By: Eric Schulz, MBA, CHBC
Physician compensation rarely stays exactly as it was originally designed. A physician is recruited during a staffing shortage. Another negotiates a higher guarantee based on a competing offer. A third transitions from salary to a productivity model after building a busy practice. Years later, a practice may have several physicians performing similar work under very different compensation arrangements.
That alone is not necessarily a problem. In fact, it is common. However, as more states adopt pay equity laws, practices should be prepared to explain why compensation differs among physicians performing comparable work. Simply saying, “that’s what we negotiated,” is rarely enough if compensation decisions are ever questioned.
Pay Equity Is More Than Equal Pay
Over the past decade, states including Oregon, Washington, California, Colorado, Illinois, Massachusetts, and New York have expanded pay equity protections. While the laws differ, they generally require employers to ensure that compensation differences are based on legitimate, job-related factors rather than protected characteristics such as sex, race, age, disability, or other protected classes.
For physician practices, the issue is rarely whether physicians are paid differently. The question is whether those differences can be supported by objective business reasons and consistently documented.
Physician Practices Are Different
Physician compensation is intentionally individualized. Differences in specialty, subspecialty, productivity, leadership responsibilities, call coverage, practice location, and ownership often justify differences in pay.
Most state pay equity laws recognize that compensation may vary based on legitimate factors such as:
- Seniority
- Merit
- Quantity or quality of production
- Geographic location
- Education and specialized training
- Relevant experience
- Job responsibilities
For most physician practices, productivity is the primary differentiator. Compensation based on personally performed collections, work RVUs, quality metrics, call coverage, administrative responsibilities, or medical director duties can all support different levels of compensation when they are applied consistently and documented appropriately.
Where Practices Can Get Into Trouble
The greatest risk is usually not paying physicians differently. It is being unable to explain why those differences exist.
Many compensation differences originate for legitimate reasons but are never revisited. One physician may have accepted a lower salary during a slow recruiting market. Another may have negotiated a larger guarantee when physician shortages intensified. A third may continue receiving additional compensation for administrative responsibilities that have long since changed.
Years later, physicians performing substantially similar work may have significantly different compensation without anyone remembering the original business rationale. Historical decisions that once made perfect sense may no longer support current compensation.
Periodic reviews help ensure that compensation continues to reflect current responsibilities rather than outdated circumstances.
Look Beyond Base Salary
Evaluating physician compensation requires examining the entire compensation package rather than focusing solely on salary.
A comprehensive review should include:
- Base salary
- Productivity incentives
- Collections-based compensation
- Work RVU incentives
- Quality bonuses
- Call compensation
- Administrative or medical director stipends
- Health and retirement benefits
- Signing or retention bonuses
- Ownership distributions, when applicable
Practices should also distinguish employee compensation from ownership returns. Physicians who own an equity interest may receive profit distributions because of their ownership rather than the clinical services they provide. Those distributions should not be confused with compensation for purposes of evaluating pay equity.
Documentation Is Your Best Protection
Well-written employment agreements remain one of the strongest tools for supporting physician compensation decisions. Compensation methodology, productivity formulas, bonus calculations, leadership responsibilities, and call expectations should all be clearly documented. When responsibilities or compensation change, agreements should be updated to reflect those changes.
Practices should also periodically review compensation across comparable physician positions. These reviews often identify legacy compensation arrangements, inconsistent incentive structures, or documentation that no longer reflects how physicians are actually paid.
A Strategic Opportunity
Many practice owners think of pay equity as simply an HR or legal issue. In reality, it is also an opportunity to strengthen physician compensation strategy.
Regular compensation reviews improve transparency, build physician trust, support recruitment and retention, and help ensure that incentives remain aligned with the practice’s long-term goals. They also give leadership confidence that compensation decisions can be explained if questions arise from physicians, applicants, or regulators.
As physician recruiting becomes increasingly competitive and pay equity laws continue to expand across the country, practices that periodically review compensation policies will be better positioned to attract physicians, retain high performers, and reduce unnecessary compliance risk.
The objective is not to eliminate differences in physician compensation. Rather, it is to ensure those differences are intentional, equitable, well documented, and supported by legitimate business reasons. Practices that can confidently explain how and why compensation decisions are made are better positioned for long-term organizational success.
Need a second opinion on your physician compensation model?
Health e Practices helps independent medical groups evaluate physician compensation, benchmark market pay, and ensure compensation strategies support both organizational goals and evolving pay equity requirements. We’d be happy to discuss your practice.