The “50th Percentile” Myth: How Hospitals Use Opaque Benchmarks to Undervalue Physicians

Here’s a problem we commonly see in our physician contract practice: many large hospital systems build compensation plans behind closed doors, then tell physicians they’re being paid at the “50th percentile” without ever showing what that means or whether their numbers are accurate.

It sounds reassuring and fair. But what we’re seeing in the field tells a different story.

In fact, we’ve seen repeated situations where compensation numbers fall well below what physicians reasonably expect based on compensation benchmarks. In our view, this is sometimes malicious, often systemic, and always built around information asymmetry that puts physicians at a disadvantage.

Here’s what you need to know.

Most Physicians Never See the Employer’s Data

Let’s start at the foundation. Hospital systems typically use external compensation data to design their physician compensation plans. This includes:

• Compensation per Work RVU rates ($/wRVU) applied to base volume expectations and production-based bonus structures.
• Total compensation and base salary compensation by specialty.
• Fair market value and commercial reasonableness thresholds.

These numbers often come from external data sets like MGMA, SullivanCotter, and AMGA. While we’d argue that crowdsourced alternatives like what Offcall is producing are likely more accurate and certainly more transparent, most hospitals still rely on closed, proprietary data sources.

And here’s the catch: physicians almost never get access to the same data used to calculate their pay.

If a physician tries to independently review MGMA data, they’re often quoted prices in the 4-figures. Even if they purchase access, the data is full of nuanced tables, definitions, and filters that can be difficult to interpret without experience. Just getting access to data doesn’t mean you know how to interpret and use it. As any good scientist will attest, data is only helpful if it can be interpreted correctly.

This creates a huge power imbalance.

50th Percentile of What, Exactly?

Even when employers claim “you’re being paid at the 50th percentile” they often fail to clarify a basic question… 50th percentile of what?

This is not a rhetorical point. The way these benchmark numbers are collected and reported can lead to wildly different outcomes for the same specialty, and there’s many ways to dice up the data to create more favorable outcomes. Consider:

• Practice Setting: Are you being compared to physicians in all practices, physician-owned private practice, academic medicine, hospital employment, or private equity–owned groups? These settings have different compensation structures and volume norms, creating very different outcomes. Some hospital systems will pick the defining setting in a way that’s more favorable to them.
  • Example: If it’s more favorable to use “All Practices” instead of “Hospital Employed”, they may cherry-pick that option to their benefit.
• Data Set: Each producer collects, processes, and produces their data differently. For example, we routinely see 5 to 10 percent or more variation in reported “50th percentile” Compensation per wRVU rates between them. Some hospital systems will give themselves the option to consider many and will sometimes cherry-pick the data producer that provide outcomes more favorable to them.
  • Example: If they are primarily looking at $/wRVU rates, they may consider one option, but may switch to another if the datapoint being considered is more favorable elsewhere.
• Geography: Local markets matter. Physicians in the rural Midwest are often not being paid on the same scale as those in Seattle, Boston, San Diego, or South Florida. But some employers selectively apply local or national benchmarks depending on which number favors them most.
  • Example: Rural Midwestern employers often realize that controlling for geography yields more physician-favorable results, so they may select National benchmarks. Large population centers and lower-paying regions may select more specific datasets when it’s more favorable to them.

Sometimes, they will use old datasets. I’ve had employers claim that the data we at Michael Johnson Legal presented during a contract negotiation is wrong, but upon further digging, we found out they were clinging to data from three years ago. This is more likely to occur in specialties that are seeing increasingly favorable compensation over time.

Sometimes, they will correctly claim that your total compensation is the 50th percentile, but fail to mention that your volume is consistent with the 75th percentile or 90th percentile. Compensation and volume are intertwined.

Lastly, sometimes they just flat out don’t tell the truth. It happens more than you may think.

Compensation per Work RVU Drives Most Comp Models

If you’re a proceduralist or a clinic-based physician, your long-term compensation is almost certainly tied to Compensation per Work RVU rates. This number matters. A lot. But this is another area where employers can hide the ball.

If your employer tells you your pay is “competitive” but doesn’t tell you what your Compensation per wRVU rate is, or how it compares to your specialty-specific benchmarks, you may be walking into a significant undervaluation. And even when you’re given the rate, you still need to ask: how was it chosen? What percentile is it pegged to? What practice setting? What data set?

Be weary of a strong base salary that’s tied to a low $/wRVU rate and correspondingly high wRVU volume threshold. Being guaranteed a strong base salary may sound great, but it loses its luster if the employer demands outsized volume expectations for that median compensation package.

Lack of Transparency = Less Money for Physicians

The lack of access to the data that determines your pay is not a small problem. It creates a system where hospitals can claim they are paying you in a certain way, but without oversight and verification. Unless you can verify that with actual data, the phrase “50th percentile” becomes almost meaningless.

If you’re negotiating an employment contract, or receiving a compensation plan update, it’s often prudent to take time to ask questions. Be specific:

• What data set are you using?
• What year of the data?
• What filters are applied? (Geography, setting, FTE status)
• What percentile is used?
• Are you applying the same methodology across all specialties and departments?

Ask for the source pages of the compensation data and compare it to public benchmarks like Offcall. Even if you don’t get full transparency, asking these questions puts your employer on notice that you’re engaged and informed.

A Federal Solution Worth Considering

If I could pass a federal law to protect employed physicians, it would start with this:

Any employer using external data to set physician compensation must disclose those data sources and methodology.

If an employer claims that a given compensation rate is fair market value or commercially reasonable based on an external dataset, physicians should be legally entitled to verify it.

We understand hospitals may have confidentiality concerns. That can be addressed through confidentiality clauses in the employment agreement. But transparency should not be optional. It is fundamental to fairness, particularly as hospital systems consolidate and gain outsized leverage in local markets.

And while we’re at it, let’s throw in a federal ban on employed physician noncompetes.

Bottom Line

If your employer says they’re paying you in the 50th percentile, don’t stop there. Dig deeper.

You might find that the “50th percentile” is based on a very narrow, outdated, or cherry-picked data set. Or you might find that your pay structure is falling well below what’s fair, especially when factoring in specialty, geography, practice setting, and productivity volume.

Transparency creates fairness. Without it, physicians will continue to be paid less than they deserve. We need systemic change, but in the meantime, your best defense is information and advocacy.

Physician employment attorney Michael Johnson runs a leading physician employment law firm and is an expert on employment contracts and negotiations. Michael was previously a guest on our podcast How I Doctor and is also a frequent guest contributor. Learn more about Michael's firm Michael Johnson Legal here.