A private equity partnership brings new resources and growth potential, but it also fundamentally changes how you are paid. Understand the shift to modern physician compensation models, including base salary, wRVUs, profit sharing, and equity rollovers, so you can evaluate an offer with confidence.
One of the first questions you’ll ask when considering a sale to a private equity (PE) group is, “What happens to my paycheck?” You’re used to a direct link between your work and your income, whether through a partnership draw or a simple productivity formula. That’s about to change.
As we cover in our guide to post-acquisition changes, your compensation structure is one of the most significant transformations you’ll face. The simple model you know is replaced by a multi-layered system designed to align your financial incentives with the long-term growth of the entire organization. Understanding this new model is the key to assessing your financial future.
Why PE Firms Restructure Compensation: Aligning for Growth
After an acquisition, the PE firm’s primary goal is to increase the practice’s profitability and enterprise value, often measured by Adjusted EBITDA. To do this, they need to ensure that every physician is motivated not just by individual performance but by the overall success of the platform.
Your old compensation plan rewarded you for your direct patient care. The new model is designed to reward you for that plus actions that make the entire business more valuable. This includes improving efficiency, helping recruit new talent, and contributing to positive patient outcomes across the practice, all of which drive the platform’s value for a future sale.
Deconstructing the Post-PE Physician Compensation Package
Your new compensation package will likely be a blend of several components, each serving a specific purpose. Instead of a single income stream, think of it as a layered structure that balances stability with performance-based upside.
Here are the key components you should expect to see:
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Base Salary This is your guaranteed income, providing a stable financial floor. In a post-PE model, the base salary is typically lower as a percentage of your total potential earnings than what you might be used to. It offers security, but the real upside lies in the variable components. Expect a base in the $200,000 – $350,000 range for a mid-sized multi-specialty practice, with variations by specialty.
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Productivity Incentives (wRVUs & Collections) This is the engine of your variable pay. Most PE-backed groups use a productivity formula based on either a percentage of your net collections or, more commonly, Work Relative Value Units (wRVUs). You might be paid a set rate, like $40 to $70 per wRVU generated. This component still rewards your individual hard work but is now just one piece of your total compensation.
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Practice-Wide Profit Sharing (EBPC-Based) This is where alignment truly happens. Many models include a bonus tied to the practice’s overall profitability, often calculated from “Earnings Before Partner Compensation” (EBPC). A portion of the practice’s profits is pooled and distributed among the physicians. This incentivizes you to think like an owner again, encouraging collaboration on cost savings and efficiency to grow the shared pie. Partners or senior physicians might receive 10–25% of these after-expense profits.
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Equity Rollover & Earnouts This component gives you a direct stake in the future success you help create. An equity rollover means you reinvest a portion of your sale proceeds into the new, larger company. If the PE firm successfully sells the platform in 3-5 years, this equity could be worth far more, giving you a lucrative “second bite of the apple.” An earnout is a contractual agreement for additional payments if the practice hits specific financial targets post-sale.
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Value & Quality Bonuses A growing part of modern compensation, these bonuses are tied to non-financial metrics. This can include patient satisfaction scores, adherence to clinical protocols, and positive patient outcomes. While often a smaller piece of the total package (e.g., up to 10% of total compensation), they are increasingly used to demonstrate a commitment to quality care, which is important for regulatory and reputational reasons.
Pre-Sale vs. Post-PE: A Direct Comparison
The best way to understand the shift is to see it side-by-side. The emphasis moves from a high, secure salary toward a greater share of variable, performance-based pay that rewards both individual and group success.
| Compensation Element | Typical Pre-Deal Structure | Post-PE Structure (2025 Trend) |
|---|---|---|
| Base Salary | 60–80% of total comp, high & fixed | 40–50% of total comp, more variable |
| Productivity Incentive | Small to moderate, often a flat bonus | Larger; typically wRVU or collections-based |
| Practice Profit Share | Limited to founding partners only | Expanded; tied to group EBITDA/EBPC |
| Equity/Earnouts | Rare except for original owners | Common as a key retention & incentive tool |
| Value/Quality Bonuses | Used sparingly | A growing share; often required by payers |
How to Evaluate Your New Compensation Offer
When a PE group presents you with a new compensation plan, it’s more than just a salary offer—it’s a strategic proposal. Here is what to focus on as you review it.
