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An Incentive Plan for Professional Fee Collections at an Indigent-care Teaching Hospital

Stewart, Michael G. MD, MPH; Jones, Dan B. MD; Garson, Arthur T. Jr. MD, MPH

Institutional Issues: Articles

The authors describe the implementation and development of an incentive plan to improve professional fee collections at an indigent-care teaching hospital. They theorized that an incentive plan based on relative value unit (RVU) productivity would increase billings and collections of professional fees. Unique RVU targets were set for individual services based on the number of faculty fulltime equivalents and average reported productivity for academic physicians by specialty. The incentive plan was based on the level of expected faculty billings, measured in RVUs, for each department. A “base + incentive” model was used, with the base budget being distributed monthly throughout the year, and the incentive held as a “withhold” to be paid at the year's end only if the billing target in RVUs was met. Additionally, a task force worked with physician billing office and the hospital to improve collections. In the first year after implementation of the system was in place, important increases were noted in total RVU productivity (30.5% over the previous year) and in collections (49.5% over the previous year). Sixteen of 23 departments exceeded their incentive targets, and it was possible to make distributions of professional fees to those departments, to be used within the hospital system to enhance clinical services. Moreover, the plan created an overall positive attitude toward billings and documentation of faculty activities. The authors believe that this kind of incentive plan will be increasingly important for academic faculty working in public hospital systems.

Dr. Stewart is associate dean of clinical affairs and associate professor of otolaryngology; Dr. Jones is dean of clinical affairs, and professor and chairman of ophthalmology, and Dr. Garson is senior vice president, dean of academic operations, and professor of pediatrics; all at Baylor College of Medicine, Houston, Texas.

Correspondence and requests for reprints should be addressed to Dr. Stewart, Associate Dean of Clinical Affairs, 1504 Taub Loop, Houston, TX 77030; telephone: (713) 798-8750; fax: (713) 798-8752; e-mail: 〈〉.

With increasing numbers of uninsured patients in the United States, and increasing numbers of patients seen in safety-net or indigent facilities, methods to improve productivity and professional fee collections are needed. This is certainly the case at our county health system. In addition, at that system, the medical school faced declining professional fee revenue and deficit spending during recent years, so the school needed a method to improve both professional fee collections and faculty-physician productivity.

Creating an incentive plan for physician collections or productivity is a subject of significant contemporary interest.1,2,3,4,5 While there are several issues in any medical care system, creating an incentive plan for collections in a system with limited opportunity for increased reimbursement—such as an indigent-care hospital system—poses unique problems. The largest problem, of course, is that there are limited funds available for use in an incentive plan. Those of us involved in patient care at an indigent-care teaching hospital at our medical school theorized that an incentive plan based only on billing productivity would increase both billings and collections. In this article, we describe the experience that we and our physician colleagues had in creating this incentive plan at that hospital.

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The Harris County Hospital District (HCHD) is the county hospital system for Harris County, Texas (with a 1999 population of 3,259,000), which contains Houston. The HCHD is the fourth-largest public hospital system in the United States, and serves as a safety-net provider for the indigent and uninsured of Harris County. Harris County has the highest rate of uninsured residents in Texas (31%), and one of the highest in the United States.6 The HCHD facilities, including community health clinics and two acute-care hospitals, are staffed by faculty and residents from Baylor College of Medicine and the University of Texas—Houston Medical School. Both medical schools contract with the HCHD for faculty and resident physicians' services through a separate 501(c)3 corporation, Affiliated Medical Services (AMS), which is co-owned by the two medical schools. For each school, the AMS contract with the HCHD is divided into two portions, “contract” and “pro-fee.” The “contract” portion is paid by the HCHD to the schools for a specified number of faculty full-time-equivalent (FTE) positions. The “pro-fee” portion represents the net professional fees collected by the schools for activities of their faculty in the HCHD (largely Medicaid and Medicare); these funds are then returned to the HCHD in the form of purchased faculty FTEs and salaries. In other words, some portion of the total number of faculty working in the HCHD is paid for by the schools using the professional fees collected by the group—so that the HCHD does not pay for all of the faculty FTEs through the contract. This division occurs at the department level, where pro-fees collected by the school are distributed back to departments to cover their “pro-fee” portions of faculty FTEs in the HCHD. Thus, HCHD faculty salaries have three potential sources: HCHD contract, HCHD pro-fee collections, and subsidies from the departments and/or the college.

