Physicians who own their own practices can enjoy a work-life environment that likely can’t be found if they were employed by a physician group or hospital system.
But the question of how much a physician practice owner should pay him or herself isn’t as easy to answer as it might seem. There are many factors that the owner must take into account, physicians and other experts say.
Physician practice owners have to understand they are business owners and revenue generators, says Kenneth T. Hertz, FACMPE, principal consultant for Medical Group Management Association (MGMA) Health Care Consulting Group. “As business owners, they have to step back and look at the practice from that point of view.”
Doctors prefer not to think of themselves as businesspeople first. “But it is often said, ‘no money, no mission,’” says Salvatore Volpe, MD, a practice owner in Staten Island, N.Y., and Medical Economics editorial advisory board member. “I’m trained as a physician, but I’ll go belly up if I don’t think like a businessman.”
Sometimes, thinking like a businessperson means taking a reduction in salary, paying themselves last or taking no salary at all for a period of time. There is the staff to think about; overhead costs, such as lease, utility and malpractice insurance payments; and investments in equipment needed to keep the practice up to date.
“There is no doubt that some practice owners resist the idea of paying themselves last,” Hertz points out. “The reality is that practice owners have to pay the staff first. Owners get paid last.”
Melissa E. Lucarelli, MD, FAAFP, a Medical Economics editorial advisory board member who runs a family practice in Randolph, Wis., agrees.
“I think of my employees’ salaries as being a fixed cost, comparable to the mortgage,” Lucarelli says. “There would never come a time when the mortgage isn’t paid. It’s the same with staff salaries. If I can’t afford to pay my staff, I have a problem.”
Once a practice is on sound financial footing, there are many variables, foreseen and unforeseen, that play a role in salary, says Jeffrey Kagan, MD, a majority owner of a two-physician practice in Newington, Conn., and Medical Economics editorial advisory board member.
“The lifestyle of physicians is a factor, as is the type of practice they want,” Kagan points out. “It also depends on how many patients owners want to see on a daily basis and how much time they want to spend with those patients.”
To keep the other physicians in the group and staff happy and to be sure there is ample revenue to reinvest in the practice, owners should always have a salary plan, Kagan says.
In anticipation of the next year, Kagan says, his practice’s accountant creates a budget based on the revenue from the previous two years. Since salary is partially based on productivity, two years is taken into consideration so if Kagan or his partner don’t produce as much revenue as expected, the decrease in income is more gradual, he
At the same time, the accountant tries to predict whether practice expenses will be higher or lower for the coming year. Kagan bases the amount of salary he will receive on this forecast.
“If we know we have a costly capital expense coming up, we add that to the calculation,” he says. “As we go through the year, we’ll give ourselves bonuses if there is extra money. If there’s not enough money, the partners miss a paycheck.
“The staff always gets paid,” he adds. “But there have been times when our physicians miss a paycheck. We take a check every two weeks, so sometimes there will be a month where we only get one check.”
Their accountant reviews the practice’s numbers each quarter. “As we go through the year, if there is extra money, we bonus ourselves,” Kagan says. “If there is not extra money, we miss a paycheck.”