. He is the author of the definitive book on physician contracts "The Final Hurdle - a Physician's Guide to Negotiating a Fair Employment Agreement, and a frequent lecturer on physician employment agreements.

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Physician Prosperity Program

How It Works

After purchasing the physician contract review, you will receive an email asking you to transmit the agreement and any concerns you have to me. Many physicians do this by email, but I will be available by phone, too. In three business days from the time you purchase the Physician Prosperity Program® and transmit the draft physician employment agreement along with any concerns you have about the agreement and the information I will need to perform the MGMA analysis, you will receive a detailed physician contract review letter from me.

After you receive my physician contract review letter, you will have the opportunity to discuss it with me, to make sure all of your concerns were met, and to correct any factual inaccuracies, or to point out things that were verbally promised but didn’t make it into the physician employment agreement. These discussions, and revisions of the letter following these discussions, are included in the initial fixed fee.

Once you are completely comfortable with the physician contract review letter, you transmit the letter to your potential employer.