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Understanding Physician Compensation Models and Methods

Jackson Physician Search
October 17, 2017

Today’s physician compensation models are like the healthcare industry: highly dynamic and complicated. Many doctors find it challenging to assess how the compensation package of their first job will align with their personal and professional priorities.

Let’s review some of the approaches involved in compensation packages.

Value-based Measures.

As the healthcare industry shifts toward value-based outcomes, physician compensation is gravitating toward similar value-based measures. Compensation is no longer driven exclusively by patient volume and the number of procedures performed. It is a product of many factors including cost of care, patient experience, quality of care, coordination of care, and productivity.  Typically, productivity remains the largest single element impacting physician compensation. But, it is important to recognize value-based factors, which now comprise up to 20% of total compensation.


Introduced in the early 1990’s, Relative Value Units (RVUs) have become more significant in determining everything from physician compensation to medical practice buyouts and consolidations. In general terms, the physician’s component of the RVU accounts for: time; technical skill and effort; mental effort and judgment; and stress to provide a service. You can read more about RVUs here.

Practices are using work RVUs and a practice-specific conversion factor to determine compensation. Another typical approach is predicated on using a base salary plus a bonus calculation based on the number of RVUs generated.


As if compensation packages weren’t complicated enough, organizations are utilizing an approach referred to as stacking. This is an arrangement where physicians are performing multiple roles and being compensated individually for each. For example, a hospitalist has a full-time schedule where they are in the facility every other week. During the off-weeks, the hospitalist works shifts in the critical care unit, and also puts in 10 hours a week as the medical director of the hospitalist program.  By the time all of those responsibilities are accounted for, the hospitalist’s total compensation package is greater but more complex.

More Compensation Components.

Compensation begins with but doesn’t end with a base salary.  Most employers combine an agreed upon salary with variable components that affect total compensation. You need to determine – and be comfortable with – how much of your pay will be based on your individual performance, organizational performance and other factors like patient satisfaction. It is fair to ask how those variables have affected compensation in recent years – and why.

Potential employers routinely offer first-year incentives, such as signing bonuses, student loan repayments, and reimbursement for relocation, licensing and board certification. Looking further ahead, there may be opportunities to earn more by taking on supervision of advanced practitioners, precepting medical students, or serving as a medical director. Depending on your tolerance for risk, negotiating ownership shares is another way to potentially benefit financially from the future growth and performance of a practice.

How Location Affects Physician Compensation.

Geographic region and market size significantly influence compensation and how far your income will stretch. So, it is important to adjust for the cost of living in dollars and assess the location with your lifestyle expectations in mind.

Work schedules, after-hours activities, vacation coverage, and weekend shifts influence work/life balance. It’s important to know what a future employer expects, and how they assist physicians in managing stress, avoiding burnout and cultivating career satisfaction.

With all of the complicating factors contributing to compensation, physicians have to do their homework to determine which opportunity offers a fair package, a satisfying work environment, strong cultural fit with the organization and a happy life outside of work.

Today’s physician compensation models are like the healthcare industry: highly dynamic and increasingly complicated.  Many doctors find it challenging to assess how the compensation package of their first job will align with their personal and professional priorities.  As a resource for physicians, Jackson Physician Search has introduced a newly updated physician compensation resource center includes an interactive calculator that enables you to:

  • Easily access customized physician compensation data
  • Drill down by specialty, state, and type of location
  • Get instant results and have your report emailed to you

If you have any further questions about how physician compensation works, please connect with our recruiters for information and guidance.

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