With the recent release of the Merritt Hawkins 2017 Review of Physicians and Advanced Practitioner Recruiting Incentives, I thought you might like a deeper review of that topic.

When recruiting physicians and advanced practitioners (physician assistants and nurse practitioners), the primary determinant of success in attracting good candidates depends on:

• Compensation offered;
• Quality of life (location, hours, cultural fit, etc.); and,
• Other recruiting incentives.

I addressed compensation and the use of RVUs and salary surveys in Physician Employment Agreements and More on Understanding RVUs.

But it is equally important to understand recruiting incentives that might be offered and how they have evolved in recent years.

Physician Recruiting Incentives May Determine the Outcome

Each physician candidate is generally concerned with a handful of issues when seeking a position.

It might be primarily salary, location and loan repayment. For some, it is signing bonus and salary. For others, it might be opportunity for advancement and retirement plan options.

I once spent over a year in the recruitment of a urologist. He was very meticulous and somewhat demanding, but always cordial during our conversations. He was pleased with the basic components of our offer, which included a standard set of perquisites.

Cystoscope – a urologist's best friend.

Other issues that concerned him were his involvement in setting up the office, interviewing his prospective staff, and helping to create protocols to be used in the office. As a surgeon, he was interested in rapidly building his practice. He wanted assurance that referrals would allow him to perform sufficient surgeries to maintain his skills and prepare for board certification.

We addressed all of these issues during interviews, on site visits, and numerous phone conversations. With urologists being very difficult to recruit, we included a generous signing bonus as part of our offer of employment.  Our usual practice was to pay such a bonus when the physician started seeing patients.

In this case, however, we agreed to pay part of the bonus when the employment agreement was executed, many months before he was to start seeing patients. He would receive the second installment when he had successfully been credentialed by our hospital medical staff. We would make the final signing bonus payment once he started seeing patients.

It was this flexibility in structuring payment of the signing bonus that ultimately enticed him to accept our offer.

Let’s take a quick look at the current status of incentives being offered by the almost 3,300 physicians and advanced practitioners that are described in Merritt Hawkins’ review.

Current State of Physician Recruiting Incentives

In spite of efforts to encourage the use of quality or value metrics, the approach to bonus is still heavily productivity based.

Seventy-two per cent of offers included some kind of bonus in addition to a guaranteed salary.  Of those offers that included potential bonus payments, 52% were based on RVUs, 28% on net collections, 14% on patient encounters, and 6% on gross billings.

Types of productivity incentives used.

Quality incentives were incorporated into 39% of offers. When used, the quality-based bonuses averaged 20% of the total potential bonus.

Other, very common incentives (over 95% of searches) include:

• Relocation Allowance (averaging about $10,000)
• CME Expenses (average amount $3600 per year, with a range of $500 – $30,000)
• Health Insurance
• Retirement Benefits

Disability insurance was also offered most (91%) of the time.

Liability Insurance

Merritt Hawkins included liability insurance as a benefit. But I consider it to be a business expense, as I wrote about in Why Demoralize Your Employed Physicians Over Tail Coverage?.

The review did not list “tail coverage” (extended reporting endorsement) as a specific type of bonus. However, it is commonly disputed in negotiations and should be addressed in future studies, in my opinion.

Signing Bonus and Loan Forgiveness

Signing bonuses were common but not universal (offered 76% of the time). When offered, the average signing bonus was $32,600. However, the range was zero to $275,000. I suspect that last figure was an outlier due to some very unique circumstances.

I was surprised to see that for the MH searches, only 25% included an offer of loan forgiveness, or what we called loan repayment. This is something that is quite common for hospitals in the midwest to offer.

When included, however, the amounts varied substantially. In this report, the amount forgiven or paid was distributed over one to three years, and ranged from $10,000 to $260,000, with an average of $81,000. It’s important to remember that most organization will cap this figure. And the need for loan forgiveness will vary greatly between candidates.

