How job hunters can get the best financial deal with a group practice

Issue: February 2006

[Part 1: What orthopedists should know when searching for the right practice]
[Part 3: Evaluating the malpractice, payer mix and OR situation in the region]

Orthopedics Today: Finding the Right Job - Part 2 of 3 [logo]

Editor’s Note: This article is part two in a three-part series on the orthopedic practice job search, based on interviews with Ryan M. Dopirak, MD, an orthopedic sports medicine and arthroscopy fellow at the Southern California Orthopedic Institute in Los Angeles.

This month’s article focuses on financial considerations for choosing the appropriate position. Part three will look at issues in the practice and community environments.

Today's high demand for orthopedic surgeons has created many employment opportunities. The demand comes from large-market groups recruiting fellowship-trained surgeons to round out their subspecialties and increase market share. And it comes from hospitals in smaller markets, which recruit physicians for orthopedic centers of excellence to increase revenue and avoid outsourcing.

As a result, job-seeking orthopedists should not have much trouble finding opportunities, but choosing the appropriate opportunity can be a challenge. The orthopedist not only needs to evaluate the market opportunity and practice setting, but also the financial situation too, starting with the income guarantee and employment contract review.

'Gross income' vs. 'net income'

Ryan M. Dopirak, MD [photo]
Ryan M. Dopirak

When reviewing an employment contract, orthopedists should refer to an orthopedic business consultant and a health care attorney, said Ryan M. Dopirak, MD, an orthopedic sports medicine and arthroscopy fellow at the Southern California Orthopedic Institute in Los Angeles.

To evaluate how a practice's income guarantee matches up with the market, orthopedists can review income surveys from the American Academy of Orthopaedic Surgeons, the Medical Group Management Association (MGMA) and Merritt, Hawkins and Associates, Dopirak told Orthopedics Today . Dopirak is also president of Orthopaedic Business Solutions, a company that provides consulting services and specializes in assisting young orthopedic surgeons with contract negotiations.

One contract stipulation bewar of is the "gross income" guarantee vs. a "net income" guarantee. There is a big difference. A gross income guarantee includes money used to run the practice and to pay the orthopedist's salary. A net guarantee is the orthopedist's actual income, guaranteed separate from overhead costs, Dopirak explained.

"Be wary of an income guarantee that sounds extraordinarily high," he said. "This may in fact be a gross income guarantee, which may not be a true representation of your take-home income."

He suggests that orthopedists also find out the income range for all of the practice's partners in the past five years as an indication for their own ultimate income potential with the practice.

"Your ultimate income potential will be affected by numerous factors, including the market's payer mix, malpractice climate, referral patterns and surgeon density," Dopirak said. "A group's involvement in ancillary ventures also has the potential to significantly influence income potential."

Guarantees, signing bonuses

Orthopedists need to know the income guarantee stipulations, which should be clearly stated in the employment contract. "Most income guarantees are structured as forgivable loans," Dopirak said. "If your actual production is not sufficient to cover your overhead and income, then you will be in debt to the hospital (or group)."

With forgivable loans a portion of this debt is typically forgiven each year over a specific number of years. Orthopedists who leave their practices before the end of the contract term must pay back the remaining portion of the debt.

"Your ultimate income potential will be affected by numerous factors, including the market's payer mix, malpractice climate, referral patterns and surgeon density."
— Ryan M. Dopirak

The amount of the signing bonus will vary by practice and depend on supply and demand, Dopirak said. Signing bonuses are also commonly structured as forgivable loans. Additionally, if taxes are not withheld at dispersal, the orthopedist must pay the taxes at a later date. Student loan repayment is also considered taxable income.

"Beware of the pay advance disguised as a 'signing bonus,' " Dopirak said. "Some opportunities offer an initial 'signing bonus,' which is later subtracted from your base salary upon commencement of employment. Read the fine print."

Some groups pay new physicians a strict salary without bonus opportunity, regardless of production, for one or two years, Dopirak said. This situation allows senior partners to filter work down to the new physician who does not receive any financial remuneration for the extra work. The excess revenue produced by the younger physician is sometimes split between the senior partners.

"Ideally, if your production exceeds salary plus overhead, you will be eligible for a bonus," Dopirak said. "However, it may be unrealistic to expect that your bonus will be 100% productivity-based until you achieve partnership."

Production bonus opportunities are highly dependent on the practice, and whether the orthopedist receives a bonus in the first few years often depends on workload.

The group's overhead

Net productivity pays both the overhead and the orthopedists' income. "The group's overhead percentage will directly impact your financial bottom line," Dopirak said. "All overhead costs are essentially deducted from your collections - the higher your overhead, the lower your income."

The practice should know the percentage of collections that goes to overhead. However, "figures can be manipulated in order to make overhead percentages look deceptively favorable," Dopirak said. Orthopedists can refer to the MGMA, which has a reproducible method to calculate overhead.

Contract Checklist

Partnership terms vary among groups, but Dopirak said many groups offer partnership after a one- to two-year period. Again, the employment contract should explicitly state the partnership criteria. Many partnerships involve a "buy-in," but large buy-ins are only reasonable if they provide ownership in ancillary ventures or other tangible assets, Dopirak said.

The amount of time between services and payment greatly varies, but in many cases, it takes several months to receive payment.

"Many groups will retain at least a portion of a physician's accounts receivable upon resignation, termination or retirement," Dopirak said.

Often times, the accounts receivable adds up to a large sum, so it is important that the employment contract clarifies the fate of accounts receivable in these circumstances. "Ideally, [the orthopedist] will receive payment for accounts receivable after a reasonable amount is withheld for overhead costs," Dopirak said.

External revenue

Some physicians are involved in revenue-generating opportunities outside of clinical practice - and many practices require that income to be subject to overhead.

Groups include this stipulation so that physicians will focus time and efforts on clinical practice, he said - which is reasonable if the physician is performing outside activities during their usual office hours.

Reviewing the employment contract is one of the most vital parts of the job search. However, the practice and community environment is also important. After all, orthopedists are matching their preferences and priorities with the most suitable opportunity.

Next month, Orthopedics Today will discuss malpractice, tort reform, payer mix (more specifically), OR time and more.

For more information:
Dopirak RM. Evaluating orthopedic practice opportunities. Available online in the AAOS Practice Management Center at http://www3.aaos.org/prac_manag/evalorthop.htm. AAOS ID is required.
Dopirak RM. Evaluating orthopedic practice opportunities. AAOS Residents' E-Letter. November 2005. Vol. 3 No. 11. www.aaos.org.