Physician Median Compensation

Physician compensation models often rely on published survey information.  Common sources include the MGMA (Medical Group Management Association), AMGA (American Medical Group Association), and Sullivan Cotter.  Overuse or misuse of the median compensation figures from these surveys is an issue which health systems and compensation valuation experts encounter on a frequent basis. Two well known figures in healthcare valuation, Mark Dietrich and Tim Smith, refute the notion that median compensation is a floor value which is needed to retain physicians.

Physician Recruitment and Relocation

Health systems have often used the argument that it is not possible to recruit and train physicians unless they pay at least the median amounts reported in the surveys.  This is a widely held misconception which may lead to compliance issues.  Dietrich and Smith advocate setting compensation based on RBRVS (resource based relative value scale).  They cite research showing that physicians a less likely to relocate than other professions. Studies have shown that two-thirds of physicians remain in the states where they attended residency, fellowship, or other training.  The exception is for more difficult to recruit subspecialities in certain markets.

Commercial Reasonableness

Issues with many of the surveys include the fact that they are not based on random samples and some sample sets are too small to be statistically relevant.  Additionally, a large amount of the respondents are employed by hospitals.  Compounding this issue is the commercial reasonableness consideration.  Hospitals who pay physicians robust salaries while losing money on the operation of their practices run an elevated risk of not passing a commercial reasonableness test.  This was the basis for action against Adventist and North Broward Hospital District and will continue to be an area of focus for the federal government and other regulators.  Migrating to an RBRVS based system is one of multiple options health systems can embrace to reduce their compliance risk.

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2 Comments
  • Lean Methodology
    March 6, 2016

    How does the resource based relative value scale work within the physician compensation surveys?

    • HealthMerger
      March 6, 2016

      The resource based relative value scale is based on RVU’s (relative value units). The physician work component is known as the wRVU. This is one method to more objectively determine the inputs a physician provides in order to generate a service. Health systems will pay a certain rate based on the number of wRVUs the physician produces and thus can pay productivity based compensation.

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