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How your doctor is paid

The Mayo Clinic Thinks It Matters

Doctors and midlevels such as nurse practitioners work under varying compensation models.  In many cases, they are paid “salary plus commission” or “100% commission.” Sometimes they are paid a fixed salary. Which model is best depends on your perspective.

When evaluating these models, it helps to start with an understanding of how healthcare prices are calculated. Why? Because the same metrics that set healthcare prices drive how most doctors are paid.

Introducing the “Relative Value Unit”

“Relative Value Unit” (RVU) is the government metric that drives healthcare pricing.

Here is how it works: First, the government assigns an “RVU number” to everything in healthcare. Second, it picks an amount for what Medicare will pay per RVU.  That amount is called the “conversion factor.” Finally, multiplying the “RVU number” by the “conversion factor” gives the Medicare price.

For example, if an office visit is 2.53 RVUs and the conversion factor is $34.04, then the Medicare price for that office visit is $86.12. On the other hand, a procedure that is 37.66 RVUs has a Medicare price of 37.66 * $34.04 = $1,281.95.

Private insurance companies generally pay a higher price per RVU than Medicare, and Medicaid (TennCare) a lower price.

“Salary plus commission” model

In this model, doctors and midlevel providers are paid a fixed salary plus a commission for every RVU they generate. 

For example, a provider could be paid $50 - 150 an hour plus $4 per RVU

Proponents of this model might say it provides financial encouragement to see patients. It rewards those who work harder to help more people.  Just like in any workplace, some work harder than others. This is a way to recognize extra effort.  By keeping the salary component, it doesn’t over-recognize that effort, but at least acknowledges it.

Opponents of this model might say it wrongly rewards providers who perform unnecessary tests or procedures. There is often a broad information gap between the provider and the patient and most patients don’t realize the doctor is commissioned. So, these opponents might say that commissioning the provider to say “Let’s go ahead and do that CT scan just to be sure nothing is wrong” contributes to unnecessary CT scans.

“100% commission” model

In this model, providers are not paid any salary at all, but rather are only paid commissions on their RVUs.

For example, a provider could just be paid $10 - 25 per RVU.

Proponents of this model might say healthcare practices have high fixed costs and to serve their patients they need to be able to stay in business. Their ability to stay in business is 100% dependent on their doctors and midlevels seeing patients. With the 100% commissioned model they are aligning everyone’s financial interests to ensure the practice can stay open and continue to help people.

Opponents would likely oppose on the same grounds used by opponents of the “salary plus commission” model.

“Fixed salary” model

This model ignores RVUs altogether. Providers are simply paid a fixed salary.

While not common, one proponent of this model has been Mayo Clinic. Historically, Mayo has attributed its success in large part to the fact that its doctors are salaried and not paid commissions. It stresses in its "Model of Care" that "because physicians at Mayo receive a fixed salary, their pay is not based on quantity or number of patients seen. Rather, physicians spend the time they deem necessary to provide quality patient care."

Opponents of this model might say that what works for Mayo doesn’t work for everyone. It is very difficult to instill the kind of culture that organizations like Mayo have built over time, and only with a culture and reputation like Mayo’s can a “fixed salary” model work.

Which model is best?

Healthcare consumerism and Health Savings Accounts have grown tremendously over the last ten years. As they continue to grow, consumers will continue to become more informed and will have an impact on which model has the most success.

Which do you think is the best model?

You might also like: Achieving Transparency in Health Care Is No Easy Task

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This article was originally published in the April 7th Edition of The Tennessean.

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