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Productivity Pays

Productivity Pays

There are almost as many ways to reward physician performance and control practice overhead as there are physicians. Many medical groups have found success by combining pay for productivity with equal sharing of certain practice revenues and expenses.

These mixed models for physician compensation are not new. What's new is that more medical groups that once found harmony through sharing practice income and expenses equally are adding productivity pay to the mix.

The factors pushing many groups to reexamine their income distribution methodologies include the familiar economic pressures: flat or declining reimbursements and rising practice costs, especially malpractice liability insurance premiums. But other issues -- internal and external to the practice -- also can spur the leaders of a medical group to review and revise how they distribute practice revenue.

The addition of a part-time physician, a senior partner's desire to slow down the pace of practice before retirement, expansion of services or sites, and workforce shortages that are raising starting salaries for certain medical specialists are among the factors leading more medical practices to revise their compensation formulas. As they do, compensation experts say, the solution is often to put a greater portion of physician income at risk based on productivity.

"When the pie gets smaller, for whatever reason, people pay a lot more attention to how to split it up," says Will Latham, president of Latham Consulting Group in Charlotte, N.C. In other words, money, or rather the lack of it, changes everything.

Growth that leads a practice to add a new physician may cause current partners to take a new look at their compensation plan, says practice consultant Laura Jacobs of The Camden Group in El Segundo, Calif.

"Groups that I've worked with over the past year especially, are quickening the pace of going from equal share plans to putting some of the physician pay at risk," says Jacobs. "As the physicians get older or start recruiting new people into the group, the dynamics in the practice start to change and all of a sudden the comfortable egalitarian method of dividing everything equally doesn't work anymore."

Mixing it up

Mixed pay plans combine productivity-based rewards with elements of either a base salary or an equal sharing of expenses and income, Latham says.

The practice can base the measures of productivity on:

  • gross charges,
  • collections,
  • net charges,
  • relative value units (RVUs), or
  • a combination of those measures.

Gross charges are popular and simple because they are a good proxy for what work was done in the practice. The disadvantage is that gross charges do not reflect what the practice actually collects from patients and payers.

Collections are another popular choice used in physician pay formulas because they reflect the money that a practice actually receives. Latham cautions that since collections reflect contractual adjustments by payers, using this figure may make it feel like the practice hands out physician bonuses based on payers' fee schedules, which can undervalue some services. Basing physician bonuses on collections also can penalize the physician who handles more indigent patients or patients covered by less desirable payers.

Basing productivity pay on net charges -- gross charges minus contractual adjustments -- may seem like a good alternative, but doing so also can cause physicians to get more or less credit for their work based on what a payer deems it's worth.

Many consultants recommend RVUs as the fairest measure of physician work, but the downside is that RVUs require more sophisticated tracking mechanisms than many practices have.

Latham suggests that for simplicity's sake, physicians select one of the above measures for the basis of productivity measurements. Some groups, however, try to account for the inherent weaknesses of these various measures by combining them, such as basing the productivity bonus on a combination of net charges and collections or on net charges and RVUs.

You get what you pay for

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