For the nurse practitioners in restrictive states that require collaborative physicians, it is important to understand how you are going to compensate your physician collaborator. How much you should compensate them is discussed here. Use this guide to determine the best compensation model for your business: fixed rate or production-based payment.

Fixed rate vs. production-based compensation: which is better?

There are advantages and disadvantages of each compensation model. The biggest thing to consider is how much money you have and what your risk tolerance is. If you have a substantial amount of cash when starting a business, Elite NP recommends going with a fixed rate. If you are strapped on cash and worried about compensating your physician collaborator, then a production-based model might be more suitable for you.

Fixed rate model

The fixed rate is just that: you are paying your collaborating physician a fixed amount of money every month. According to market research conducted by healthcare attorneys, a fixed rate for a physician collaborator varies between around $5,000 to $15,000 depending on the region of the country where you practice.

This is the option for the nurse practitioner entrepreneur who has a little money set aside for this expense. If you are starting a business and have $3,000 extra to pay the physician for three months until revenue starts building up, then go with a fixed rate model.

This will be a fixed expense that is predictable every month. It doesn’t matter how much money you are making; you will always pay the physician this amount of money. This is the advantage of the fixed rate. The biggest downside is the fixed expense. What if your practice is not doing well? That is a real possibility and one you should consider. If you are not bringing in enough revenue monthly to cover all your expenses, including the physicians fee, then you will run into financial troubles early.

If you have the money, go with a fixed rate. If you are operating with very thin margins, then consider the production model.

Production-based model

The production model pays the physician a percentage of collections. This will be a variable expense and will depend on how well your practice is doing. If you make zero dollars, then the physician makes zero dollars. On the other hand, if you make $20,000 in one month, then the physician is going to get a cut of that. This may seem unfair to some NPs, as they usually are doing much more hands-on work in the practice than the physician who oversees them.

Market research suggests that NP business owners should not pay an individual physician collaborator more than 10% of collections. While 10% is generally fair, it can be necessary in some states to raise this fee up to 20%. If the physician wants more than that, Elite NP recommends finding another. Collaborating physicians are not in short supply, since this kind of position typically does not require long hours or significant effort.

The biggest advantage of a production model is the risk associated with it. This expense will vary on the revenue coming in. So, if you are strapped on cash when starting your side practice, this will significantly reduce your anxiety. You will not have to worry about finding the money to pay your collaborator. The money should be there as long as you are operating a low expense practice. If you have a low risk tolerance and/or have limited startup money, then consider a production model.

The main disadvantage of this model is the cost. If you operate a niche side practice and follow The Elite Nurse Practitioner Model, chances are high that you will generate a significant profit. You will work hard growing this practice and have to pay a percentage of the money to your physician collaborator. This could become very discouraging after some time.

Because of this Elite NP recommends operating with a physician collaborator under one year agreements. This allows you to regularly reassess how your business is doing, and adjust pay rates accordingly. If you lock into a pre-determined rate for extended amounts of time, it may cause your business to suffer.

Learn more about operating costs by enrolling in Elite NP’s Principles of Growing and Scaling Your Business course!