Compensation question - Dermatology

[Isshiki Satoshi]

Hi everyone,

Hope that you have all been healthy and well. I am a PGY-4 dermatology resident currently looking for my first post-graduation job. One practice has offered a snapshot of their compensation model. There is no base/fixed salary and it is all % net collections. The first year starts at 46% net collections.

My question for the group is as follows: What is the difference between net collections and total collections? How should I go about getting clarification from the practice what this entails? I have not yet received a formal contract offer and figured I would wait for that (if they are interested) before asking more detailed questions like this.

Thanks so much for your help!

[JWeb]

Ask them what "net" collections actually means.

[Random1]

Net collections is an arbitrary non specific number which may be meaningless for you.

Collections are based on services provided, billing , payor mix and how good a biller is collecting the money.

Net collections , "net" of what ? It all depends upon how fixed costs and employee costs are attributed.

[Ozarka]

I would be very wary of going on a net collections comp model right out of residency. I would try to negotiate a base salary with some sort of collection component. The reason that I hesitate with purely collections right off the bat is that there are way too many variables that are out of your control:

1 - how many exam rooms will you get
2 - how many nurses/MAs will you get
3 - what's their current patient base and how far booked out. Also to this same point, what's the overall patient base and derm market look like in that area? Are they going to market for you?
4 - are there other MDs or midlevels they're hiring at the same time? That could be taking patients away from you.
5 - how good are their collections practices? There's a lot of info on this forum about gross billings vs. net collections.
6 - what did the other derms see in terms of total collections the first year or 2 out (not that it matters now)
7 - if there's anything to learn from this past year, it's to expect the unexpected.

Nothing wrong with a pure collections based model once you're established and you find a rhythm. For example, spouse was "promised" more rooms and 2 nurses at the start...1 year later they're just now hiring that additional nurse and getting that additional room. Just some food for thought.

Aside from all that, congrats on nearly completing residency!

[DavidGlennCPA]

Accountants define net collections as collections less any refunds issued.

But like others have said, be sure to get their definition of net collections.

[Tim]

In terms of compensation, the definition is important. It sounds like they use the 46% so they keep 54% to cover the overhead, direct costs and benefits.
You will get paid in this model when the cash actually comes in. There will be a lag.

Your goal is to get an accurate picture of what you will actually generate. In private practice, many ways a new hire can get the shaft. Referrals, mix, cherry picking the higher paying stuff. That is the motivation for a base. If they are confident in the projected volumes, shouldn’t be much risk. If all they do is provide an office, that is possible, but a much different path.

[WorkingToFish]

Hi everyone,

Hope that you have all been healthy and well. I am a PGY-4 dermatology resident currently looking for my first post-graduation job. One practice has offered a snapshot of their compensation model. There is no base/fixed salary and it is all % net collections. The first year starts at 46% net collections.

My question for the group is as follows: What is the difference between net collections and total collections? How should I go about getting clarification from the practice what this entails? I have not yet received a formal contract offer and figured I would wait for that (if they are interested) before asking more detailed questions like this.

Thanks so much for your help!

I am in the same field and just started in July. I negotiated for a relatively low fixed salary with 40% net collections above that. I am on track to at least double my salary thus far. Previous hires I know well have gone with the 40% net collections alone, without a fixed salary. There is about a 2 month lag between billing and collections coming in, so if you go this route, make sure you have some savings set aside until the collections start rolling in.

[lakeswim]

I'm Derm and I work purely on collections. My advice would be to get a very strong sense of your practice's financials (and culture). I was able to see the partners' collections so that I could make sure I was in their ballpark. My schedule has been full since Day 1, as promised.

That said, there is definitely a learning curve coming out of residency. I'm a few years out, so I can handle a certain pace of patients. You are inevitably going to feel some internal pressure to see more patients to make more money, especially if you have loans and/or you're just trying to keep up with the other docs. I have had to resist that impulse a couple times (especially when patients no-show, which kills me).

Feel free to PM me.

[Isshiki Satoshi]

Thanks to all for your very helpful replies. For context, the practice is in California. I will be sure to clarify their definition of "net collections" when I visit them/shadow. If offered a contract, I hope to negotiate a modest base salary with a lower % of net collections then what they are advertising to ensure some stability for myself. Hopefully they will be amenable to that.

[Dermonc]

I am in the same field and just started in July. I negotiated for a relatively low fixed salary with 40% net collections above that. I am on track to at least double my salary thus far. Previous hires I know well have gone with the 40% net collections alone, without a fixed salary. There is about a 2 month lag between billing and collections coming in, so if you go this route, make sure you have some savings set aside until the collections start rolling in.

40% net collection after you collect your salary meaning bonus starts at collections*.4=base salary or after collecting a lower number?

[ddoc79]

Recent derm graduate here. Net collections should be defined in the contract. Net collections should be total revenue generated by professional services (E&M, procedures, cash from cosmetics) minus cost of products (Botox, fillers etc). It probably will NOT include ancillary services such as patients buying products at the front desk, pathology services etc. It is important to know that your practice won't be paid for a service until 60-90 days after the service was performed. Therefore, it is a not a wise decision in your first year coming out to be compensated purely on net collections, unless you are interested in not receiving a paycheck for 3 months. I negotiated a base salary for my first 12 months. After month 12, I go to 45% of net collections. I had my attorney change the verbiage of the contract to ensure they don't deduct cost of commonly used products such as suture, gloves, anesthetic etc from my collections. Read and re-read your contract dozens of times and have a full understanding of how terms are defined.

A decently busy dermatologist that works 4 days per week will likely generate anywhere from 1mil to 1.4mil in total revenue. Payor mix can have a large influence on this number. I would ask your practice how many commercial vs medicare patients you will be seeing. As I understand it, a 50/50 (commercial/medicare) split is decent and a 70/30 split is the best I've heard.

[WorkingToFish]

40% net collection after you collect your salary meaning bonus starts at collections*.4=base salary or after collecting a lower number?

Basically, I get 40% collections above my salary. So, say my salary is 200k, that would put me at ~16.7k per month. Anything above this, I get 40% of net collections. So to meet my salary I would have to collect 41.7k. But say I collect 80k for the month, I will get 40% of that, so 32k.

[Ozarka]

For those on net collections, how does the practice take into account your other costs like malpractice, licensing, 401k, health insurance, etc. when it comes to your pay? Essentially, what does the formula look like for those on a collections method?

[AR]

For those on net collections, how does the practice take into account your other costs like malpractice, licensing, 401k, health insurance, etc. when it comes to your pay? Essentially, what does the formula look like for those on a collections method?

Assuming you're an employee, those things are overhead and are accounted for when they decide to pay you X% of collections. Most of the time nothing further is done.

Occasionally, given the fixed nature of these costs, a practice will offer a stratified plan like this

X% for the first A$ of collections
Y% for the next B$ of collections
Z% for the next C$ of collections after that


Z>Y>X

The idea is that the higher your collections the less of what comes in goes towards fixed overhead costs. This is the economic reality for owners. Some owners try to pass the good and bad aspects of that reality on to their employees. There is nothing inherently better or worse about this approach. It all depends on what A,B,C,X,Y and Z are.

[SerrateAndDominate]

Nice to see a specific specialty sharing this info with each other so openly. Cool thread.

also, I'm a dermpath if anyone's ever in a bind. just saying