Analyzing Physician Compensation – A Beginning

March 11, 2007

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’s Name:  ___________________________  Date _______________

How would you rate your medical practice’s distribution plan?

  • Generous
  • Reasonable
  • Marginal
  • Unfair
  • Disastrous

How would you rate your level of compensation?

  • Extremely over compensated
  • Over compensated
  • Basically fair
  • Under compensated
  • Extremely under compensated

Do you understand the present income distribution plan?

  • Yes
  • No

How would you rate the level of complexity of your existing income distribution plan?

  • Extremely complex
  • Complex
  • Moderate
  • Simple
  • Very simple

Do you feel that your income distribution or compensation plan is adequately achieving its goals?


What do you like most about your existing plan?


What do you like least about your existing plan?


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.

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