Formula Compensation - Physician Contract Glossary

Formula Compensation

Definition

Pay structure that calculates physician earnings based on a defined formula using metrics like collections, revenue, or wRVUs (Work Relative Value Units).

Examples in Context

"Physician will receive 35% of net collections exceeding $300,000 per year."

"Compensation will be calculated as $50 per wRVU generated within the billing cycle."

Implications for Physicians

• Earnings can vary significantly based on patient volume, payer mix, or reimbursement rates.
• Potential for higher income if you exceed productivity benchmarks.
• Income may become unpredictable during low patient volume periods.

Negotiation Tips

• Request a clear, written breakdown of the formula used to calculate earnings.
• Negotiate a guaranteed draw or base salary, especially if you’re new to practice.
• Ask how expenses and overhead are deducted before calculating your compensation.

Red Flags and Pitfalls

• Ambiguous or overly complex formulas that make it hard to verify earnings.
• Unclear definitions of "net collections" or "gross revenue."
• High overhead allocations reducing your share of collected revenue.

Related Terms

• Collection-based Compensation
• Stated Salary
• wRVU

FAQs

• “How often is formula compensation recalculated?”
  • Most practices evaluate productivity and earnings quarterly or annually.
• “What factors can reduce my formula compensation?”
  • Unexpected overhead increases, contractually defined expense deductions, or delayed collections may reduce your payout.
• “Can I audit my productivity calculations?”
  • Yes. Ask for monthly productivity reports and verify with billing data for accuracy.

Legal Disclaimer

The information provided in this glossary is for educational and informational purposes only and should not be construed as legal advice. While we strive to provide accurate and up-to-date information, this content is intended to help physicians better understand common contract terms and does not replace professional legal guidance.

For personalized advice regarding your employment contract or other legal concerns, we strongly recommend consulting with a qualified attorney who specializes in physician employment contracts.

You can find experienced legal professionals through our Physician Contract Lawyer Directory.