Multispecialty groups use first-dollar production plans
Compensation systems that start production incentives with the very first dollar collected or the very first RVU produced by a physician, and with cost allocations either eliminated from the pay calculation or limited to general overhead ratios, are common in sizable, physician-owned multispecialty groups today.
Colorado Springs (Colo.) Health Partners (CSHP) revamped its pay plan effective November 2001, when its most recently completed fiscal year began. It dropped cost allocations completely, switched the individual production measure from net revenues (similar to collections) to work RVUs, and introduced its own benchmark calculations using MGMA and AMGA data to determine RVU-to-dollar conversion factors for each specialty, says Marnie Portz, vice president for finance.
Midwest Physician Group in the Chicago suburbs has had essentially the same physician compensation system for at least four years, says CEO David Thomas, CMPE. One provision that had little importance in 1998–profits from ancillary services are used to offset the costs charged against physicians, and thereby raise their pay–has become important as ancillary income has grown dramatically, Thomas says.
Group Blends Benchmarks
Key factors in CSHP’s former pay system, besides net revenues, were departmental profit and overhead. Considering departmental performance was not always fair to individuals, says Portz, and the pay calculation was “convoluted.” The new system, based solely on individual RVU production without a cost side, is simpler to calculate and understand, she adds. With costs kept out of the pay plan, management is responsible for holding costs down.
CSHP has 70 physicians–about two-thirds of them primary care–and 11 clinics throughout Colorado Springs. Under the new pay system, Portz takes AMGA and MGMA data for groups in CSHP’s size category, location and type of practice: 50 to 100 physicians, Western region, and multispecialty practice. She looks for two items–median production in RVUs and median compensation–for each of CSHP’s primary and nonprimary specialties. She blends the data into production and compensation benchmarks specifically appropriate for CSHP. In a few cases, where a physician is practicing two specialties, she re-blends these internal benchmarks.
The figures she derives are used in three ways:
(1) To set the target or minimum expected production in work RVUs for each physician.
(2) To set the appropriate compensation for that amount of production.
(3) To set the compensation per RVU for each specialty.
The pay plan is simply the individual physician’s production in RVUs times the compensation-per-RVU figure Portz calculates.
The survey data she uses are necessarily a year behind; she recently calculated benchmarks for the year beginning November 2002 using data for 2001. Thus, an event such as the 2002 5.4% cut in Medicare reimbursements would affect compensation only a year from now, Portz explains, and only if the cut leads to lower survey figures for physicians in various specialties.
Also, the internal benchmark figures are not adjusted for affordability, she says. Thus, an event like the Medicare cut would, in the year it occurred, reduce the cash-flow surplus of the practice, but would not affect physician pay.
In 2002, the Medicare cut “certainly did not help,” Portz says. But CSHP grew, added specialties and increased profitability. Most physicians’ income rose, she notes, and “on average [the physicians] hit their production benchmarks, with some outliers well above.”
Most of the physicians like the new plan, she adds. It allows an “apples to apples comparison of what they produce and what they get paid. So they’re pretty happy with it.”
Costs Allocated With Broad Ratios
Midwest Physicians Group uses cash collected for each physician as the measure of production, Thomas says. The group has just under 100 physicians, of whom about 40% are primary care.
On the cost side, the group simply subtracts a percentage of collections as overhead, and leaves the physician with the rest of collections as his or her compensation. It uses single percentages, recalculated each year, for all primary care and all nonprimary specialties. The percentages for 2003 are 58% for primary care overhead and 50% for specialty overhead.
This system is used for all physicians, even recent hires, who are on board in January of a given year. New hires are paid salaries until January.
The group’s ancillary income reduces the costs that must be subtracted from collections to calculate physician pay. In the last several years, it has added MRI, an interest in an ambulatory surgery center, and several other diagnostic services.
Contact Portz at (719) 538-2900 or email@example.com, and Thomas at (708) 503-3989 or firstname.lastname@example.org.
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