- Model Your Potential Earnings. Don’t just look at the base salary. Ask for the full formula and run the numbers. How many patients do you need to see or wRVUs do you need to generate to hit your target income? What is the realistic upside if the practice hits its profit-sharing goals? See if the math works for your financial needs and work-life expectations.
- Understand the “Guarantee Period.” Many deals include a one or two-year income guarantee to ease the transition. This is a great safety net, but you must understand what happens when it expires. Will your pay revert to the new formula? Be prepared for the shift from a guaranteed income to a more variable one.
- Review the Fine Print. The details of your compensation will be legally defined in your new employment agreement. Scrutinize the terms, including how and when bonuses are paid out and what happens to your equity if you leave before a second sale. You can find more information in our physician employment contracts guide.
- Confirm Compliance with Fair Market Value. All physician compensation is subject to federal regulations like the Stark Law. Your pay must be consistent with Fair Market Value (FMV) for the services you provide. The PE firm’s legal team will manage this, but it’s good to know that these rules influence the structure of your offer.
- Consider Alternative Structures. While most physicians become employees post-sale, some arrangements use Professional Services Agreements (PSAs), which have their own unique compensation rules and compliance considerations that should be reviewed carefully.
Secure Your Financial Future with Expert Guidance
A post-PE compensation model is a tool designed for growth. It aims to balance the security of a base salary with the upside of performance incentives and equity. By shifting the focus from purely individual production to platform-wide success, PE firms align your goals with theirs.
Evaluating a complex PE offer requires more than a calculator; it requires strategic financial modeling. The team at SovDoc can help you project your future earnings, understand the risks in your offer, and negotiate from a position of strength. Contact us to ensure your compensation aligns with your long-term financial goals.
Frequently Asked Questions
How does physician compensation change after selling a practice to a private equity firm?
After selling a practice to a private equity (PE) firm, physician compensation shifts from a simple, often fixed income model to a layered structure designed to align incentives with the growth goals of the entire organization. The new compensation typically includes a base salary (usually lower than before), productivity incentives based on wRVUs or collections, a share in practice-wide profits (EBPC-based), potential equity rollover and earnouts, and value/quality bonuses.
What is rollover equity, and why is it important for physicians after a PE acquisition?
Rollover equity means that physicians reinvest a portion of their sale proceeds back into the new, larger company formed post-acquisition. This gives physicians a direct ownership stake and the potential for future financial gain if the private equity firm successfully sells the platform in 3-5 years. It’s often considered a ‘second bite of the apple’ and can be a lucrative long-term incentive.
How are wRVUs used in post-PE physician compensation models?
wRVUs (Work Relative Value Units) are a common basis for productivity incentives in post-PE compensation models. Physicians are typically paid a fixed rate per wRVU generated, ranging from $40 to $70. This component rewards individual clinical productivity but is part of a broader compensation package that also includes profit sharing and bonuses.
What are earnouts in the context of a physician practice sale, and what risks do they carry?
Earnouts are contractual agreements for additional payments to physicians if the practice meets certain financial targets after the sale. While they provide a potential for extra income, earnouts carry risks because payments depend on future performance, which may be affected by factors beyond the physician’s control. It’s important to understand the terms clearly and consider the likelihood and timing of these payouts.
How should physicians evaluate a new compensation offer after selling to a PE firm?
Physicians should evaluate new compensation offers by modeling their potential earnings across different scenarios, understanding any guarantee periods when income is assured, reviewing all contractual details including bonus structures and equity clauses, confirming that compensation complies with Fair Market Value regulations, and considering alternative arrangements like Professional Services Agreements. Consulting with experts, such as SovDoc, can help in projecting earnings, identifying risks, and negotiating effectively.
