Written by Jesse Lopez MD • in Physician Income
I started working part-time one year ago and have never looked back. I have met other physicians who tried to go part-time only to find they had to sacrifice too much to work less in terms of compensation. Fortunately, I have studied physician compensation for the past 10 years as a medical director and knew how to determine my worth as a clinician. Using this experience I negotiated a part-time career in direct proportion to my productivity(total weeks worked).
Earning income still is not a straightforward process since it must take into consideration work experience, location, call schedule, specialty type and in some cases productivity. Each will directly impact compensation. However, it is safe to say a part-time physician’s income is directly proportional to the ratio of the time worked or units produced. For example, a physician making the national average of $298,000 will make $225,000 working at 75% of a full-time position. There will always be notable exceptions including physicians who earn disproportionately less or disproportionately more due to other mitigating circumstances like call-type, case-time, encounter-type or relative scarcity of specialty type. Using physician salary surveys lets explore how I came to this conclusion.
In order to determine how much a part-time physician earns first, we need to understand what a full-time Doctor earns. Unfortunately, physician salaries are not as straightforward as in other industries. It is one of the most regulated industries in the country and bound by numerous federal and state administrate statutes and even criminal law. In addition, the practice of medicine has a wide distribution of income based on experience, practice ownership, surgery center ownership, specialty type, productivity, and location.
How Much Do Physicians Make?
This answer is way bigger than the scope of this article. In fact, the topic is so huge I will tackle it piece by piece so that it can be easily digested. This topic has some very deep roots and the subject of controversy since the beginning of modern civilization. Even Hippocrates and Aristotle discussed and debated the merits of physician remuneration. 
In general, according to the Bureau of Labor Statistics, the average pay of physicians was $208,000. According to Medscape primary care physicians earned $223,000 compared to $329,000 with an average of $298,000. There is also a clear distribution of incomes according to specialty and years of service. The highest-paid specialties continue to be Neurosurgery, Pediatric Cardiothoracic Surgery and Orthopedic Spine surgery and least paid are Family Medicine, Internal Medicine, and Pediatrics.
Private Practice Median Income of Physicians
Orthopedic Spine Surgery
All of this data on physician income represents an aggregate of data that has been broken down into several subcategories such as academic versus private practice. It demonstrates a broad representation of fair market value for various physician services over geographic regions and practice types. This will be the topic of discussion in future posts.
What are the two major categories of physician practice types?
The two major categories of physicians are private practice(self-employed/independent contractors(IC)/owner based practice) and employed physicians.
For the sake of the discussion, I want to only focus on these two categories since there are other ways physicians can earn income such as ownership of surgery centers, practices, and ancillary care centers. Also, this does not include money that could be earned from medical directorships, professional work (litigation or independent examinations, etc) or passive streams of income from inventions, patents or other business. These will also be the topics of future posts.
Physicians earn more income in Private Practice than as Employees, according to Medscape Physician Compensation Report of 2018. The amount of money more income varies widely but on average it is greater than 20%.
Why do self-employed physicians make more than employed physicians?
3 Reasons Private Practice can earn more money:
- No Cap on Productivity
- Control of Overhead
- Ancillary Services
There are several reasons why this may be the case. First independent contractors are incentivized to see and treat more patients which is directly proportional to their income. Large organizations and Hospitals have to be more careful when rewarding their physicians with work incentives since it could trigger anti-kickback laws or an IRS inquiry.
Second, they have the ability to control overhead in their practices and run a more lean operation. Employed physicians rarely have any say in ancillary staff in their offices nor what processes are followed. If a poor process or employee slows them down then their only recourse is to fill out more paperwork or get human resources involved.
Third, they can charge for ancillary services such as x-rays, MRI’s, physical therapy or diagnostic/therapeutic modalities so long as it is not in violation of the Stark Law.
Likewise, independent surgeons and proceduralists could earn income from facility fees as a result of having some ownership in a surgery center. Employed physicians rarely have this option.
Why does the newest tax code favor independent contractors?
The current tax code favors independent contractors due to the changes in the progressive tax structure and the incentive in the form of Qualified Business Income(QBI) tax deductions for corporations who have income under a certain threshold.
Unlike employed physicians, ICs can deduct expenses, retirement accounts (up to 56K), 50% of social security/medicare and depreciation of any equipment or real estate. They also can qualify for a qualified business deduction of up to 20% if the net income is less than $315,000. Plus if they are married or have kids, they can hire the whole family to get that tax bill even lower. Why is it so good to be an IC? The tax code is a reflection of what the government would like its citizens to do. The new tax laws are telling us to start businesses.
