Demystifying Urban Versus Rural Physician Compensation

Salary Differences Are Minimal, but Incentives and Perks Might Make Rural Opportunities More Attractive 

By Bonnie Darves
In physician recruiting, the basic principle of supply and demand has always been a contributing factor in the ultimate compensation package that job-seeking physicians are offered; and the prevailing thinking is that the harder it is to recruit to a location, the more likely it is that newly trained physicians who accept opportunities there will earn more than their urban counterparts.
Even though that might be the case for some opportunities in rural areas — defined variably in the market as either a population of 20,000 or fewer or up to 50,000 and fewer — it’s not that straightforward. And where a differential does exist that positions a rural practice opportunity as more financially lucrative than a comparable urban one, the compensation difference might not be a significant as some young physicians think. Recruiting professionals and consultants who help organizations structure physicians’ compensation packages concur that while physicians who consider rural opportunities will surely be wooed, welcomed, and financially accommodated to the extent that hiring organizations are able, they shouldn’t expect a bonanza.

In other words, urban myths — that physicians who take a rural opportunity in the Plains region will start out earning 25 to 30 percent more annually than their colleagues in Chicago are just that: myths. The reality, according to Patrice Streicher, senior operations manager in Vista Staffing’s permanent search division, is that the difference will be more in the neighborhood of 5 to 10 percent. “I can say on the record that, based on what we’re seeing, the difference will be minimal — maybe 10 percent at the most — between compensation in a rural versus urban or mid-sized community.” And the salary component of the offer is pretty much the same, regardless of the location, said Ms. Streicher, a National Association of Physician Recruiters board member.
“Five years ago, the rural offers might have had much higher salaries and different structures than urban ones, but with the growth of telemedicine and other market developments, that’s no longer the case,” she said.

Survey data from the American Medical Group Association (AMGA) supports Ms. Streicher’s contention, according to Wayne Hartley, MHA, growth and service line development officer for AMGA’S consulting organization and a longtime physician compensation consultant. “It’s not like physicians are getting paid 30 percent more in rural areas,” he said. “It’s more like 5 to 10 percent.”
Tony Stajduhar, president of Jackson Physician Search in Alpharetta, Georgia, which places approximately 40 percent of its candidates in rural practice opportunities, said that his company’s recent data found a difference of an additional 9 to 10 percent in salaries in rural compared to urban starting compensation offers. (His firm defines rural as a population of 20,000 or fewer.) “Some of the survey data shows a differential closer to 5 percent, but we’re seeing about 10 percent, and in some specialties, slightly more than that depending on the community and circumstances,” Mr. Stajduhar said.

He added that rural practicing physicians often have an earnings advantage ultimately over their city colleagues because of a factor that few young physicians consider — the payer mix and associated reimbursement rates. “The payer mix is often better in rural areas because insurers have less leverage there than in urban areas,” he said, that are well supplied with physicians. “This can make a real difference over time.”

Ken Hertz, a principal consultant with the Medical Group Management Association (MGMA), cautions young physicians to avoid being enticed primarily by offers of much higher earnings. “If it sounds too good to be true, it probably is,” he said. “And it’s far more important to take a position because it interests you and you want to be in the community — to build your practice with less competition and to serve that community. The reality is that you’re not going to become a millionaire in three years just because you chose a rural opportunity over an urban one.”

Data extracted from MGMA’s recent national compensation survey showed only minor differences in first-year primary care physicians’ guaranteed compensation for non-metropolitan areas and urban ones — a median of $205,588 in smaller areas versus $200,000 in larger metropolitan ones. Physicians taking the non-urban positions received more generous relocation stipends than their counterparts, however. For surgical specialists as a group, the findings for the same two groups were surprising: first-year guaranteed compensation median was $250,000 in non-metro areas and $320,000 in urban ones. Mr. Hertz noted, however, that because rural practicing specialists have little competition, their earnings might outstrip their urban counterparts’ compensation when productivity structures come into play in subsequent years.

Incentives enrich rural offers
The relatively minimal salary difference is hardly dire news, however, for physicians who are exploring rural opportunities. Where they are likely to fare better financially than those pursuing urban opportunities is in the realm of incentives. Ms. Streicher reported that she has seen signing bonuses for non-urban opportunities as high as $100,000 — particularly for primary care positions. “There is not a plethora of these, but they do exist. And I recently encountered a candidate who received multiple six-figure signing bonus offers.” The point, she said, is that rural communities have “more motivation and eagerness to offer signing bonuses, better relocation packages, or other incentives. They’re going to offer those bells and whistles above and beyond what you’ll see in some urban settings.”

The other common area where incentives enrich a starting offer in rural locations is education loan repayment. A secondary analysis of data from the 2018 AMGA Medical Group Compensation and Productivity Survey found that for primary care packages in rural areas, the median loan forgiveness amount offered primary care physicians was $75,000 and the 75th percentile was $100,000. Mr. Hartley cautions that the sample size is small but that based on his consulting experience, such amounts are not uncommon. He also reminds young physicians that any such incentives are generally retention bonuses.
“These dollars are typically linked to a term of service of three to five years, and there are ‘claw-back’ [required repayment] provisions if the term of service is not completed,” Mr. Hartley said. “And as with any contract, all types of recruitment incentives should undergo legal counsel review.”

Ms. Streicher also cautions physicians to thoroughly understand the structure of any incentive they’re offered, as in most cases, there are strings attached. “The signing bonus is usually a retention bonus, and if the physician leaves soon after joining, she’ll likely have to pay it back.” The other consideration, she added, is that leaving an opportunity after just a year or 18 months — when an organization has invested substantially to bring in the physician — doesn’t work out well for anyone involved. “Remember that you’re building a career — your CV is a reputation that you should hold in high regard.”

