Physician Compensation

What Works and What Does Not

Regulatory Issues

• Non-Profit Private Inurement - IRS

– Non-Profit Ownership of Physician Practices

• Tax Exempt Financing Issues

• Medicare Fraud and Abuse

• Internal Revenue Service (Pediatric Surgical Associates)

• Stark II

– Group Practice Exception

– Compensating Designated Health Services

• Cannot Be Based on Value or Volume of Referrals

Today’s Marketplace

– Net incomes are declining

– Doctors working harder; making less

– It costs more to do business: “overhead”

– Doctors are fighting over a smaller pie

– The number one reason doctors leave medical groups: compensation!

Physician Compensation Theory – An Important

First Step

A Perfect Compensation Model

Does Not Exist!

NEVER CHANGE THE COMPENSATION FORMULA

TO COMPENSATE FOR MANAGEMENT’S FAILURE TO

ACT

Key Components to Consider When Designing a Physician

Compensation Model

Market Salary

– Geographic

• National

• State

• Local

Fringe Benefits

Practice Philosophy

Quality

The Seniority (Debate)

Productivity

– Dollars Billed

– Dollars Collected

– Patient Visits

– Panel Size

– RVUs

Key Components to Consider When Designing a Physician Compensation Model

Services to the Group

Administration

Research

Teaching

Lecturing

Membership

Community

What Physician Compensation Plans Do and Do Not Accomplish

• Compensation plans do: – supports organizational goals – motivate – influence behavior

• Compensation plans do not: – replace organizational goals – manage behavior – manage budgets – make administrative decisions – make everyone happy – grow the pie

Principles Underlying a Good Compensation Strategy

Appropriateness

Fairness

Appropriateness

The comp plan enhances practice's ability to achieve long term goals

Financial viability

Harmony within group; "fits" culture

Reflects competitive market environment

Ensures clinic's can recruit and retain MD's

Promotes efficient and effective practice

MD's involved and understand plan

Fairness

The comp plan distributes compensation equitably

Rewards MD effort and contribution

Consistent with clinic's revenue stream

Considers built in biases, constraints and flexibility

Simple to understand

Based on reliable and timely data

Key Questions to Always Ask Yourself

• What behaviors should the compensation plan motivate? – Quantitative vs. qualitative

• Does the plan reflect revenue streams flowing into the practice?

• Are salaries competitive with other groups?

• Are risk and reward properly balanced?

• How are costs monitored and controlled?

• How important is alignment and coordination to group effectiveness?

Compensation Models

An Overview

Gross Charges $3,000,000 Gross Collections 2,300,000 Overhead (42%) 966,000 Net Income 1,334,000 Production % Dr. New 22% Dr. Slowdown 17% Dr. Steady 25%

Dr. NeedsCash 36%

Productivity Based Model: Rolling off the Bottom Line

Dr. New $333,500 Dr. Slowdown 333,500 Dr. Steady 333,500 Dr. NeedsCash 333,500

Equal Compensation

Equal Compensation

Single Specialty

Simple, Team Focused

Lacks Productivity Incentive

No Incentive for Behavior Changes

Other Productivity Models

• Production with Proportional Overhead

• Production with Equal Overhead

• Production with Variable and Fixed Overhead

Other Productivity Models

• Production with Fixed, Variable, and Direct Costing

• Production with Equal Share

• Fixed Salary and Production Incentive Bonus

• Production Plus Incentive Pool

Incentive Pools (20% of Available Income) 1. Cost Effectiveness $ 80,000

2. Patient Satisfaction $ 50,000

3. Seniority $ 20,000

4. Group Meetings and

Administration $ 50,000

Production Plus Incentive Pool

Distributable Income from Productivity Plan $ 1,000,000 Less: 20% for Incentive Pools (200,000) Distributable Income Per Production Basis $ 800,000

Production Models

All Groups

Encourages High Production

Simple, Objective

Promotes Over-Utilization

Patient Competition

Collections vs. Production

No Incentive for Behavior Changes

PROBLEM: Solo practices operating under a group name

Stark

Compensating Designated Health Services

• Equal Share

• Percentage Ownership

• Patients Seen

• Office Visits

• Production Excluding Designated Health Service Production

• RVUs

Important Physician Owner Contract Issues

• Leaving the call schedule (How to reduce compensation?)

• Leaving the group – timing

• Disability

• Ability to terminate

• Addressing non-compliance with practice policies – Coding practices

– Timely dictation/documentation

Things to Remember

There is not a Perfect Plan Always Some Bias Cannot Please Everyone

Each Group is Unique Compensation Plans Should be Unique

Compensation Plans are Not Governance Tools Need Leadership Need Common Goals Management Must ACT!

Compensation Plans Must Address Group’s Goals and Mission