How Some Physicians Make Above 90th Percentile Compensation

In our work with health systems, we sometimes consider an FMV range for compensation that can be used as part of a retention strategy for a high-value employed physician. These situations usually involve a “flight-risk” physician whose employment is essential for a critical service line, and whom the employer is typically highly motivated to retain.

From time to time, during related negotiations, such a physician requests compensation above the regional market’s 90th percentile based on anecdotal accounts of a nearby comparable physician earning double or triple the going annual rate in the region. Understandably, the physician’s head has been turned, and the perceived gap must be addressed.

Rumors of regional compensation discrepancies can derail contract negotiations, especially for health systems facing geographic recruitment challenges. In these cases, the facts in play are key to informing the next steps. A broad-stroke understanding of the basis for any (real or imagined) higher compensation can help preserve existing employment arrangements in good faith and allow the system to implement appropriate increases and/or incentives.

Since compensation above the 90th percentile benchmark is inherently atypical, these occurrences are usually indicative of entrepreneurial or enterprise factors, such as practice or clinic ownership, expert speaking or training platforms, or patent royalties. Sometimes, the high-earner physician is simply a “workhorse” generating wRVUs beyond the 90th percentile, and who may also be providing additional call coverage, leadership roles, or medical director services. In the case of private practice ownership, we've seen examples of high profitability due to extraordinary efficiency in practice management, sometimes hinged on particular individuals and the significant value-add of even one or two high-capacity staff members. Any of these elements may be combined in a top-tier income scenario and would be difficult or impossible to recreate in most health system employment settings.

For productive contract negotiations, a good goal is for both parties’ positions to be backed by sound data, not just anecdotes. Assuming the rumor of high earnings is true, which may take some digging to confirm, in weighing the bearing of the local “high earner,” here are some worthwhile questions to consider:

1. Is the high-earner physician employed in a similar capacity, or is he/she engaged in private practice (particularly, with an ownership stake in the practice)? The comparison may not be apples-to-apples because compensation in a private practice doesn’t directly translate to W-2 income (ex., employee benefit packages may not be comparable, etc.)

2. Does the high-earner physician have a profit-share in related enterprises (e.g., imaging centers, ASCs, med spas, labs, etc.)? It should be noted that these ventures typically involve/require some degree of business risk and/or leverage incurred by physician-owners.

3. Might the high-earner physician be providing additional shifts/call coverage/leadership services for a health system or practice?

4. Does the high-earner physician receive royalties or other fees (e.g., training, speaking, patent(s))?

5. Does the high-earner physician generate unusually high levels of production (i.e., patient volume or wRVUs)?

6. Does the high-earner physician’s practice have an exceptionally profitable operating structure?

   
   
   
   

To provide meaningful consultations for our clients, we study the market from global and national trends to the community level, to the level of individual providers. Contact BFMV for assistance in determining fair market value compensation for all types of physician contracts.