One financial benefit worth considering, Mr. Stajduhar points out, is that rural locations typically offer a far lower cost of living than urban ones, and the funds saved because of lower housing costs can position prudent young physicians well financially over time. “When I’m speaking to groups of residents, to illustrate this I’ll often compare Atlanta living costs to rural area costs — a house for $400,000 in a rural area might be mansion compared to the fixer-upper that $400,000 will buy in the city,” he said. “That, combined with the fact that a lot of rural employers are willing to help younger physicians with loan repayments, can make a real difference financially over several years.”

All sources mentioned an important reminder about why there’s no such thing as “the sky’s the limit” in rural offers. For one, numerous state and federal laws govern how much hiring health care entities can pay incoming physicians — in salaries and incentives — and all compensation structures must meet the standard for fair market value. In addition, in this age of information transparency, organizations simply cannot (and most would not, for political and ethical reasons) offer incoming physicians a higher salary than their same-specialty colleagues already practicing there.

Comparing rural areas’ compensation structures  
There is insufficient survey data to determine just where in the country rural offers will be the most financial attractive because samples are small and factors such as the employer’s stability and market position, the payer dynamics, and even the Medicare and Medicaid reimbursement rates may affect the compensation employers offer. All sources concurred, however, that the most lucrative offers are likely to come from rural areas that have historically had great difficulty attracting physicians.

Overall, the 2018 Medscape Physician Compensation Report bears out the regional compensation differences and alludes to the rural added salary differential that physicians newly trained physicians might see in rural offers. Across all specialties, median physician compensation in the North Central region, which includes a lot of rural areas, was $319,000, compared to $275,000 in the far more densely populated Northeast region.

Travis Singleton, executive vice president at the national recruiting firm Merritt Hawkins, notes that payer mix and market conditions account for physician compensation differences to the same extent that location might affect earnings. “The Midwest, the Southeast, and Texas have long been bastions of fee-for-service medicine, which has kept physician incomes relatively high in those areas — which also include a preponderance of rural areas,” he said. He added that these areas typically must pay more to attract physicians. “And since there is less competition among physicians in these areas, their earning potential often is higher than in urban settings,” he said.

Nonetheless, at the hiring juncture, the salary and incentives that different rural locations offer are determined primarily by a factor outside the employer’s control, Mr. Singleton observed. “I wish I could say there’s a complicated algorithm that drives compensation differences that can be calculated and adjusted for, but it's far simpler: supply and demand,” he said. More physicians want larger, metropolitan areas, putting rural areas at a disadvantage from the start with fewer candidates to pursue.  Merritt Hawkins’ recent Survey of Final Year Residents found that only three percent of residents completing their training would prefer to practice in a community of 25,000 people or less. “That causes rural facilities to 'up the ante' in compensation,” he said, which historically, has meant 10 to 15 percent higher starting salaries and higher signing bonuses.

Further, like Ms. Streicher, Mr. Singleton has observed that variation among compensation structures is lessening regardless of where the opportunity is offered. Given the consolidation and commoditization in medicine, he said, there isn’t as much variation in compensation and contract structures as there used to be. “Perhaps one myth now is that physicians can heavily negotiate contracts with large integrated health systems,” he said. The chance that a large system will substantively amend a contract to accommodate one physician when they employ thousands, he added, “is relatively small,” he said. “However, there is still some wiggle room when it comes to schedule, and sometimes smaller, rural facilities have more latitude to tailor compensation and practice parameters to a candidate’s needs.” 

Negotiating room might exist in non-monetary perks
Several sources mentioned that rural employers are both amenable to accommodating incoming physicians’ schedule-flexibility requests and lifestyle considerations where feasible, and some have figured out that strategic marketing of those perks can increase the candidate pool for hard-to-fill positions. Ms. Streicher cites an organization in rural Maine that successfully enticed a highly qualified young psychiatrist by creating a creative schedule. The position is structured so that the psychiatrist works onsite part of the time and treats patients using telemedicine the rest of the time, allowing greater schedule flexibility. “Technology may offer a real explosion of possibilities in candidates that rural organizations might not have seen otherwise,” she said.
Mr. Hartley cited the example of a rural community that needs a general surgeon but doesn’t have enough volume to keep the physician busy full-time. “Because the hospital might not be able to recruit a part-time surgeon, they might have to hire an FTE [full-time equivalent]. In that case the surgeon might be able to earn median compensation for part-time work,” he said, “even if the schedule includes a lot of call.”

Mr. Hertz points to other potential lifestyle benefits that young physicians who are outdoors enthusiasts or want more time with family — a growing number today cite just such preferences — might find in rural settings. There’s usually no traffic to contend with and the commute might be nonexistent, he said, and proximity to nature can be a draw. He cites the case of a young physician who practices in rural Montana and is a mere 10 minutes from skiing. “She often skis in the morning before coming to work,” he said, and she is able to arrange her schedule so that she can occasionally pop out to compete in a competition during the workday.

Another potential benefit to the smaller setting is the flexibility, for surgeons and primary care physicians, to pursue professional interests in a far less crowded and competitive environment. “It’s like the difference in working in a big versus a small company. In the latter case, you can carve out your niche and pursue your specific interests and wear a lot of different hats without stepping on colleagues’ toes,” Ms. Streicher said. “You can bring a real entrepreneurial spirit to a rural community if you bring a talent and expertise they don’t have. Besides, you get to build your practice on someone else’s dime.”

Finally, physicians who accept offers in rural settings usually find a rather large welcome mat and a willingness to go out of their way to help physicians and their families settle in. “If you’re willing to make a commitment, there are places that will make an investment in you because it’s really expensive to be reliant on locum tenens or deal with turnover,” Mr. Hartley said. “They have a vested interest in keeping you there.”