Top 3 Compensation Models for Practice Partners

Author: Dana Jacoby

Physician compensation models are complicated to begin with, and every practice has a different philosophy on exactly how to handle pay structures for top physicians. When new partners join a practice, whether through a merger or acquisition, or by moving up through the ranks in a more traditional sense, these compensation models need to be assessed for fairness and efficacy. There are also important legal considerations to remember when choosing a new model for compensating practice partners and partner physicians.

Here are Vector Medical Group’s top three compensation models for practice partners to adopt in 2022, based on ease of implementation, universal fairness, and flexibility. We’ll discuss some of the pros and cons of each physician compensation model, so that you can assess which compensation model makes the most sense for your practice partners. As always, if you need a customized compensation model solution for your medical practice, our experts at Vector Medical Group are happy to help talk you through the best solution. Feel free to book a 15-minute consultation today.

Straight Salary Model (With or Without a Bonus Structure)

Perhaps the most straightforward partner compensation model (and therefore one of the easiest to implement at your practice) is the straight salary model, wherein each physician and partner agree upon a set base salary for the year. While a straight salary plan might seem like the most fair compensation model on paper, depending on what amount and for what your competitors have decided to pay, partners in your organization might feel the amount is unfair based on the market.

A straight salary model discourages unhealthy competition, but it also discourages any competition, which might not be of value to the other partners or to the organization in the long run. One way to combat the lethargic fallout of a straight salary model is to attach a bonus or incentive program to it. Just be sure that your bonus structure is legal, fair, clear, and achievable, otherwise your partners will quickly tire of what they will consider to be false promises or entrapment. It’s a good model overall because it’s tried and true, and in complicated discussions between partners, sometimes it’s best not to try to reinvent the wheel.

Equal Shares Model

Another great partner compensation model for fairness between existing partners or physicians and those who have recently joined the practice is to utilize an equal shares model. Simply put, in an equal shares compensation model, each partner and physician partner split up the practice’s profits equally, as determined by the issuance of evenly divided shares in the practice. The drawback to an equal share model is that if not everyone appears to contribute the same amount of effort to the practice’s success, it can sow discontent and resentment among top partners, which is dangerous for the longevity and ultimate success of the practice. It also can discourage partners from putting in extra effort or outside work; there is little incentive to improve performance when there is no potential for additional compensation or earnings based on that factor.

Still, we’ve included the equal shares model here in our list of top three physician compensation models because it can also be modified to a split shares model, provided that all partners agree upon the share splits. A split shares model works essentially in the same manner as an equity share, however, there are established tiers which get more or less shares than other tiers, based on amount of work contributed or on whatever other factors the partners decide upon. This type of compensation model is also easy to adjust in the event of a change in leadership or another merger, which makes it a good choice for practices whose organizational structure is often in flux.

Fee for Value Model

Perhaps the most versatile and fair partner compensation model is the Fee for Value compensation model. In this type of physician compensation model, the practice’s partners come together to decide on practice-specific factors which provide some tangible benefit or value to the practice, then split up compensation based on how well each partner performed in regard to those factors.

Performance factors in a Fee for Value model can range from such metrics as patient satisfaction, patient safety, productivity, population health, good citizenship, and so on. The tricky part of implementing a Fee for Value model lies in its inherent flexibility—you can customize this compensation model almost too much, which can allow for misuse, if your practice’s partners are not careful to lay out strategic and clear guidelines for what constitutes actions which contribute to the fee structure. The Fee for Value model can be tough to implement, but it is arguably the most customizable of these plans, which earns it a place on our round-up of top compensation models for physicians and partners.

No matter which physician compensation model you choose to implement, it’s important to remember that every medical practice is unique and has distinct needs. Our financial planners at Vector Medical Group can help you tailor a partner compensation model that feels right for your practice and your partners. Take our 8-minute survey today and let us know what issues your partners are having concerning financial matters.