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Summarizing

So, that’s the snapshot of physician recruitment incentives based on the most recent MH survey. You can find the complete summary at Merritt Hawkins 2017 Review of Physicians and Advanced Practitioner Recruiting Incentives.

It all seems pretty consistent to what I have personally found to be true:

• Salaries continue to climb for almost every specialty.
• Bonuses are generally based on productivity, mostly using worked RVUs to track it.
• Quality bonuses are becoming more common, but only account for about 20% of the total annual bonus offered.
• Relocation expenses, CME allowance, health insurance, and retirement savings options are common and expected by most physicians.

I was surprised that loan forgiveness was offered in only one-quarter of assignments. I expect that percentage to rise as medical school loan amounts continue to increase.

Cost Considerations for Employers

Physician leaders working in hospitals and medical groups should understand these incentives, and their cumulative costs. With signing bonuses, relocation expenses and loan forgiveness, the first year total compensation costs will be 140% or more of the base salary.

For example, if a family physician or hospitalist is offered a salary of $230,000 to $260,000, he is likely to be provided:

• $10,000 in relocation expense,
• $32,000 in signing bonuses,
• $12,000 in health and disability insurance,
• $3,600 in CME expenses,
• $7500 in matching 401(k) or 403(b) deposits, and
• $25,000 in loan forgiveness.

This will bring the total expense to $320,000 to $350,000 for the first year.

For organizations that are heavily recruiting new physicians, those figures can quickly run into the millions of dollars in costs that will not be recouped for years.

There are some IRS issues that these incentives create. If you pay a signing bonus to a resident before she has officially started, do you report that as 1099 or W-2 income? And physicians being recruited need to understand that all of those bonuses will be treated as income by the IRS and that the amounts actually received may be smaller, due to withholding by the employer.

Next Steps

Please add you're thoughts and questions in the Comments. I will respond to them all.

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Thanks for joining me.

Until next time.

The post What You Need to Know About Physician Recruiting Incentives appeared first on NonClinical Physicians.

Modern Healthcare quoted the DOJ: “When physicians are rewarded financially for referring patients to hospitals or other healthcare providers, it can affect their medical judgment, resulting in a overutilization of services that drives up healthcare costs for everyone,” said acting assistant attorney general Chad Readler.

The hospital system acquired the infusion center from a group of oncologists. It was then able to charge hospital based fees and take advantage of 340(b) pricing for its medications. This is a common tactic used by hospitals to access favorable payments from CMS for hospital based services.

Inflated Physician Compensation

The DOJ alleged that the hospital paid the oncologists inflated amounts for management services following the transfer of ownership. This led to allegations of Stark Law and False Claims Act violations, ostensibly for exceeding fair market value and potentially encouraging referrals.

According to a National Law Review article regarding this case, the complaint alleged that “the compensation amount for the physician supervision work at the infusion center was approximately 500 percent of the wRVU for in-clinic work where the physician was actively involved in patient care… was not fair market value, nor was it commercially reasonable.”

Mercy agreed to pay $34 million to settle the lawsuit.

I addressed a similar issue in a popular post in 2016 (Physician Salaries and OIG Risk). I am re-publishing the content here for new readers. The previous article addresses inflated salaries. But the tactic of paying inflated management fees in order to maintain referral patterns has the same effect.

Pitfalls Involving Salary Surveys and OIG Allegations

I have been following news reports about recent OIG (Office of Inspector General) investigations related to physician compensation. These investigations have resulted in fines for alleged Stark Law and FCA (False Claims Act) violations. There seems to be more activity recently, including investigations in response to whistle-blower lawsuits.

Here is my take: Hospitals and health systems that use survey data (such as MGMA and AMGA) to set compensation levels for newly employed physicians are under intense scrutiny. This scrutiny results because:

• it appears that collections generated by the employed physicians do not support the salaries being provided, or
• salaries of newly employed physicians significantly exceed compensation previously generated in their independent practices.

The Stark and FCA regulations require that physicians that care for Medicare patients not be paid for referrals. And health systems must pay employed physicians based on fair market value. In the past, it was assumed that direct evidence of payment for referrals (e.g., emails, memos, board meeting minutes, etc.) was needed in order to demonstrate such a violation.

