ANALYZING PHYSICIAN COMPENSATION – A BEGINNING
Arguably the most controversial issue in any medical practice is physician compensation.
Is the practice dividing its income in a fair way? If the practice has be acquired by a third
party, or if it is being managed by a third party, are the physicians being compensated at a
reasonable and fair level? The first step to analyzing physician compensation is to
compare the doctor or doctors’ compensation to industry medians. These medians can be
obtained from the Medical Group Management Association and the American Medical
Group Association. Do the physicians appear to be under compensation when compared
to their peers? If so, make sure you also analyze productivity measures such as work
relative value units, gross charges, and patient encounters.
The next step in the analysis of physician compensation is to review the practice’s current
compensation formula, along with any related computation worksheets for a sample
period. This will allow you to provide a cursory review of the formula to understand how
the medical practice incentivizes its physicians and to look for any area of the formula
that could be improved. When analyzing any compensation formula, it is imperative that
you have an understanding of the physician’s perception concerning that plan. Therefore
it may be beneficial to gather some information on the physician’s current perception of
the compensation plan.
This part of the analysis can aid a medical practice in addressing their sensitive issues and
sometimes provides them with a building block for addressing changes that need to be
made within the compensation formula. Shown below is a very simplified questionnaire
which can be utilized during physician interviews or simply handed-out to the physicians
and returned confidentially to the evaluator or the practice administrator to provide a
better insight into how the income distribution plan is performing in its present
environment. This questionnaire has been used successfully during many of my own
practice assessments, as well as in individual physician compensation analysis
engagements. It may have to modified so as to addresses unique compensatory issues
and situations of the practice being evaluated.
PHYSICIAN QUESTIONNAIRE
Compensation Plan
Physician’s Name: ___________________________ Date _______________
1. How would you rate your medical practice’s distribution plan?
 Generous
 Reasonable
 Marginal
 Unfair
 Disastrous
 Under compensated
 Extremely
under compensated
1. How would you rate your level of compensation?
 Extremely
over compensated
 Over compensated
 Basically
fair
1. Do you understand the present income distribution plan?  Yes
 No
2. How would you rate the level of complexity of your existing income distribution
plan?
 Extremely
complex
 Complex
 Moderate
 Simple
 Very simple
5. Do you feel that your income distribution or compensation plan is adequately
achieving its goals?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
6. What do you like most about your existing plan?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
7. What do you like least about your existing plan?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
8. What would you recommend as a change to the existing income distribution or
compensation plan?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
In these turbulent times, there is an extreme amount of pressure on physician incomes.
This fact is no secret to anyone. It seems the only time I’m called on to perform a
compensation analysis is when all hell as broken loose – in other words, there is mutiny
by one or more physicians about the fairness of the current compensation formula. It is
management’s responsibility to make sure it has the pulse on current physician thinking
in order to avoid such a situation. Using the above checklist is an excellent place to start.
Reed Tinsley, CPA is a Houston-based CPA, Certified Valuation Analyst, and healthcare
consultant. He works closely with physicians, medical groups, and other healthcare entities with
managed care contracting issues, operational management, strategic planning, and growth
strategies. His entire practice is concentrated in the health care industry. Please visit
www.rtacpa.com