Pro Tip: Ohio does not tax the first $250K of Independant Contractor Income.Financial Designs
Employed physicians, on the other hand, especially if they do not have any ownership in a practice, get few deductions and have to pay the full amount of the progressive tax code. The benefits of employment include employee rights and a steady income but it comes at a cost… Loss of Freedom and More Taxes. I am not a CPA, MBA or CFP so don’t take my word for it. Consult your CPA or financial professional and run the numbers yourself. I recommend Financial Designs Inc who specializes in physician independent contractors who also helped verify this information.
I love tax calculators. Try XLM Calculators and plug in some numbers to see what impact going independent could bring.
Why do employed physicians make less income than independent contractors?
The main difference between independent contractors and employed physicians is Risk. Employees enjoy risk-free income. They do not have to worry about overhead, insurance payer contracts, business expenses, malpractice expenses, or variation in income-based upon productivity or case volume. They also don’t have to worry about the solvency of the business. In exchange, employed will earn less income in most cases. There are always exceptions but they are rare.
A brief history of employed physicians.
Prior to 1965, all physicians were paid via fee for service. Many physicians treated their patients in exchange for direct payment. Many physicians would also provide free care to poor patients and while the state would take care of the rest. Prior to 1965 patients were responsible for paying for their health care or were subsidized by their employer in pooled groups. After the passing of the Medicare and Medicaid Act of 1965 third-party payors like the government would take on a much larger role in taking care of the most vulnerable of the U.S. population.
Since 1965 physicians have transitioned from independent practice to over 70% employed due to increasing bureaucracy of practicing medicine and decreased reimbursement. As each generation of graduating physicians looked into the job market with increasing student debt and many have chosen guaranteed income instead of the entrepreneurial risk of joining or starting a new practice. Now, this number is down to 36.7% according to Merrit Hawking 2016 Survey of American Physicians.
Where does physician salary data come from?
Healthcare spending as a function of GDP has grown from 6% in 1970 to 18% in 2015.  Such unprecedented growth sent both large commercial employers and the federal government in search of cost containment measures. These included the Medicare Volume Performance Standard and Medicare Sustainable Growth Rate which sought to keep physician fee schedules under control. Additionally, the federal government was constantly fighting corruption and fraud which resulted in Stark law, Anti-kickback statutes and IRS rules.
“Three key laws regulate fair market valuations in physician compensation arrangements: the Stark Law, the federal Anti-Kickback Statute, and IRS guidelines. All dictate that physician compensation cannot exceed the fair market value thresholds for the particular specialty, and many states have instituted their own laws to control physician compensation to deter offering of substantially above-market earnings.” – Bonnie Darvis 
In order to standardize these processes and keep account of physician fair market value and commercial reasonableness, a system was needed to determine a nationwide account of physician income and performance. These are known as physician salary surveys and databases.
Several groups emerged to create databases to assist hospitals and physician practices in providing this benchmarked data. They included the Medical Group Management Association(MGMA), American Medical Group Association(AMGA), Sullivan Cotter, Merritt Hawkins, and Medscape.
Physician Fair Market Value
As previously described in the Physician Salary Survey article, physician income is standardized based upon national standards. These standards are then broken down into specialty, location, productivity, experience, and call.
Private practice physician’s compensation is relatively straightforward, gross accounts receivable minus expenses equals income. Of course, there are nuances depending on how groups are structured on how to divide the pie.
Employed physicians’ income, on the other hand, have become increasingly more and more complicated. This is due to the majority of physicians moving to the employed market space and the employer trying to maintain the productivity of private physicians.
There are four basic models for employed physicians, Straight Salary +/- bonus, Equal Shares, Productivity and Capitation.  Each has advantages and disadvantages which are outlined nicely by this AAP article. (https://www.aap.org/en-us/professional-resources/practice-transformation/managing-your-career/Pages/Physician-Compensation-Models.aspx)
These models all try to match physician income to physician productivity. None of the models will exceed fair market value or have commercial unreasonableness. This is a good thing for the part-time physician since once we establish a basis for a full-time model then we can scale what a part-time physician should earn.
