Many physician employment contracts guarantee a base salary for a new hire’s first two years on the job. By year three, that guarantee often disappears, replaced by a productivity-based or hybrid pay model that can significantly change a physician’s take-home pay, according to Jessica Minesinger, CEO of Surgical Compensation and Consulting and an independent consultant for the Medical Group Management Association, in an Aug. 4 Medscape report.
The pattern shows up repeatedly in early-career physician contracts, Ms. Minesinger said int he report.
“Often new physicians or residents getting their first jobs are offered a contract that has a guaranteed base salary. However, the guaranteed compensation is only for year one and two. By year three, you flip into a productivity model or hybrid model. Physicians end up taking unexpected pay cuts and it comes as a real shock to them,” Ms. Minesinger said.
The shift reflects a broader move away from simple pay structures. Pure salary and pure productivity arrangements now make up less than 25% of physician compensation models nationally, down from 44% in 2020, according to MGMA survey data cited in the Medscape report. In their place, hybrid plans that blend a base salary with productivity bonuses and quality incentives have become the default — plans that offer physicians more choice, Ms. Minesinger said, but also more variables that can work against them if the terms aren’t spelled out clearly.
That complexity is often the root problem, according to David Zetter, a medical practice management consultant and president of Zetter Healthcare in Mechanicsburg, Pa., who was also interviewed for the report.
“Many physicians don’t fully understand all the details of the variables in their compensation plan,” Mr. Zetter said. “As a result, they may wind up earning less than they expected, become disenchanted, and ultimately leave the job.”
Base salary terms deserve particular scrutiny before a physician signs, Ms. Minesinger said, since that number is often the only guaranteed piece of a new hire’s pay for a limited window.
“For compensation plans that include a base salary, look at where that salary benchmarks against others in your specialty,” she said. “And is the base salary guaranteed, or are there any clawback provisions if you don’t hit a certain benchmark?”
For health system leaders, the stakes extend beyond any individual contract. The country is facing a physician shortage across nearly every specialty, and turnover is climbing as doctors leave jobs earlier in their careers — trends that give employers less room to absorb the fallout from a compensation surprise.
“There’s a physician shortage across almost all specialties,” Ms. Minesinger said. “There is more turnover and doctors are leaving jobs earlier. Employers would like to prevent that from happening.”
That same shortage, Ms. Minesinger said, has made hospitals and health systems more willing to negotiate compensation terms than in years past — an opening leaders can use to get ahead of the year-three cliff rather than let new hires discover it on their own. She recommends contracts be revisited annually rather than left to auto-renew for years at a time.
“You should always be advocating for yourself,” she said. “I see a lot of contracts that are, say, 3-year contracts and they auto-renew. Some physicians work with contracts that are 10 or 15 years old and the physicians have never seen a pay increase.”
For recruitment and compensation teams, the report recommends flagging the year-three transition during onboarding, walking new hires through how the productivity or quality metrics that will eventually set their pay actually work, and revisiting the terms before they’re locked in for a decade. The alternative, as Ms. Minesinger describes it, is a workforce that learns about its own pay structure the hard way — right around the time it starts looking for the next job.
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