Sorting out whether a hospitalist’s bonus and other compensation elements are in line with survey data often leads to confusion. The 2013 MGMA Physician Compensation and Production Survey report, based on 2012 data, shows median compensation of $240,352 for internal-medicine hospitalists (I’ll round it to $240,000 for the rest of this piece). So is your compensation in line with survey medians if your base pay is $230,000 and you have a performance bonus of up to $20,000?
The problem is that you can’t know in advance how much of the $20,000 performance bonus you will earn. And isn’t a bonus supposed to be on top of typical compensation? To be in line with the survey, shouldn’t your base pay equal the $240,000 median, with any available bonus dollars on top of that? (Base pay means all forms of compensation other than a performance bonus; it could be productivity-based compensation, pay connected to numbers of shifts or hours worked, or a fixed annual salary, etc.)
The short answer is no, and to demonstrate why, I’ll first review some facts about the survey itself, then apply that knowledge to the hospitalist marketplace.
I want to emphasize that in this article, I’m not taking a position on the right amount of workload, compensation, or bonus for any hospitalist practice. And I’m using survey medians just to simplify the discussion, not because they’re optimal for any particular practice.
The most important thing to know about the survey data is that the $240,000 figure takes into account all forms of pay, including extra shift pay and any bonuses that might have been paid to each provider in the data set. Such benefits as health insurance and retirement-plan contribution are not included in this figure.
There are several ways a hospitalist might have earned compensation that matches the survey median. He or she might have a fixed annual salary equal to the median with no bonus available or had a meaningful bonus (e.g. $10,000 to $20,000) available and failed to earn any of it. Or the base might have come to $230,000, and he or she earned half of the available $20,000 performance bonus. Many other permutations of bonus and other salary elements could occur to arrive at the same $240,000 figure.
The important thing to remember is that whatever bonus dollars were paid, they are included in the salary figure from the survey—not added on top of that figure. So if all bonus dollars earned were subtracted from the survey, the total “nonbonus” compensation would be lower than $240,000.
How much lower?
Typical Hospitalist Bonus Amounts
The MGMA survey doesn’t report the portion of compensation tied to a bonus, but SHM’s does. SHM’s 2012 State of Hospital Medicine Report, based on 2011 data (www.hospitalmedicine.org/survey), is based on the most recent data available, and it showed (on page 60) that an average of 7% of pay was tied to performance for nonacademic hospitalist groups serving adults only. This included any payments for good individual or group performance on quality, efficiency, service, satisfaction, and/or other nonproduction measures. In conversation, this often is referred to as a “bonus” rather than “performance compensation.”
One way to estimate the nonbonus compensation would be to reduce the total pay by 7%, which comes to $223,200. Keep in mind that there are all kinds of mathematical and methodological problems in manipulating the reported survey numbers from two separate surveys to derive additional benchmarks. But this seems like a reasonable guess.
An increasing portion of hospitalist groups have some pay tied to performance, and the portion of total pay tied to performance seems to be going up at least a little. It was 5% of pay in 2010 and 4% in 2011, compared with 7% in the 2012 survey.
Keep in mind two things. First, this 7% reflects the performance or bonus dollars actually paid out, not the total amount available. In other words, even if the median total bonus dollars available were 20% of compensation, hospitalists earned less than that. Some hospitalists earned all dollars available, and some earned only a portion of what was available. And second, some hospitalists fail to earn any bonus or don’t have one available at all. So the survey would show for them zero compensation tied to bonus.
Making Sense of the Numbers
If you follow the reasoning above, then you probably agree that if your goal is to match mean compensation from the MGMA survey (I’m not suggesting that is the best goal, merely using it for simplicity), then you would set nonbonus compensation 7% below median—as long as you’re likely to get the same portion of a bonus as the median practice.
In some practices, performance thresholds are set at a level that is very easy to achieve, meaning the hospitalists are almost guaranteed to get all of the bonus compensation available. To be consistent with survey medians, it would be appropriate for them to set nonbonus compensation by subtracting all bonus dollars from the survey median. For example, if a $20,000 bonus is available and all of it is likely to be earned by the hospitalists, then total nonbonus compensation would be $220,000.
However, what if the bonus requires significant improvements in performance by the doctors (which seems most appropriate to me; why have a bonus otherwise?) and it is likely they will earn only 25% of all bonus dollars available? If the total available bonus is $20,000, then something like 25%, or $5,000, should be subtracted from the median to yield a total nonbonus compensation of $235,000.
I think it makes most sense to set total nonbonus compensation below the targeted total compensation. Failure to achieve any performance thresholds means no bonus and compensation will be below target that year. Meeting some thresholds (some improvement in performance) should result in matching the target compensation, and truly terrific performance that meets or exceeds all thresholds should result in the doctor being paid above the target.
Dr. Nelson has been a practicing hospitalist since 1988. He is co-founder and past president of SHM, and principal in Nelson Flores Hospital Medicine Consultants. He is co-director for SHM’s “Best Practices in Managing a Hospital Medicine Program” course. Write to him at email@example.com.