Part-time salary expectations
Taking fair market value and commercial reasonableness into consideration, we must define what part-time will look like. I discussed in a previous article Can a Physician Work Part-time? various strategies to reduce the workload. Examining each choice shows that one part-time position reduces the call on a weekly basis while the other reduces the call on an annual basis. Generally speaking assuming call and weekends are a component of a physician’s compensation, eliminating weekends and reducing the workweek to 3 or 4 days will result in a greater reduction of income. Contrast this to a physician who works a 5 day work week with weeks and call but takes full weeks off. The same amount of time off is taken but the second scenario will receive more compensation in general.
Breaking down the component of physician compensation?
This part, in my opinion, is the most important aspect in determining income. Since nights, weekends, holidays and after hours(after 4 pm) are perceived as more onerous, eliminating some or part of them will result in the greatest reduction of income in most cases. It is therefore very important to determine the fair market value of these individually if you wish to reduce or eliminate them. Fortunately, most of this data is available from the surveys. If not then some well-placed calls to other medical professionals in your community could help to determine some of these variables.
Let’s look at three hypothetical physicians A, B, and C.
Physician A wants to have a shortened workweek, shorter days, fewer weekends and fewer evenings.
Physician B wants to have more full weeks of vacation.
Physician C wants to continue practicing as usual but reduce their daily productivity in terms of patients seen or procedures performed.
Looking at each here are some hypothetical formulas to determine what to expect for income:
Part-time income= Full-time salary – % reduction Full-time salary – %weekend production – % limited weekday hours – % daily call
Part-time income= Full-time Salary – % reduction of Full-time salary
Part-time Income= Full-Time Productivity(baseline wRVUs) – reduction of baseline RVUs
STAY with me….
Physician A will have to make some hard choices and determine what total income they desire and then reverse engineer what will be changed to accomplish that salary. With every reduction in weekends, nights, daily hours and call will come with a larger reduction income.
Physician B will continue to practice and participate in aspects of medicine which are considered undesirable. Therefore the reduction of income should be proportional to their reduction of work weeks.
Physician C is intended for physicians who are primarily productivity based. If productivity decreases then income will decrease proportionally.
One thing to consider as I pointed out in Can a Physician Work Part-time?, most hospitals, large groups, and organizations will have a minimum threshold of work to qualify for benefits. Going below this threshold will result in even greater decreases in overall compensation package including subsidized health insurance and participation in employer-sponsored retirement programs. I recently learned from a nurse colleague that they only need to work 16 hours per week to qualify for benefits! Do your due diligence on each of your current or potential employers.
Now let’s look at some numbers(I made a spreadsheet comparing each doc making national average)
I used national average numbers for salary and call pay which varies based upon specialty, location and group size. Looking at the data it should be very obvious Doc A takes a considerable hit to their income by not taking call or working weekends. Whereas Doc B and C who continue to take call will get a straight decrease of 25%. These numbers are not absolute and are based on averages, so don’t be too discouraged. Also, don’t forget everything is negotiable within reason but it is important to have realistic expectations.
How can you have your cake and eat it too…
One important note and caveat about Doc C. If they practice on a productivity model only, it is possible to work less but still maintain a full-time salary. This is only unique to this class of physicians. One physician I know decided to go part-time around the same time as me but had a very different outcome. He is financially independent and decided to quit his job and work Locums exclusively to accomplish this and didn’t want to overburden his group with going part-time. After a few weeks had gone by his group reached out to him. They researched the cost to hire locums themselves to cover his absence and the cost to recruit another physician. They decided it would be cheaper to offer him a part-time position for a full-time salary rather than go through all the trouble and expense of hiring his replacement. According to him, he was one of the most productive partners and could produce the same amount of RVUs working part-time as his some of his full-time partners. Talk about a happy ending!
Key takeaways for going part-time and income
Deciding to go part-time should not be taken lightly and requires considerable due diligence. One of the most important factors is knowing how much income to expect after reducing your hours. After you determine what you would like your schedule to look like, plan your negotiation accordingly. Using hard databases based upon local and national standards will then even the playing field for determining your fair market value.
Once you determine the fair market value it might be a good idea to look at your local market and see if other opportunities already exist. With this, you can further gauge the local market and potentially develop a backup plan. Once you have a plan the next key is action, don’t look back a year from now wondering what would have happened if you have acted. Also make sure you have key stakeholders involved in your decision especially your immediate family, your attorney, your accountant and maybe a financial advisor if you have one. Despite the challenge, looking back, it was the best decision I ever made. I hope it works out for you too!
Based upon MGMA 2018 Physician Compensation Report https://www.mgma.com/press-releases/new-mgma-provider-compensation-data ↑