In 1998, there were several issues facing Baylor College of Medicine regarding the HCHD. Most notably, the AMS contract was significantly underfunded, and there were also large inequities between departments in rates of reimbursement per faculty FTE. Over the previous several years, as salary rates had changed and new FTEs had been added in the HCHD, the contract had not reflected the true costs of faculty supervision for all departments. While some departments had been paid at academic market rates, others had been significantly underpaid. For instance, to provide over three FTEs, one surgical subspecialty department was allotted just over $300,000 total for salaries and fringe benefits; however, to purchase three specialty surgeons on the academic market would have cost significantly more than that. This situation, therefore, required that there be significant cross-subsidies from other revenue sources within the college to maintain competitive salaries within the HCHD.

A further issue was declining professional-fee revenue. For the previous five years, Baylor had not met its expected target for pro-fee collections and had been forced to further deficit-spend in HCHD budgets to subsidize faculty salaries. This was attributable in large part to a worsening payer mix in the HCHD due to the loss of Medicaid and Medicare market share brought on by state-mandated Medicaid managed care, increased competition within the county, and other changes. There are reliable data demonstrating the decline in Medicaid and Medicare patient volume in the HCHD over the past few years, while overall patient volumes remained constant. Furthermore, the state data on Medicaid managed care enrollment showed that the number of Medicaid patients was increasing in other health care systems in Harris County at the same time numbers were declining in the HCHD. Also, even given relatively constant charges over time, collections from Medicare and Medicaid decreased significantly during that same time period.

In addition to creating a deficit for the college, failing to meet the billing target also meant that extra funds were not available for additional support within the system, and it was difficult to create any incentive to increase collections. This lack of positive feedback contributed to a discouraged attitude concerning professional-fee billing among the faculty working in the HCHD, illustrated by the statement “If the bar is too high, then why even try to jump?” Another adverse factor was the increasing concern about billing compliance and documentation in academic teaching settings.

For the fiscal year (FY) 1999–2000 budget (spanning July 1999-June 2000), the authors set out to create an incentive system to improve professional fee collections, recognizing the many obstacles we faced, as discussed above. We also had to ensure that our incentive plan did not violate any statutes.7

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Type of Incentive

Although many might think that “incentive” is synonymous with “money,” our first question was, what would be the best incentive for physicians working in the county system? We discussed this with several service chiefs, and it was clear from these discussions and our own observations that many physicians working in the county system were not strongly motivated by personal financial reward, so the opportunity for a bonus or incentive payment would not always be attractive. Other support, however, in the form of additional faculty coverage—either for hospital, clinic, or on-call duties—could be an attractive incentive. In particular, many faculty felt they were “spread thin” in providing supervision for several residents and activities, and additional support (i.e., physician extenders, a clinical secretary, etc.) to relieve the stress of multiple commitments could also be an attractive incentive. However, in our discussions it was also clear that every potential alternative option for bonus or incentive payments would still require additional funding—whether those funds were paid directly to the physicians or were used to provide other types of support for them. We therefore based the incentive system on financial payments to departments, with service chiefs then responsible for designing their own plans to reward their faculty as they felt appropriate—either individual incentives, additional faculty, support staff, equipment, or other kinds of support. All incentive distributions would have to be approved by the associate dean of clinical affairs, with the requirement that the funds had to be used within the HCHD system to support or enhance clinical services in some way.

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Necessary Steps Toward Improvement

We recognized that there were at least four important steps that must occur to ultimately see an increase in collections.

  • First, the level of documentation, and the basic support and attitude concerning increased faculty billing, had to improve. In other words, many faculty had to increase documentation of their supervision and generate bills more frequently. In most cases, the faculty were already providing an appropriate level of supervision, but were not always making the additional effort to document and bill for each encounter. To ensure that billing and documentation were appropriate, compliance courses were taught through the college's compliance office.
  • Second, the efficiency of the process of charge capture and charge entry had to be improved, so that faculty would feel assured that all of the charges they submitted would actually be entered, and that they would receive appropriate credit.
  • Third, the collection process and the identification of third-party payer sources had to improve, so that more of the bills would actually generate revenue.
  • Finally, the overall collections target—at the AMS contract level—had to be reset to a more realistic level, to create a target that could be reached.

We assumed that by working with our centralized billing office (CBO) at the college, we could make the changes necessary to improve the charge capture and entry processes, and that we could improve the collection process as well. We therefore created the faculty incentive plan based only on billings measured in relative value units (RVUs), which was actually the only part of the process controlled by the faculty. RVUs are a set of defined units associated with all medical procedures—from office visits to radiologic interpretation to surgical procedures—that were originally developed and assigned by the Health Care Financing Administration to assign relative “weights” to different types of medical procedures and allow comparisons of workload. RVUs were considered to be a fair way to measure physician activity, and there were significant data available on RVU productivity by specialty.

