Income Structure is Key to Physician Recruiting

A second way to structure production bonuses is through net collections. In the net collections formula, income is based on all collections associated with the physician's provider number, and is relatively easy to track. There are two general ways in which physicians receive remuneration through net collections: a 100% of collections, minus overhead model, and a collections threshold model.

With 100% of collections (sometimes referred to as "eat what you treat"), physicians keep whatever they collect after their salary and overhead are paid for. Production is generally defined as collections for the professional component, but technical fees and revenue generated by non-physician providers can be used in the formula if the physician has these in the office and the associated expenses are factored in as overhead. In the collections threshold formula, a threshold is set high enough to cover the candidates' salary, benefits, and expenses. The candidate then receives a percentage of collections exceeding the threshold amount (usually 50%).

Production can also be based on practice volume measures, such as Relative Value Units, generated by physicians or on patient encounters. Finally, there is a growing movement to reward physicians not only on volume measures but on qualitative measures, such as outcomes data and patient satisfaction scores. These factors may be combined with volume measures to create a hybrid volume/outcomes based incentive model.

Though many hospitals are moving toward employing physicians, there are still circumstances in which hospitals may wish to recruit doctors into traditional, solo private practice settings. The solo practice model can be particularly appealing to established physicians with a strong entrepreneurial bent who value practice autonomy.

Compensation in this setting usually is structured in the form of an income guarantee provided by the hospital to the physician. The income guarantee acts as a subsidy for the first 12 to 24 months a physician is in practice, ensuring the doctor of a base of monthly earnings. The subsidy must be repaid to the hospital, but outstanding amounts the physician may owe on the subsidy can be "forgiven" provided the physician remains in the community for a stipulated period of time. In the last year, 16% of Merritt Hawkins & Associates' search assignments featured income guarantees.

Knowledge of these and other physician incentive structures will become increasingly important as physician practice models continue to evolve and as healthcare reform ushers in new physician payment systems.