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Your Decisions on Compensation Plans

From Equal Share to Pure Productivity and Everything in Between

AVITZUR, ORLY, MD

doi: 10.1097/01.NT.0000349801.15864.c6
DEPARTMENTS: IN PRACTICE

Dr. Avitzur, a neurologist in private practice in Tarrytown, NY, holds academic appointments at Yale University School of Medicine and New York Medical College. She is also the editor-in-chief of the AAN Web site, AAN.com, and chair of the AAN Practice Management and Technology Subcommittee.

Dr. Bruce Sigsbee will discuss compensation formulas and Dr. Orly Avitzur will offer tips on successful ways to market your practice on Nov. 6 at the 2009 AAN Fall Conference in Las Vegas.

When practices break up, money is often at the core of the matter, with at least one physician feeling that income is not being distributed fairly. Tough economic times only worsen the tension, and for neurologists already feeling the squeeze from poorly reimbursed cognitive services, the temptation to jump ship can be hard to suppress.

It's perhaps no surprise that neurology now ranks third among specialties in growth by number of recruiter job search assignments, with a 45 percent increase over the past year, according to a 2008 survey by the physician recruitment firm Merritt Hawkins & Associates. If you're in a practice that has lost a member, or if you're hearing rumblings of dissatisfaction, it may not be a bad idea to re-evaluate your group's salary structure. Whether you work in a practice with an equal share model — where there is variable compensation based on productivity — or a hybrid of the two, it's an issue that affects us all.

“Warnings should occur when physicians are fighting and compensation is becoming divisive,” said Bruce A. Johnson, author of Physician Compensation Plans: State of the Art Strategies (MGMA, 2006), and partner at Faegre & Benson, LLP, a law firm specializing in health care practice groups.

“Completely reasonable clinicians become agitated, anxious, and even angry when dealing with compensation and finances,” said Bruce Sigsbee, MD, medical director at Penobscot Bay Physicians and Associates and treasurer of the AAN. Dr. Sigsbee, who will discuss this subject at the 2009 AAN Fall Conference in Las Vegas on Nov. 6, pointed out that one of the most difficult issues is the method of determining compensation for its members. Physician practice compensation structures range along a continuum from “team-based” models involving all or a portion practice profits net of expenses distributed on an equal share, to “individualist” models that measure physician productivity, Johnson explained.

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FIXED SALARY, PRODUCTIVITY MODELS

Claire Levesque, MD, a neurologist who practices outside of Boston, has worked with several groups under arrangements based on productivity alone in which she receives a percentage of collections. She likes getting paid based on actual work performed but said the trade-off is that she receives her paycheck weeks after seeing the patients.

“It's really important to work with a group you really trust and one which has an effective billing system,” she advised. She also believes it's essential to devise a way to track your pay and make sure that you are getting what you earned, either by doing it manually or by having access to the billing system.

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Another neurologist (who requested anonymity) has been a member of a large neurology group for over 20 years. Full partners in the group share equal salary (and equal call) and although there are opportunities for additional income for extra hours outside the assigned schedule at a fixed rate per hour, there is no productivity incentive. “One of the major advantages is that no one fights over non-paying patients,” he said.

Those two examples — fixed salary compensation and pure productivity — represent the extremes, but there are numerous options in-between: base plus productivity incentive systems that pay a portion of total compensation on a guaranteed basis in the form of a base salary; systems that have a share of profits distributed equally, with the remainder based on production; and systems that use various approaches to allocation of overhead. “There are as many methodologies as there are groups,” Johnson said.

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HYBRID SYSTEMS

For the past eight years, Reginald V. Hall, MD, has been part of a two-person group, Carroll County Neurology, PC, in Carrollton, GA, in which compensation is based on a hybrid system. The neurologists share an equal base salary but include bonus payments based on productivity every six months. They also allocate expenses based on utilization so, for example, a neurologist may get a higher bonus during one set period because more EMGs have been performed, which is responsible for a higher percentage of related variable costs such as EMG technician salary.

