Understanding Bonus Compensation in Physician Contracts

Bonus compensation can be a powerful incentive in physician contracts, but it can also be difficult to understand. Bonuses come in a variety of structures that might not be straightforward. For this reason, when physicians sign their contracts, they may not fully understand how they will be compensated. An experienced physician employment contract attorney will outline the various types of compensation structures. Here is what physicians should know about bonuses. 

Why Offer Bonuses?

Healthcare organizations implement bonus structures to enhance physician performance and promote retention. These incentives are designed to align physician activities with the organization’s strategic priorities, such as increasing clinical productivity and expanding patient access. Additionally, bonuses aim to improve patient satisfaction and the quality of care delivered. They may also encourage participation in academic pursuits, including teaching and research.

Common Types of Physician Bonuses

Physician bonus structures can vary widely depending on the employer, specialty, and region. Understanding the different types of bonuses and how they are calculated is necessary to evaluate a job offer or renegotiate an existing contract. These are the most common types of physician bonuses.

Signing/Retention Bonus

A signing bonus is a payment offered to a doctor as an incentive to accept a job offer. This bonus is typically paid shortly after the physician signs the employment contract or starts work. It is meant to make the offer more attractive. Between April 1, 2023, and March 31, 2024, the average physician signing bonus was $31,473. The figure comes from AMN Healthcare’s 2024 report on recruiting incentives, based on over 2,100 permanent provider search engagements conducted by its Physician Solutions division.

Signing bonuses have different structures. Many signing bonuses are paid out once and often come with repayment obligations if the physician leaves the position before a specified period. Some signing bonuses are structured as advances or interest-free forgivable loans, functioning more as retention tools than true upfront bonuses. These arrangements often involved higher reported amounts. 

In some cases, physicians received annual payments over one to three years contingent on remaining with the group, or were paid a lump sum that had to be repaid if they left before a specified period. Other arrangements included a combination of an initial signing bonus and smaller retention bonuses, or monthly stipends provided between contract signing and the official start date after residency or fellowship.

RVU-Based Bonus

RVU-based bonuses are commonly used by hospitals and tie physician compensation to work relative value units, or wRVUs. In fully productivity-based models, a physician’s entire income is based on the total number of RVUs they generate. In salary-plus-bonus structures, physicians typically must reach a minimum RVU threshold before becoming eligible for bonus payments. Once that threshold is met, they earn a set dollar amount for each additional wRVU produced. The threshold is sometimes defined on a monthly basis, although bonuses are often paid out quarterly or annually. 

Collections-Based Bonus

Bonuses can be based on net collections from billed services. This approach is often used by smaller groups and private practices. The practice first deducts overhead costs. Then, physicians receive a percentage of the remaining collections as their bonus.

Quality/Value-Based Bonus

Quality and value-based bonuses are tied to specific performance metrics. These can vary widely and often get complex. Common measures include HEDIS scores, patient satisfaction (such as Press-Ganey), patient panel size, and HCC coding accuracy. Bonuses may be based on individual, departmental, or combined performance outcomes.

Hybrid Bonus

Hybrid bonus structures combine two or more components, such as productivity and quality metrics, or RVU generation and academic contributions. These models are increasingly common, particularly in hospital systems. While there is no standard approach, many physicians reported 50/50 splits. Examples include 50% based on individual productivity and 50% on academic performance, or half based on team productivity and half on meeting quality metrics. The specific components and weightings can vary by organization, making it important for physicians to understand exactly how their bonus is calculated and what performance areas are being measured.

What Physicians Should Want To Know About Bonuses

When reviewing a physician’s employment contract, physicians should seek clarity on bonuses. The contract should clearly specify which metrics will be used to determine bonuses. It should explain how minimum thresholds or benchmarks are calculated. The contract should also define the timeframe for measuring performance and how bonuses will be calculated and paid.

Employers may change bonus formulas or performance metrics over time. Contracts should specify if and how such changes can occur and the notice required before implementing them. 

Contracts should also specify payment frequency. Physicians should verify the exact payment schedule in their contract. They should also confirm whether any portion of the bonus may be withheld until certain conditions are met.

Additionally, many bonuses require physicians to stay employed for a certain amount of time or meet other conditions. If a physician leaves early or fails to meet certain conditions, they may be required to repay some or all of the bonus. Physicians should be aware of these conditions.

Negotiating Bonuses

Many physicians are hesitant to negotiate their contracts, and may be especially hesitant to negotiate bonus compensation. All parts of a physician contract are potentially open to negotiation, however. Physicians should seek to understand how bonuses are calculated, when they are paid, and whether repayment is required if employment ends early. Researching industry standards by specialty and location can provide useful benchmarks. Working with a physician contract attorney during negotiations can give a physician confidence in advocating for a bonus structure that fairly reflects the physician’s value and expectations.

Contact An Experienced Physician Contract Attorney

Bonus compensation can significantly impact a physician’s income. However, unclear or one-sided terms in the contract can not only be a source of confusion but can also deprive a physician of fuller compensation. An experienced physician contract attorney can review physician employment contracts, spotting any red flags and helping the physician to negotiate fair, enforceable terms that reflect your value.