How To Evaluate a Job Offer: Salary + Productivity | Compensation & Contracts | MD&D #37

Evidence based insights into physician compensation, RVUs, contracts, healthcare economics, and personal finances. For residents, fellows, and early-career attendings.

Life and Finances, in Medicine.

Hello again, I especially like this topic. It is a common one. I often find myself explaining how this works, to residents or doctors and nurse practitioners that are interviewing to join our group. Let's imagine this scenario. You're about to graduate and you get a job offer. First congratulations on the job offer. Good for you. Now let's go into the nitty gritty.

Let’s say, your future employer is offering a guaranteed salary of let's say, $300,000, with the possibility to build your income based on your productivity. It all sounds nice and dandy. You have a guaranteed income, providing you with financial security, while you build your practice and if you work hard, the chance earning extra money.

What I just described is a hybrid model. One of many different types of hybrids out there. And although each has its own nuances, they all share the same basis. The employer promises a predictable income and gives you the chance to earn additional income if you meet or exceed certain targets.

Hybrid is a very convenient model, because it helps employers balance their recruitment expenses with your productivity, creating a financial scenario that is sustainable to them and convenient for you.

Like I said, there are multiple hybrid models out there. Let me give you some examples:

-       One employer may guarantee your salary permanently and pay you extra once you exceed a productivity threshold.

-       Another employer may guarantee your salary only for the first two years and then convert you to a purely productivity-based model.

-       A third one may combine base salary and productivity bonuses, with quality incentives, or patient satisfaction, or whether your employer meets their margins, meaning their profits, that is called their organizational performance.

All three scenarios are hybrid models. When comparing hybrid models and establishing the best one for you, there are three very important numbers that you must understand:

The salary they offered you. The threshold that you must reach. And the conversion factor attached to the offer. Let me cover each of these three:

1.        The guaranteed salary

This is the amount your employer offers to pay you regardless of your productivity or any other threshold. A $350,000 guarantee may look very attractive. But you must clarify if the guarantee is permanent, temporary (for how long), conditional (what are these conditions), or recoverable (which means if you don’t reach certain compensation after certain protected time, let’s say your first 2 years, then you may have to repay the difference to your employer with current or future earnings).

But the most important question you should ask is what happens when your guarantee expires?

Imagine your initial offer is a generous $320,000 guaranteed, annually for two years with a requirement of 6,000 wRVUs. Then, after those 2 years your employer transitions you to a productivity-only model of $48 per wRVU. To keep $320,000 in annual compensation, you will need to produce about 6,700 wRVUs. So, what happens if instead of going up, your production drops to 5,500 wRVUs. Your compensation would fall to $264,000. That is a $56,000 drop, although you may believe you are working just as hard as before. That’s why many employers establish a floor. The company is protecting you by not letting your income decrease below a certain percentage if you don’t meet your production.

So, before signing, find out if there is a floor for your compensation and if it is a permanent or a temporary floor

2.        The threshold

If you have a productivity threshold, this is the number of wRVUs that you must generate before you are eligible for extra compensation. It is very important that you know exactly what they are using as a threshold. For example, if you have a guaranteed salary up to 6,000 wRVUs, and extra income above that, your income may not necessarily go up based on the number of the wRVUs you produced above 6,000. But on the company’s collections. Let me explain, if you overpass the 6,000 RVUs of your guaranteed salary, but your employer recovers only 90% of that production from insurance companies and other payers, then you may be getting less than you expected. That is called reconciliation, when your employer compares your productivity with how much money they were able to get from that production. In this scenario your compensation is based not only on your production, but also on their reconciliation of your production.

3.        The conversion factor

Do not confuse your employer's compensation conversion factor with the conversion factor in Medicare’s physician fee schedule. You will see all over the Internet that the conversion factor currently is about $33 plus. That is not necessarily what your employer is going to offer you. That is what they use as a base for their internal calculations and then create their own conversion factor that they use to make you an offer. So, you must ask what the conversion factor was they established to make you an offer. And if there is a threshold based on productivity if your conversion factor will change after you reach that threshold. Because the conversion factor can be adjusted based on the number of RVUS that you produce. Many employers offer you a guaranteed salary based on a specific conversion factor up to a certain threshold. And once you reach that certain threshold, the conversion factor may decrease. In other words, your employer is allowing you to increase your income with extra productivity, but at the same time they are protecting how much they can afford to offer you.

Together, these three numbers (the salary, the threshold and the conversion factor), determine how your productivity translates into compensation. And you must know all three whenever you evaluate a job offer.

Four Hypothetical Physician Compensation Offers

Let’s some examples to make this clearer, let me use four scenarios. In all four of these scenarios, the same doctor produces 8,500 wRVUs a year. Each employer offers a guaranteed base salary of $300,000, with a productivity threshold of 6,000 wRVUs.

That means this doctor is producing 2,500 wRVUs above that threshold. Let’s compare these 4 different models

Model # 1: Fixed Conversion Factor

Your employer pays $40 per wRVU above the 6,000-wRVU threshold, without changing the conversion factor as productivity increases.

Model # 2: Declining Conversion Factor

Your employer reduces your conversion factor as your productivity increases.

Calculation:

Model # 3: Compensation adjusted by collections

Your employer offers $40 per wRVU above the 6,000-wRVU threshold. However, certain employers may adjust your productivity bonus based on reconciliation, in other words, how much of your production your employer gets from insurance and other payers. Let’s assume a realistic 90% collections.

Model # 4: Increasing Conversion Factor

Your employer rewards your extra productivity by increasing the conversion factor once you exceed 8,000 wRVUs.

Calculation:

Can your employer change the compensation formula?

If this provision is in your contract, then, yes, they can. And that could become a major point of discontent for many doctors out there. Some contracts specify that compensation plans can be amended periodically. So, imagine you produced 6,000 wRVUs and your employer offers you initially $55 as conversion factor. And after two years they change the factor to $48, that $7 difference represents $42,000 a year.

Don't negotiate a number you don't understand. I personally like hybrid models. They give you certain stability and at the same time the opportunity to produce more and increase your compensation. You may not be making as much money as in a purely productivity model, but your income can go up significantly if you work hard and you get a fair conversion factor. Plus, you may avoid the roller coaster of a purely productivity model where your income can increase or decrease significantly, from year to year.

But like I always say, your decision has a lot to do with your personality and your personal circumstances. Because life happens, and one year you may be doing great, and the next year God forbid you get sick, or someone in your family requires your attention and you may not be as productive. In those scenarios hybrid models may be very helpful.

1.  You must ask about what happens after your protected salary period.

2.  You must ask about the conversion factor used and how it changes as you reach your threshold.

3.  You must ask what the method was used to set your productivity threshold.

“Ignorance is not bliss. Ignorance is poverty…”

Jim Rohn

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