It’s a legitimate question. But it’s also a question that doctors don’t pay attention to. Or we assume that the way that we as doctors make money will be dictated to us by the job that we take. But the reality is that the way that we are paid as doctors can have a huge impact on us, not just financially…but on our overall well-being.
An early disclaimer about doctors and money
Already I can hear the complaints. That doctors should not focus on money. That is not why we got into medicine. And as I’ve said many times, I completely agree.
However, to act as though money does not matter is foolish. Our financial well-being is a big part of our overall well-being. Financial issues lead to burnout. They make us worse doctors.
Thus, we need to pay attention to money. Never to the detriment of patient care. But to enhance patient care by making us better, more present physicians, practicing medicine on our own terms.
How doctors make money
There are a ton of different ways that doctors make money.
Let’s list some of the ways out here:
- Institutional profit/loss model
- Private practice profit/loss model
- RVU model
- Base pay/salaried model
- Incentive model
- Holdback model
I’m sure there are many others as well, but these are certainly the most common.
A deeper dive into each model
In a profit/loss model, your income is equal to what you bring in money wise subtracted by what your expenses are. In a pure private practice model, it’s just this simple. Meanwhile, in an institutional profit/loss model, there are often times additional “expenses” that get tacked on…like a “dean’s tax.” Thus, you actually make less than your net profit. This model works well when you are dealing with cash patients or patients with good reliable insurance.
In an RVU or Relative Value Unit model, you are compensated based on the number of RVUs that you perform each year. Each task that you undertake as a doctor, like a patient visit or a procedure, has a given RVU value. Then, each hospital has an RVU conversion factor. Basically, this factor is how much money you get paid per RVU performed. Thus, each year, you make an amount equal to your RVUs performed multiplied by this RVU conversion factor. This model is better when insurance reimbursement is less reliable. Thus you still get paid for unreimbursed care.
A base pay or salaried model is more or less what it sounds like. You get paid a straight salary for the work that you do. Regardless of how much. Or how little.
An incentive and a holdback model are quite similar. It’s really just a difference in perspective. In an incentive model, more money comes your way for meeting certain milestones in your contract. Maybe it’s a production level or a certain number of patients you treat. With a holdback model, you are paid a certain amount except that a certain amount is held back if you don’t meet certain milestones. See what difference a little perspective can make??
How do you want to make money?
This is where the rubber meets the road. Too many doctors give no thought to how they actually want to make money. Or what way will be healthiest for them or best for their overall well-being. Maybe this seems like a stretch but it’s really not.
I am a case and example of exactly this.
I had a number of different job opportunities. Each had a unique payment structure. I’ll list them out here:
- 3 institutional profit/loss models
- 3 private practice profit/loss model
- 1 base pay/salaried
Initially, I didn’t really give too much consideration to my payment model.
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If I make money, that’s what matters. Right? Wrong!
How you doctors make money matters as much as the money itself
I truly believe this.
I am a big proponent of doctors knowing their value and making sure that they are compensated based on their true value.
4 Methods to Defining Your Value as a Physician
But the other side of the coin is considering how doctors like you make that money and compensation.
Let’s use me as an example
Like many doctors and type A people, I will follow the proverbial carrot wherever it goes…even if it’s going over a cliff. I can’t help myself. I love to chase achievement even to my own detriment.
In reflecting on which job opportunity was best for me, I came to the conclusion that an RVU model would not be a good for me. I knew that I would end up chasing RVUs and burning out. Honestly, in my opinion, focus shifts away from patient care to a certain degree with this model.
While a profit/loss model is similar in that production drives income, the production/compensation ratio is more even and tilted to favor the doctor. This was better for me, but still not ideal.
Turns out that a base pay/salaried model is best for my overall well-being. I can focus on patient care completely knowing that I make my fair value. And trust me, that is a key component…that I am being paid my fair value. I know this because I spent a lot of time to know my fair value. I also do not feel like I am being pressured to meet some arbitrary goals that an administration (whether a hospital or private practice) is putting on me. Plus, every 3 years, I get to renegotiate a new contract with a commensurate increase in value.
For me, this is the best system.
But it may not be the best system for you
My point in this post is not to convince you that a base pay or salaried payment model is the best for all doctors. It’s not.
You need to think about what is best for you. And then you need to focus on creating that structure in your contract. It will be a big part of your professional and financial satisfaction which are big parts of your overall well-being. That is the point.
Is this actually negotiable?
This is negotiable.
Actually, everything is negotiable…remember?
So, when it comes time to negotiate or renegotiate your contract, think about how you want tomato money and make that a big part of the negotiations. It’s amazing how flexible these things can be.
And if they are not willing to negotiate, then maybe this isn’t the right job for you. Or maybe the other positives outweigh this negative. That’s for you to decide.
And don’t forget to increase your pie
I alluded to this earlier. But I am a fan of just about all doctors pursuing a side gig of some sort. There are so many options out there that can fit just about every personality time, schedule, and interest.
Side gigs are one really effective way to decrease your dependence on your clinical doctor income. Then maybe you can go to negotiations with a little more leverage. Or it may ease the burden of feeling like you need to reach production milestones…
Interested in learning more about physician side gigs? These post are for you!
- Physician Side Gigs to Make You Passive Money
- How to Create 5 Streams of Passive Income as a Physician
- Is It Stupid to Chase Passive Income as a Resident?
- Doctors & Dollars Episode Recap #11: Side Gig Showdown
- Finance Flash Go! Episode #29: Is a Physician Side Gig Right for You?!
- Doctors & Dollars #16 Recap: 5 Streams of Revenue, 5 Years Out of Training
What do you think? Do you like your payment structure? Does it affect how you feel about your job? Let me know in the comments below!
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