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Did you know that according to Becker’s Hospital Review over three-quarters of physicians are now employed by hospitals, corporations, or private equity groups? This shift has fundamentally transformed the landscape of physician employment. No longer entrepreneurs and employers, many physicians now find themselves navigating a complex web of employment dynamics dictated by administrators.

The most significant adjustment for many physicians has been having other people, specifically administrators, dictate how much they get paid. Instead of working as entrepreneurs and employers, most physicians are now employees.

Whether a physician is applying for a new position or renegotiating their existing employment, they are often told how much they are worth–from a purely financial standpoint. This depersonalization of the process, using terminology typically used only to describe assets like Fair Market Value (FMV) or “commercial reasonableness,” can significantly affect a physician’s compensation. Understanding these implications can empower physicians to negotiate for fair compensation.

But here’s the kicker: Do you really know how much you’re worth?

This blog aims to define FMV, explain how it applies to physician compensation, and suggest strategies physicians should use when negotiating salary. After all, physicians didn’t go through all their education and training to be told that they are simply numbers determined by objective formulas they can’t see and, in reality, do not exist.

There is no “physician open market.”

FMV in real estate terms

In real estate, FMV is determined by what others have paid for similar properties. That is the cornerstone of deciding what a listing price should be. All good realtors pull “comps” or comparisons to narrow down a reasonable asking price. Included in that price are the following assumptions:

  • Both the buyer and seller are reasonably knowledgeable about the property
  • Buyers and sellers independently look out for their interests
  • Neither buyers nor sellers are under undue influence
  • Buyers and sellers are each given reasonable time to complete the transaction

In real estate, FMV can be viewed objectively and relatively inflexible. Some hospital administrators claim that paying physicians more than FMV is “illegal” and that physician salaries are non-negotiable and inflexible. This is false.

There are no universal FMV figures, laws, or regulations regarding physician compensation. Administrators use statistics and their interpretations of the market to determine what to offer physicians.

Physicians face the dilemma of administrators trying to fit a square peg in a round hole. FMV is meant to describe a tangible asset such as real estate objectively, but the missing logic is that physicians are not buildings; they are people, and people are judged subjectively.

How does FMV relate to physician compensation?

FMV, in the context of physician compensation, refers to the estimated value that a physician’s services would “sell” on the open market to an interested employer in a reasonable amount of time. It is the salary and benefits that a physician can reasonably expect to be offered in a specific market and timeframe.

Administrators’ problem is that while there are “comps” or comparable physicians, every physician brings different assets. Some physicians may have special training, unique abilities, or experiences that are impossible to monetize. Physicians know it, too.

Physicians often face the challenge of arguing for better pay. They may need to learn to ask the right questions and avoid consenting to offers that may not be in their best interests. Understanding these challenges can help physicians prepare for negotiations and ensure they are fairly compensated for their services.

Using the real estate market comparison, administrators use three approaches to arrive at FMV for a physician.

  1. Cost–what would it cost to replace the physician (replace the building), potential loss of patients (less depreciation), plus the cost of not having physician coverage (the land value)?
  2. Market–What similar physicians (real estate properties) are currently being paid (selling) on the open market?
  3. Income–What is the physician (property) worth based on the current income yield?

FMV is an assessment of what employers are willing to pay physicians, heavily influenced by consultant firms that interpret and manipulate these numbers to align with the employer’s goals. Employers typically aim to maximize revenue and minimize expenses, and physician labor is viewed as a significant expense. To achieve these goals, employers hire consultants who analyze data and provide recommendations on compensation.

These consultants often frame the data in a way that supports the employer’s objectives, such as maximizing revenue and minimizing labor costs. As a result, the information presented to physicians often suggests that higher compensation is not feasible. Physicians frequently hear statements like, “We can’t pay you more; the consultant told us it’s illegal,” which can make them feel helpless and pressured to accept the offered value.

However, physicians do not have to accept these valuations passively. They can challenge the FMV assessments by seeking advice, gathering their own data, and obtaining support from experts like Contract Diagnostics. Employers have access to detailed information, and this information creates power in negotiations. Our role is to balance the scales, providing physicians with the knowledge and support they need to negotiate fair compensation.

Physicians can better navigate these discussions by understanding that FMV is not an absolute, unchangeable figure but rather a manipulated assessment influenced by employer-driven goals. With the right data and expert support, they can effectively challenge and negotiate their compensation to reflect their true value.

Physician FMV and compensation negotiations

The FMV concept has become a crucial benchmark for determining physician compensation in this new employment landscape. Physicians should be aware that when seeking new employment opportunities or renegotiating existing ones, they may need more information about their FMV, such as claims that it is ‘illegal’ to pay them more or that the FMV is non-negotiable.

By understanding FMV comprehensively, physicians can take charge of their compensation discussions and ensure they are fairly remunerated. Utilizing external resources such as MGMA can be beneficial. Still, most importantly, physicians should seek out advocates with the expertise and experience to negotiate on their behalf–like hiring a real estate professional when buying a new home.

As in real estate negotiations, physicians must be fully aware of the facts, act in their own interest, and be free to make wise decisions within reasonable amounts of time. Many physicians who are just finishing training or having to move for personal reasons may not always have these luxuries, but this does not mean that help is not available.

In summary

The bottom line: A physician’s Fair Market Value (FMV) is the compensation a willing and informed employer would agree to pay in exchange for the physician’s services.

Physician employers often misinterpret FMV, treating it as an inflexible, objective formula. However, this approach fails because FMV in real estate does not directly apply to the unique skills and contributions of individual physicians.

While FMV may appear ‘objective’ to your potential employer, it is always personal to you. FMV should never be a barrier to contract negotiations. Remember, no contract is non-negotiable! Your unique skills, experiences, and contributions should be recognized and appropriately compensated.

The most effective strategy is to arm yourself with as much information as possible and enlist the help of expert advisors and negotiators. Physicians need a “special sauce” to be effective in contract negotiations.

For only $297, Contract Diagnostics offers Compensation Rx, a service designed to ensure you receive the best compensation and benefits for your unique circumstances and geographic location. This comprehensive compensation analysis includes a detailed review, a personalized report, and a phone call with an expert, which provides the reassurance and support you need during these negotiations.

Don’t leave your compensation to chance—invest in your future today. Learn more about our Compensation Rx service and take control of your compensation negotiations.

Have questions about your compensation? Click here to schedule your free compensation call and learn more about how Contract Diagnostics can empower you in your next salary negotiation.

About the author

Dr. Drew Sutton, MD, has walked the long road of a successful medical career, amassing invaluable insights and expertise. With a wealth of knowledge derived from his time in the trenches, he understands the myriad challenges and opportunities that come with physician contracts and compensation. Dr. Sutton does not just share theoretical knowledge; he imparts lessons from his hands-on experience in the medical profession. Dr. Sutton has been where you are, and he’s navigated the path to where you want to be.

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