More recent cases seem to indicate that indirect evidence can support such an allegation. If a practice is not profitable, and a hospital system continues to pay a physician in spite of losing money on the practice, the OIG will infer that such losses are only being allowed as a result of referrals.

Example

It is fairly common for a procedural specialist such as a cardiologist or orthopedist to be paid at the median salary survey level. This may hold true even as their collections and worked RVUs only reach the 25th percentile or less.  This may represent a loss to the practice in excess of $100,000 per year.

I once asked a physician that was unable to build a practice to leave our medical group, in part because of his inability to generate the income needed to justify his salary (in spite of years of aggressively marketing his practice).

Such losses may be acceptable in situations where the system is the only provider of important services. But if board members or executives indicate that such losses are balanced by “downstream” services like imaging and surgical care, the OIG may interpret that as a violation of Stark and FCA regulations.

Recommendations

What can you do to reduce this risk as you hire new physicians into your medical group? Here are five suggestions:

1. Be aware of these issues and NEVER imply that your system can afford to pay a higher salary because of “downstream revenues.” Instead, focus on the actual patient encounters and procedures that the new physician must provide to generate collections needed to cover her salary.
2. Once hired, assist new physicians with marketing themselves. They need to build visits and worked RVUs as quickly as possible. Your organization can allow for a negative bottom line for a practice initially, but must strive for a financial break-even after a year or two.
3. Work closely with the billing office and teach new recruits about billing and coding. They must learn to appropriately capture the payments for the work that they do.
4. Provide employed physicians with regular (at least quarterly) reports listing the following: encounter volumes, coding distribution, billings, collections, worked RVUs and income and expenses for the practice. Teach physicians how to interpret these reports.
5. Require your management team to meet with their physicians regularly. During such meetings review their reports, track their performance, define goals for the practice and develop joint plans to meet those goals.

With teamwork, clear communication, and effective goal setting and execution, you should be able to:

• build a practice for your new physicians that they can be proud of,
• reach a financial break-even, and,
• avoid allegations of Stark and FCA violations.

[Disclaimer: I am not an attorney and I do not provide legal advice. I offer advice about management and leadership topics that can assist physician executives in addressing common management issues. You should always engage a qualified attorney in negotiating and executing employment agreements with physicians and in evaluating your organization's potential risk for OIG investigations related to physician employment.]

Summary

When recruiting highly trained proceduralists, it's easy to forget that their salaries cannot be linked to downstream (e.g., imaging and facility-driven) fees. There must be a reasonable relationship between the direct patient care revenues and expenses, and their compensation.

Is this a challenge for your group practice or health system? How have you addressed it?

What other employment issues have you had to address in your organization?

Until next time.

John Jurica

The post Inflated Physician Compensation Prompts OIG Scrutiny appeared first on NonClinical Physicians.

I had explained to the candidate that it was our practice to require tail coverage to be covered by the physician. It was one of the ways that we used to promote longevity of the relationship. We would be willing to waive the requirement in the event that we decided to terminate the agreement without cause, or if the candidate became disabled or died (to protect his or her estate). But those were the only exceptions.

He ultimately accepted the terms, after negotiating a higher sign-on bonus and student loan repayments. But I could tell he was unhappy about the tail coverage issue.

Attracting Good Candidates

Before you hire a new physician, you must first recruit viable candidates and then negotiate an acceptable employment agreement.

The recruitment process can be lengthy and costly. During the process, you will try to convince the worthwhile candidates that together you will have a long and prosperous relationship. You will attempt to project a welcoming, supportive and collaborative work environment.

But the demoralization begins during the negotiation process itself. There is one contentious legal provision that many employers continue to wage war over. It concerns the issue of placing the responsibility for payment of tail coverage (also called an extended reporting endorsement) on the new employee in the event he or she leaves the organization in the future. I gave the prospective candidates a review of this at Contract Doctor: Who Pays for Tail Coverage?