We hypothesized that if the faculty did their part to increase billing levels, and if improvements were made at the central administrative level, we would actually see an increase in overall collections. It was also clear that money had to be available to pay the incentives, so that the departments and their faculties would realize some tangible benefit from their increased efforts.

At the time we were developing this plan, we were fortunate in two aspects. First, the board of managers of the HCHD recognized that the medical schools had been underpaid for their activities, and granted an increase in the AMS contract reimbursement for faculty physician activities. Second, the board allowed the schools to reset the level of professional fee collections to the level of current collections—not the historically high figure it had been. These two important changes gave us “breathing room” to implement the incentive plan.

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Design of the Plan

For FY 1999–2000, we internally created a “base + incentive” model for department budgets, which added to the total expected compensation. We did not attempt to set individual faculty salary or total compensation levels, or individual base or incentive levels, but rather created the base and incentive budgets at the department level.

We calculated the total (i.e., base + incentive) budget for each department using a weighted mean of mean salaries by specialty and academic rank based on data from the most recent faculty salary report from the Association of American Medical Colleges (AAMC).8 We took total hours worked in the HCHD from self-reported time sheets for each physician, and calculated the total proportions of time spent by instructors, assistant professors, and others in each department. We then used data from the AAMC faculty salary report (for total compensation, all medical schools, public and private) by specialty and rank to calculate a weighted mean compensation level for each department, and multiplied that by the total FTEs to obtain the total budget. This calculation of a weighted mean took into account the actual hours worked by physicians with different academic ranks so that departments composed primarily of assistant professors had an average (i.e., weighted mean) compensation nearer to the AAMC assistant professor salary, whereas departments made up primarily of professors would have an average compensation nearer to the AAMC professor salary. Otherwise the calculation would have been only a simple mean of AAMC salaries by rank. An example calculation is shown in Table 1: higher-paid specialties received more compensation per FTE, and departments using physicians with higher academic ranks also received more compensation per FTE. Because of the existing different rates between departments, this meant that some departments received larger increases than others, but the departments receiving the smallest increases were already being paid near-market rates. In addition, we made sure that no department's budget was reduced from the prior year because of these calculations.

Table 1

Table 1

We then divided this total budget into a base portion and an incentive portion, using a fixed ratio (90% base, 10% incentive) based on the projected total professional fee collections. Examples of the budget calculations for four departments are shown in Table 2. The same proportion was used for each department, regardless of that department's expected collections. This meant that the departments with the largest collections due to more favorable payer mixes would potentially receive proportionally less of “their own” departments' collections, and would essentially be subsidizing other departments, as in a group practice model. This system therefore required a philosophical buy-in from all departments, but the plan was enthusiastically accepted—particularly by departments with the most favorable payer mixes—as a way to improve the overall system productivity and improve fairness within the system.

Table 2

Table 2

We then used the incentive portion of the budget as a withhold, to be distributed at the end of the year only if the department met its billing target. So, although pro-fee dollars were collected all year, the incentive distribution (which was made up primarily of pro-fee collections) was distributed to departments at the year's end only when their targets were met. It was important not to set targets based on collections, because the collection rate was very low and perceived not to be under direct control of the physicians: we wanted the physicians to be motivated by something they could directly influence and control.

Targets were created using billing data in RVUs from two reports, the 1998 AAMC/MGMA Faculty Practice Activities Survey 9 and the 1999 MGMA Academic Practice Faculty Compensation and Production Survey 10 (“MGMA” stands for Medical Group Management Association). We averaged the mean total RVUs billed for full-time academic physicians in each specialty from those two reports, and then reduced that figure somewhat (by a constant proportion) to account for required administrative and supervisory activities, as well as inefficiencies in our system, particularly those related to limited infrastructure and limited capacity for procedures, admissions, etc. For example, for general surgery the AAMC/MGMA mean productivity for academic faculty in the 1998 report was 11,954 RVUs/year, and the MGMA mean productivity for academic faculty in the 1999 report was 10,690 RVUs/year. The average from those two reports was therefore 11,322 RVUs per year. If we adjusted productivity down by, say, 25% (as discussed above), then the adjusted final target would be 8,491 RVUs/FTE/year (11,322 × 0.75).

