Physician Compensation


Basic Principles


1.      Every dollar has a source.

2.      Collegiality grows with common goals and rewards.

3.      Simple is better.

4.      Don’t try to solve every organizational problem with the compensation formula.


Legal Aspects


1.                  The Fraud and Abuse Act.

2.                  Stark Laws

3.                  Private Inurement


Steps For Designing A Compensation System


1.                  Articulate what you want the compensation system to accomplish.

2.                  Look backward to compare how the old system accomplished such goals.

3.                  Brainstorm how to better measure behaviors that support new goals.

4.                  Refine the model.

5.                  Evaluate the effectiveness of the new formula.


Consider Rewarding:


  1. Volume
  2. Intensity
  3. Panel Size
  4. Patient Management
  5. Capability
  6. Management and Retention of Non-Physician staff
  7. Efficient Management of Overhead


Production Models


  1. Production Method – “Eat What You Kill” – Physician compensation is calculated based on production percentage.  Production percentage can be based on Gross Charges, Collections or RVU’s.   A percentage calculated based on collections can inaccurately reflect the actual efforts of a physician who sees a higher than average number of medicare patients.  RVU’s assign a value to each procedure based on the Medicare recoveries.  The RVU approach is intended to remove the issues created by differing collection rates dependent on insurance coverage and create a production percentage that considers procedures performed and services provided without regard to ultimate collectibility.  Overhead is generally divided between those items that are split equally, those items charged directly to a physician and those items split based on production percentage. 
  2. Negotiated Base Salary Plus Bonus Based On Production.  This is a modification of the first approach.  In addition to production, the negotiated Base Salary would consider physician contributions to the practice that are not measurable in terms of dollars brought in.   The base salaries would be treated as part of overhead that is split equally.  Profits above that would be based on a production percentage.


Considerations – Some groups use three year rolling averages to avoid significant dips or bumps in salary.  If a physician is off for some reason for a significant part of one year, he/she doesn’t take the hit all in one year. 


Non-Production Models


1.                  Equal Split – This approach assumes that each physician’s contributions are approximately equivalent.

2.                  Completely Subjective – Compensation is determined by considering a variety of factors (production may be one).  This approach is rarely used in private physician practices.






© 2008 Parsonage Vandenack Williams LLC


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