One of the biggest decisions a physician must make in his or her career is how to practice, and physician compensation standards are a key component of this decision. The thought of owning a private practice is attractive, but statistics show that it is not as appealing as it once was.
The number of physicians who own their own practice has fallen drastically over the past several decades. According to the American Medical Association (AMA), 2016 was the first year in which physician practice owners were not the majority of employed physicians. Over the past 34 years, private practice owners have fallen from approximately 76 percent to 47 percent of physicians.
Measuring the Physician Compensation Gap
One might assume that owning a practice would offer the opportunity for higher pay, but this is not true across the board. Physicians Practice's "2017 Physician Compensation Survey" revealed that 75 percent of employed physicians earn more than $200,000 per year, while only 70 percent of physicians who own a practice command this pay.
On the high end of the salary range, about 21 percent of practice owners earned more than $450,000, while only 16 percent of employed physicians earned at this level. Of physicians who are employed, the largest percentage fell within the $200,001–$250,000 bracket.
To Own or Not to Own Is a Matter of Preference
How does a physician choose owning a practice over working for an employer? This decision is largely based on personality. Just as physicians choose a specialty, such as gynecology, based on preference, the decision to own or work for an employer is personal.
Most practice owners are risk takers. The risk of opening a solo practice stems from investing your own money. Profits may be lean during the first few years as the business grows and pays down its debt. If the practice is successful but needs to grow, adding new physicians will also temporarily lower revenues. This happens because an additional investment of overhead is generally required at this time, which can include new equipment, such as ultrasound systems, additional staff, more office space and lower patient revenue from a physician who is not yet established in the practice.
Many physicians simply want to take care of patients and not worry about running a business. They're happy to leave decisions about electronic medical records (EMRs), image management systems and HIPAA policies to their respective departments. In an employment setting, however, compensation will depend on other physicians' performance as well. If a care provider receives a negative Medicare payment adjustment for factors such as low patient satisfaction scores or high readmission rates, the bottom line of the entire business is affected.
Beyond pay, a medical business owner is his or her own boss and has greater control over the practice's system of care. This physician has greater flexibility to practice medicine in a way that is meaningful, enabling him or her build a reputation for providing more personalized care to patients.
Determining Fair Market Value
Regardless of whether physicians are self-employed or not, fair market value determines their pay by law. The government calculates this value based on physician compensation surveys. Physicians can be compensated at the high end of the spectrum if their productivity is extremely high, but the Internal Revenue Service (IRS) will look closely at physicians who command salaries that are higher than average. According the New England Journal of Medicine Career Center, employers offer salaries within the survey range, but may legally offer incentives to boost income based on performance.
Any gynecologist considering opening his or her own practice should consider risk tolerance and personal preference before opportunities for higher pay. The AMA offers career planning advice for members who are interested in learning more about different practice options.
