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My partner has proposed that we change our method of income distribution from a production-based method to a profitability method. How do we determine what is the best method for our two man group?


There is no single or best compensation method for any practice. Physician compensation can be handled in any number of different ways, depending on the economics of the practice and the philosophy of its shareholders. Some practices use the profitability method, while other practices divide income proportionally (resulting in equal overhead rates), while still other practices divide income equally. All of these methods can be considered appropriate if they are consistently applied and reflect the philosophy of the practice and the method of dividing workload. The profitability method is essentially an expense-sharing method under which each physician is economically autonomous with the only common interests being the sharing of call and expenses. Otherwise, there is little or no "group practice" element to this particular method of compensation. Downsides can also include conflicts over cost allocation and micro-management of expenses. You and your partner need to discuss this issue from a philosophical perspective to see if this method is consistent with both of your objectives. A compensation plan is more than just another way of dividing up the pie. It's a reflection of the values, benefits and perceptions of the physicians in the practice.

Lawrence Geller
Director of Consulting Services

MMA does not provide legal, accounting, or tax advice.  If you need assistance in these areas, we recommend that you consult a qualified professional.  In addition, please note that a client relationship with MMA is not established by the submission of a question to this forum or by the publishing of MMA's response.

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