How Some Physicians Make Above the 90th Percentile (And Why the “How” Matters)

In our work with health systems, we are sometimes asked to weigh in with an FMV compensation range that can be used as a retention strategy for a high-value employed physician. These negotiations commonly involve a “flight-risk” physician whose employment is essential for a critical service line. In such cases, the employer is typically highly motivated to retain the physician. The tricky part is finding a way to satisfy the physician while maintaining a tenable precedent for compensation terms going forward.

From time to time during these conversations, we find the employed physician is requesting compensation above the market’s 90th percentile based on anecdotal accounts of another same-specialty physician who earns double or triple the going annual rate in a nearby practice, or in the neighboring health system just up the road. Understandably, the physician’s head has been turned and, one way or another, the perceived incongruity must be settled for the good of all parties.

For health systems that face recruitment challenges due to geographic location, rumors of local compensation discrepancies can derail contract negotiations. Understandably, such tales could sour overall professional satisfaction among employed physicians who may buy in to the chatter and feel undercompensated.

The facts behind the rumored earnings directly inform and impact BFMV’s work. Therefore, a broad-stroke understanding of the basis for any (real or imagined) higher compensation can help preserve existing arrangements in good faith, allowing the system to usher in appropriate increases and incentives. In our experience, in the absence of extenuating circumstances, extreme discrepancies in physician earnings within a regional specialty are rare.

As suggested by the fact that compensation above the 90th percentile is inherently atypical, our observations have confirmed that these occurrences often arise when there are other entrepreneurial or enterprise factors involved — typically in tandem with practice or clinic ownership, expert speaking or training platforms, or patent royalties. Sometimes, the physician is simply a “workhorse” generating wRVUs markedly above the 90th percentile, and who may also be charged with additional call coverage, leadership obligations, or medical director services. In the case of private practice ownership, we have seen examples of high profitability due to extraordinary efficiency in practice management, sometimes hinged on particular personnel and the significant value-add of even one or two individual staff members. Any combination of these elements may be present in a top-tier income scenario and would be difficult or even impossible to recreate from scratch 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 anecdotal evidence. Assuming the rumor 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:

Is the physician in question 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 as compensation in a private practice doesn’t directly translate to W-2 income (ex. employee benefit packages may not be comparable, etc.)
Does the physician have a profit-share in related enterprises (e.g., imaging centers, ASC’s, 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.
Might the physician be providing additional shifts/call coverage/leadership services for a health system or practice?
Does the physician receive royalties or other fees (e.g., training, speaking, patent(s))?
At what level is the physician’s production (i.e., patient volume or wRVUs)?
Does the 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.