We then multiplied the total target in RVUs for each specialty by the total faculty FTEs. For example, if the general surgery billing target was calculated at 8,491 RVUs per year per FTE and there were 10.0 FTEs, then their department's target was 84,910 RVUs of billing; similarly, internal medicine might have a target of 3,400 RVUs per year and 20.0 FTEs for a total target of 68,000 RVUs billed. Using mean data by specialty for academic physicians meant that each department had a target that was appropriate for the expected level of clinical activity.

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Implementing the Plan

All service chiefs were notified of their expected RVU billing targets at the beginning of FY 1999–2000, and they were given an opportunity to appeal for different targets if they felt their targets were not attainable even given maximum efforts by all their faculty. Of note, very few service chiefs felt that the calculated targets were not reachable.

On a monthly basis, we notified each service chief of the total RVUs billed from his or her service, and its progress toward the annual target. We also sent a monthly printout of all individual charges submitted by each physician on the service. By providing this regular and rapid feedback, several service chiefs were able to encourage their own faculties to maintain or increase their billings using different motivational techniques and the recent data. In addition, some service chiefs were able to identify problems with charge capture or other administrative issues and work with the CBO to improve the overall process and ensure capture of all appropriate charges.

Early in the year, we initiated several meetings and created a task force for our centralized CBO personnel to work closely with business and billing personnel from the HCHD, to ensure that the college's billing system would receive all the appropriate registration and demographic information about the patients. While there were some early barriers, particularly related to communications between computer systems, these were all solved during the year, and currently the transfer of information is smoother than it has ever been. This transfer of payer information was critical to the improvement in collection rate. The overall payer mix in the HCHD did not significantly change, but the collection rate for professional fees did, primarily because the CBO received more accurate information about third-party payer sources to bill.

Our college's CBO also took their role in this process very seriously. The supervisors and employees have shown great pride in their work, and have implemented several motivational techniques to stay goal-oriented, to keep themselves aware of billing and collection totals each month, and to notice and reward productivity and excellent performance. These techniques included a large display showing daily billings and collections in the office, with comparisons with previous months and years, among other strategies.

At the same time, the HCHD had been making significant improvements in its own infrastructure and billing operations, which significantly enhanced its ability to retrieve important information from patients. In addition, the HCHD began a proactive process of working closely with the state of Texas to significantly improve the registration of eligible patients for Medicaid programs. This process was successful in that a much higher percentage of Medicaid-eligible patients went on to receive Medicaid, and both the HCHD and the physician group noted improved Medicaid collections. So, as we had planned, several steps in the registration and collection process improved during the year.

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The success of this incentive plan has been gratifying. In its first year, we noted an overall increase in RVU billings from 797,902 to 1,041,396—an increase of 30.5%. In addition, collections increased 49.5%. Some departments found that their billings had doubled compared with billings in prior years, without any additional faculty members. In addition, 16 of 23 services exceeded their targets for the year—many by wide margins. For all these departments, we were able to make the full budgeted productivity distributions at year's end. Furthermore, the college exceeded its overall collections target; therefore, in addition to making all the planned distributions to services, we were able to use those collections to fund additional physician services to the HCHD.

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We wrote this report to demonstrate our faculty's success with implementing an incentive plan based only on RVU productivity, which, as just described, has led to a large increase in both billings and collections in a county hospital system. When this program was initiated in 1999, many who worked in our county hospital system were quite pessimistic about the possibility of success in billings and collections given the multiple barriers described previously. We found, however, that setting goals that were under the physicians' control—while working to improve the aspects of billing and collections that were not under their control—proved to be a successful strategy.

While we were certainly given an advantage toward eventual success with the simultaneous increase in the overall HCHD budget, we were also significantly disadvantaged by several factors outside our control, such as the payer mix of patients using the HCHD system, increased local competition, and declining reimbursements overall. Despite these potential barriers, we saw large improvements in billings and collections after this system was in place. Furthermore, we would theorize that in a system with a much higher proportion of insured patients, such an incentive plan would have been even more successful at increasing overall collections.

There have been other significant, but less tangible, rewards of implementing this incentive system. The overall process of creating activity targets, communicating regularly with service chiefs, sending reports of progress, and achieving the promised “reward” has created an overall positive attitude toward billings and documentation of faculty activities in the HCHD, as well as a sense of teamwork with the billing office. We believe that this documentation of productivity and activity will be increasingly important for academic faculty working in public hospital systems, and this incentive plan has created an improved attitude toward those activities.

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