Eat What You Kill

July 15, 2001

Consider switching to an “eat-what-you-kill” compensation plan, grounded on activity-based cost accounting


How does your practice code for a diagnosis of medical group inertia? You won’t find the answer in the CPT Manual, but many practices are discovering that unproductive and uncompensated activities related to financial squabbling are dragging down morale - and income levels. Generally highly independent people, many doctors have become unhappily caught up in the doctrines and quirks of group dynamics, which run counter to their natures.

Group practices are generally run co-op style: Physicians share resources, adopt management policies, and share revenues. That means they also spend a lot of time kvetching about compensation and critiquing their colleagues’ work habits.

Tired of the complaining? Consider switching to an “eat-what-you-kill” compensation plan, grounded on activity-based cost accounting. It may not be the most collegial arrangement - and it won’t work for groups who lack a shared sense of obligation and culture - but it might end some of the bickering.

To each his own

Implementing this model certainly brought brighter days to Peachtree Orthopedic Clinic, a 24-physician practice in Atlanta. The group used to share revenues and expenses equally. But three years ago - against the advice of experts who warned it would mean the dissolution of the group dynamic - the practice switched to a strict productivity model: Physicians are paid based on how much revenue they produce. If they want to add expenses - say, another nurse - they pay for it individually. Every incoming bill is immediately charged against a specific physician’s account. It’s revenue versus expenses.

Lee Kelley, a surgeon with Peachtree, says physicians in the group work together better than ever under these conditions.

“The group functions better because we don’t have all those petty fights,” he says.

Kelley, for example, used to be angry when other physicians who worked less were paid equally. Sparks flew, too, when a less-busy physician complained because Kelley had more support staff.

“Now, it’s no longer an issue ... because it’s coming out of my pocket,” he says. “I think people are more happy in the group than they used to be. The glue hasn’t come undone.”

Peachtree CEO Michael Pulaski agrees: “The ambiance is so much better. We are more productive because everyone’s doing what they are supposed to be doing,” instead of wasting time complaining.

ldquo;Everyone was suddenly a lot more interested in doing more surgeries and seeing more patients” when their compensation reflected the effort, Kelley adds.

The group also has improved its coding, billing, and documentation practices, according to Kelley.

“Doctors used to be sloppy about codes. It wasn’t worth the doctor’s time to mess with all the decimals and the numbers,” he says. “Now, since everyone is expected to code for what they do, everyone in the practice is a billing expert, and documentation has risen to unbelievable levels.”

Best of all, in Pulaski’s view, physicians have their autonomy back.

“A slew of publications, consultants, and conferences have cropped up that try to address the problems caused by the one-size-fits-all management of doctor groups,” he says. “The credo is that one must give up autonomy in order to be a member of a group. Command and control is top-down ... just like the communes of the former USSR.”


Peachtree Orthopedic, on the contrary, lets physicians do what they want, just like in the good old days before managed care; there’s no need for top-down rules.

Universal solution?

Satisfied as the physicians at Peachtree seem, Jack Silversin, president of AMICUS, a Cambridge, Mass.-based company that consults to physician organizations on leadership and change, warns that compensation modifications won’t work such magic with every group.

“There are many situations in group practice where that won’t be enough,” he says.

As a single specialty group, the doctors at Peachtree Orthopedic have a lot in common - that works in their favor when compensation is driven by behavior. But other groups - particularly multispecialty groups - will have more problems.

“In these, I believe, there needs to be a recognition that for the good of the enterprise, there has to be some limit to personal autonomy,” Silversin says.

For example, he points to policies on how the front desk staff will be utilized, how referrals within the group will be handled, who takes vacation when, and which practice guidelines will be set in place. If a group wants to promise certain access standards to its payers and patients, he wonders, what can it do about the one physician who will never work past 3 p.m.?

At some point, if the group is presenting one image to the world, physicians have to act like a true group and let go of some autonomy. No matter what the compensation plan, Silversin says, “you still need to have some sense of the responsibilities of being in a group.”

No perfect answer

Production-based compensation might not resolve all arguments about fair pay, says David T. Contento, chief financial officer for Neurology Group of Bergen County in Ridgewood, N.J. Contento was recently a group practice administrator who used a 100 percent productivity-based compensation plan. The sticking point was always overhead. Fixed overhead costs were shared equally in Contento’s practice, “but every few years we had to discuss what counts as fixed overhead.”

At Peachtree Orthopedic, all overhead costs, fixed or not, are allocated. The same applies at the eight-physician St. Louis Pediatric Associates. Says administrator Cindy Fears, “Any expense that I can’t directly tie to a doctor is allocated monthly based on the percentage of office charges generated by each physician. This is adjusted year-to-date for each month, also.” Fears says the exception to this rule is “odd things” such as the after-hours exchange, an office gathering for which cost is divided equally among the eight doctors.

No matter what compensation model you use, or how you deal with overhead, Contento warns, “it has been my experience that someone always feels that their ox is getting gored.”

He adds that production-based plans are less-than-ideal for heavily capitated practices, where economy, not productivity is the goal. “It’s not just eating what you kill, but how you kill it,” as Contento puts it.

That’s true, of course. Then again, it’s hard to argue with a satisfied surgeon.

Pamela L. Moore is senior editor, practice management, at Physicians Practice Inc. She can be reached at pmoore@physicianspractice.com.

This article originally appeared in the July/August 2001 issue of Physicians Practice.