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Setting up a compensation plan for physician managers
Most doctors emerge from their residencies believing that what awaits them are days filled with treating patients, patients, and more patients. But for the lion's share of private-practice physicians, the reality is a mix of patients -- and lots and lots of managerial duties.
After all, private practices -- whether they have one physician or 301 -- must make sure their billing system works, that their personnel are efficient and (hopefully) happy, that young recruits are mentored, and that relationships between the practice and managed-care companies, accountants, lawyers, and sometimes even the media -- are running smoothly.
If they can afford it, practices can hire someone who is dedicated to handling managerial duties, but most doctors would rather have one of their own at the helm: someone who really understands the mission of the practice. And beyond the day-to-day management responsibilities, there may be other leadership shoes to fill, like medical director or board seats.
From there, the question of compensation emerges. If physicians are spending their time acting as executives or serving on committees rather than (or in addition to) seeing patients, how do they get paid for these activities?
Unfortunately, there's no simple answer.
A matter of culture
"Just like every physician group's culture is different, every group approaches management responsibility and compensation in a different way," says Robert Curran, a partner in the Baltimore-based law firm Whiteford, Taylor & Preston.
Curran, who has many physician clients, has seen the full range of
possibilities. Some practices, like those focusing on surgical specialties or anesthesiology, are structured so that
all work and pay is divided evenly. Physicians chosen for internal committees and other leadership roles can make those duties part of their regular workday and not sweat over the patients they're not seeing; their pay doesn't fluctuate. This is the most egalitarian structure, says Curran.
But in other practices -- mainly primary care and internal medicine -- compensation is tied to relative productivity. Thus, a doctor taking much of her time to serve on committees or interface with managed-care companies on behalf of the practice could find herself behind the eight ball, pay-wise.
That's where the compensation package must be tweaked to pay the doctor fairly for the nonclinical service provided to the practice, says Curran.
Bruce Johnson, a consultant with Medical Group Management Association Health Care Consulting Group in Englewood, Colo., says compensation for nonclinical roles depends on the size of the group.
"If you're in a group with 100 physicians, you've got all kinds of resources, and so it's no big deal to take an extra $50,000 out of the budget to pay Dr. Jones to be managing director," he says. "But that's a lot of money to a small practice."
Johnson adds that when one small-practice physician is being paid more to handle management obligations -- while his patient load dwindles -- the other physicians may balk.
"The compensation for management services is perceived as coming out of the other doctors' pockets," Johnson says. "They are a little more sensitive about it [in small practices]."
Smaller practices and those strapped for cash might consider giving physicians with managerial duties extra time off in lieu of extra pay, or adjusting their pay structure so that they aren't penalized for nonclinical time.
Extra compensation often depends on how much time the physicians are spending away from patient care. If the title of "practice president" translates into just a few more hours of work per month, usually there's no additional compensation -- or perhaps an hourly fee, says Miller. But if it means that one day or more per week is dedicated to the role, additional compensation may increase accordingly.
Johnson believes that small practice physicians shouldn't waste their time grumbling if one of their cohorts is getting compensated for management tasks. "You can always make more money by practicing medicine than doing [that kind of] work," he says.
For instance, if a primary-care physician makes $200,000 a year seeing patients, and that's cut in half due to all of his new managing director duties, the remaining $100,000 will not be recouped through a leadership stipend or a management fee. "[Those fees] just don't go that high," says Johnson.
So, how high do managerial stipends go?
Scott Miller, co-partner in charge of the medical division of Roseland, N.J.-based accounting and consulting firm J.H. Cohn LLP, says that varies quite a bit.
"I'd say it can be between $20,000 and $40,000 a year for the one or two doctors doing extra functions in medium to large practices." Others say fees can go as high as $50,000. According to Johnson, practices willing to pay such management fees include them in their overhead budgets.
Houston-based multispecialty group Kelsey-Seybold is one practice whose policy is to avoid penalizing their doctors financially for the time they spend on management duties for the practice. According to Spencer Berthelsen, chairman for the 53-year-old group, Kelsey-Seybold makes sure each physician's salary is "whole."
In other words, "we don't let their income suffer because their productivity is reduced when they spend time doing nonpatient care activities," says Berthelsen.
With 22 locations and 275 physicians, Kelsey-Seybold has many doctors with management roles, the top three of whom spend 80 percent of their time on these kinds of duties. The practice simply budgets for the "wholeness" of these physicians' salaries each year.
They've been doing it that way for 15 years, and, says Berthelsen, the physicians not in leadership roles don't take issue with it. They realize everyone's working hard for the good of the practice -- it's just that some aren't seeing as many patients.
According to Berthelsen, it was a move Kelsey-Seybold had to make. "Our practice was becoming so complex, handling the management work in the early mornings and after hours was no longer possible. This is one of the keys to our success now."
Naturally, problems arise when one physician's management duties become extensive and the others in the practice continue to feel the extra work should be handled during the physician's "free" time.
"There can be a distinction drawn between being pleased with the work someone's doing, and being willing to pay for it," says Johnson.
One option is rotating each physician though these roles on an annual basis. This way, says Johnson, extra compensation may not be necessary; the rotating management roles simply become a part of belonging to a particular practice.
As a practice grows larger and more lucrative, experts say, it may be time to consider bringing on an administrative head or an executive director to handle many of the managerial duties -- someone who reports to the physicians but leaves the high-level business decisions to them.
"For the vast majority of our clients, we recommend that they hire someone like this to handle functions like dealing with staff, pensions, monthly reports," says Miller. "That eliminates a great deal of work the doctors will otherwise need to do."
Curran agrees. "When you find your doctors are so overworked on the management end of things that you're falling behind your competitors in certain crucial areas like billing and compliance with federal regulations," he says, "it's time to hire a manager."
He says that, for smaller practices, an alternative solution may occur when a senior doctor in the practice grows weary of the patient load and decides to make a switch to a different role.
This is a good thing: there are some tasks that only a physician can do, such as mentoring young recruits at the practice and going into rural or inner-city areas to administer care on behalf of the practice. For those duties, most experts recommend defining them as a performance expectation and distributing them evenly among all doctors at the practice. If the overtime becomes intense for one particular doctor, consider paying an hourly rate or offering extra time off here and there, says Curran.
But, adds Miller, you might have to offer more. "If a doctor is consistently spending in excess of 10 to 15 percent of his time on community outreach, he may need a compensation package for that," Miller says. "Ultimately, it's up to the management committee."
As are most of these decisions, because in the end, there are no cookbooks or protocols for how to compensate doctors for the nonmedical duties they do. The choice lies with the practice, and -- fortunately or unfortunately -- the options are seemingly endless.
Says Johnson, "There are as many pay plans out there as there are practices."
Suz Redfearn can be reached at firstname.lastname@example.org.
This article originally appeared in the May/June 2002 issue of Physicians Practice.