“When we've seen something askew, we've been able to come together at quarterly meetings and iron out any problems,” said Dr. Hall, who finds the system works well due to mutual respect and a shared philosophy. The neurologists are currently seeking a new associate. When the new member starts, he or she will receive a very competitive starting salary based on experience and a fair and obtainable bonus based on productivity.

Samuel Koszer, MD, who has been in practice for 16 years, has experienced the pros and cons of a variety of compensation arrangements over time. The strict salary method, from the employee's perspective, he has observed, removes individuals from commitment to a practice and the desire to grow. “Typically, in this situation, human nature kicks in and most individuals look for ways to do less work and do not grow,” he said. “The pure productivity model (‘eat what you kill’) turns many coworkers into competitors,” he added. “One might as well be in another solo practice and just share call coverage.”

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So when Dr. Koszer started his own practice in Poughkeepsie, NY, three and a half years ago, he chose the method he found most equitable, a strict salary with early partnership (after one year) and profits above and beyond split up among partners with a fair formula. “This way all individuals want to work hard, yet there is less concern of one or a couple of individuals dominating,” he said. “Often, as a large practice begins to do well, a few key persons at the top get lazy and become less productive, breeding resentment and turnover. The key is constantly enforcing equal volumes of work being done to keep the balance intact. Therefore, everyone does well or everyone does poorly and no one feels used.”

David A. Nye, MD, a neurologist who has been practicing 26 years at a large multispecialty clinic in Wisconsin, is also paid according to a mix of base salary plus productivity. “I like this better than straight salary,” he said. “It means the guy who likes to knock off early in the summer to play golf and the guy who is always there until 7 PM and never takes vacation can coexist peacefully, and there is no administrator telling the former to become more like the latter or else.”

Under his group's system, each member gets production credit for the billed amount, not what is collected, so there is no personal penalty for seeing Medicare or Medicaid patients — underpayment and bad debt are spread equally, he explained.

Billed charges — gross revenue before operating expenses — are only one type of performance measure upon which productivity is typically based. Other practices use receipts (net revenue after expenses), patient encounters, or work relative value units (RVUs), the system Medicare uses to calculate reimbursement.

Sally Seiler, who manages a 16-person practice and is a member of the AAN Business and Research Administrators in Neurology group, has been using an RVU-based system for the past 14 years. RVUs reflect the work performed by the physician as related to CPT codes and ignores insurance mix, reducing the temptation for members to cherry pick the better payers.

In Seiler's group practice, about 75 percent of compensation is based on actual “hands-on” work, as measured by physician work RVUs. A percentage of RVUs are paid at a base rate and excess RVUs are paid at an incentive rate. At the end of the year, excess money is split evenly. “The system is designed so that docs can do what they do best and most efficiently,” said Seiler, “and it works because it's extremely transparent, objective, and fair.”

Because the options are complex, Johnson noted, practice members need to understand that each physician is likely to have a different perspective on what is or isn't fair. Practices seeking to assess their compensation system, he said, should start by identifying the goals underlying the formula, then discuss what's good and bad about the current system, and evaluate alternatives based on those goals. When there is consensus on what seems to be the right formula based on what they're trying to achieve, they should then have someone model it. “The results should first be shared in a blinded way — without indicating the physician name — to permit people to try to remain objective. After that, the numbers can be shared so each physician can see how it affects him or her.”

“Transparency is critical to ensure the success of a group,” Dr. Sigsbee advised. “Financial information should be easily obtained and free of manipulation and bias.”

“In a nutshell, small- and medium-sized groups should have trust in one another that insures everyone works equally hard and all are partners in sharing the wealth and pain,” Dr. Koszer suggested. “No system of practice is easy in our current era of health care. Having made the choice to establish a single specialty private practice group I still find many challenges with our current partnership model, and as such find myself at work several times a week repeating the phrase… ‘every day is an adventure.’”

©2009 American Academy of Neurology