Physician Compensation

By Patricia S. Hofstra

Today’s blog addresses compensation and benefits; a complicated subject of upmost interest to our clients. The blog touches on major points to consider regarding compensation and benefits. Physicians and physician groups must consult with compensation experts and legal counsel to insure that they understand the best possible, regulatory compliant compensation model for their needs. There are pros and cons and multiple variations of each model. 

Common compensation models and a few pros and cons include:

  • Salary with or without bonus or productivity incentive: offers security; but without bonus or productivity incentive can encourage minimum work efforts.
  • Minimum income guarantee with productivity incentive: offers security and encourages and rewards effort; but may create an over-utilization incentive.
  • Productivity based compensation: encourages and rewards hard workers; may create an over-utilization incentive.
  • Collections based compensation: high degree of variability based on factors that may be beyond the control of the provider.
  • Equality: simple to administer; high producers required to subsidize low producers.
  • Capitation: rewards cost efficient and cost effective care; high degree of variability based on factors that may be beyond the control of the provider.

A word about hospital/physician compensation. Physicians exploring compensation arrangements with hospitals and health systems will inevitably hear the term “fair market value”.  In order for a hospital or health system provider to satisfy Stark and anti-kickback federal regulations, compensation (including benefits, signing bonuses, relocation benefits, loan repayments, and everything else provided to the physician) must not exceed the fair market value of the services provided by the physician and compensation may not vary with the volume or value of referrals. Fair market value is often established for hospitals and health systems by independent consultants based on multiple factors. Fair market value can often be negotiated based on unique circumstances and is frequently driven by the basic economic principles of supply and demand.

Hospitals often compensate physicians, in the early stages of employment, using a minimum income guarantee with a productivity incentive model easing into a full productivity compensation model based on the services the physician personally performs (e.g., per wRVU or similar methodology). Hospitals cannot compensate a physician based on volume or value of the ancillary services,  the physician may order.

Physician groups have greater flexibility in the way that they can compensate group members.  For example, physician groups may also compensate physicians based on “incident to” services, or sharing of profits. However, compensation based on the volume or value of referrals of services, not performed by or incident to the services performed by the physician, is prohibited.

Employers sometimes pay relocation expenses, signing bonuses, student loan payments, or other similar items, and often require some form of repayment, if the physician leaves within a certain period of time. Such payments are frequently structured as forgivable loans to facilitate repayment, with the repayment obligation secured by a note or other security instrument.  There are tax and credit score ramifications to such payments that physicians must take into account when accepting compensation, that requires repayment in any form, including forgivable loans.


Benefit packages vary widely with based on whether the employer is a small or large physician practice, a hospital or health system or another type of provider. Benefits generally include, e.g., paid time off, CME allowances, health, disability, life and malpractice insurance, and retirement. Some private practices offer additional benefits, such as cell phones and car allowances. Beware that certain benefits may have tax consequences.

Benefits should not be provided to independent contractors; as the IRS may claim that doing so makes the independent contractor an employee for tax purposes.

A few additional things to consider.

  • Watch for clawbacks from compensation; such as refunds, recoupments and indemnification obligations
  • Compensation obligations that extend beyond the termination date of the contract
  • Ability to audit productivity and collections to assure accurate compensation

Physician compensation is complicated in terms of compensation formulas, as well as legal and regulatory requirements. There is no one size fits all methodology. Physicians, physician groups, hospitals and health systems should all seek guidance from qualified consultants and legal counsel in reviewing and evaluating the options.

Patricia S. Hofstra represents a broad range of healthcare clients, helping them with day-to-day legal issues, including corporate matters, mergers, transactions and regulatory compliance.

This article was originally posted on the KZA blog on October 10, 2018

© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.

The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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