Why Do Employers Continue to Fight for This?

The cost for tail coverage can be quite high. I’ve seen rates of 50% to over 200% of the current annual premium amounts. The cost starts out very low during the first few years of practice, but quickly rises and reaches a plateau in a well established practice. It can easily reach $100,000 to $200,000 or more.

And employers would rather not pay it.

This is a cost that only occurs when the physician leaves, so there is no income to offset the cost (other than some residual accounts receivable). No more surgical procedures or consults. No more referrals for MRI or CT scans.

Because the cost is variable, it is difficult to predict. And it is not something an employer typically plans for. If several physicians leave at the same time, it can result in a huge bill to the employer.

It is also a potentially very powerful incentive to prevent physicians from leaving. Who would want to pay a $200,000 penalty for resigning? The employer is then spared the trouble and cost of recruiting a replacement.

Hospitals already lose money on physician practices (averaging over $100,000 per physician per year). It is a hard pill to swallow to shell out six figures when employed physicians that are just hitting their stride decide to move on.

It is especially annoying to pay the tail coverage when the physician is forced to leave after being dropped from Medicare or losing his or her license.

Why the Tail Coverage Conversation Is Upsetting

Let me explain to my non-physician colleagues, including the CFOs out there, why this issue is so demoralizing…

First, the majority of new hires are young physicians. While they understand the concept of medical malpractice and using insurance to mitigate its effects, most of them have never had to think about the reality of paying for it. And they certainly never needed to think about the consequences of not having tail coverage.

Then, here they are, having lived frugally for years, often with upwards of $200,000 in debt. And the new employer, a multimillion dollar organization, is trying to convince them that this future financial cost, that may be 5 times their current salary as a resident or fellow, will be their responsibility if things don't work out.

This does not create a warm, fuzzy feeling.

Also, it is literally impossible to work as a physician without liability coverage. The coverage is clearly a cost of doing business. Insurability is always a condition of employment. Appointment to most hospital medical staffs requires an agreement to purchase tail coverage when you leave.

The physicians are in the midst of the negotiation, trying to move forward with an employment agreement, being told that they're going to love working with your team. Meanwhile, you're trying to convince them that this is the way your contract works and is non-negotiable.

As a hospital executive involved in dozens of contract negotiations in the past, I can attest to the frustration and confusion this causes in candidates. I am sure we lost some good ones over this issue. And I know we started a long-term relationship off on the wrong foot.

Why Employers Should Abandon This Practice

This whole discussion is irritating and illogical. Accepting the responsibility for paying for tail coverage will, no doubt, have financial implications. But there are better ways to encourage long-term retention. And the financial consequences can be mitigated and planned for.

It is possible to actuarially predict the future costs of paying for it. You may need to adjust down loan repayment incentives or sign-on bonuses. But taking tail coverage off the table will actually be a competitive advantage when recruits compare your offer to organizations that still insist on saddling them with the uncertain cost of tail coverage.

Has your organization already abandoned this approach? Let us know in the Comments.

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See you in the next post!

The post Why Demoralize Your Employed Physicians Over Tail Coverage? appeared first on NonClinical Physicians.

As an administrator dealing with employed physicians, it is easy to become cynical about this topic. It seems as if some of our physician candidates and employees are concerned more with their compensation than with finding a positive, supportive practice, dedicated staff or satisfied patients.

However, we should remember that these physicians have taken delayed gratification to a new level. They postponed starting their careers for years as they pursued medical school, residencies and fellowships. They have seen their friends complete bachelors and masters degrees, begin their careers, and begin to live a “real” life. Your physicians feel like they have been postponing their “real” lives for years.

And when they're ready to begin practicing, they're facing the possibility of school loan payments that may go on for decades, with loan balances in excess of $200,000 that are still accruing interest. Young physicians can come to feel very uncertain about their families' financial security. Under these circumstances, it is easy for them to appear to be obsessed with their salaries.

Contracting and Compensation Advice

I have posted several articles on the sister blog to this one called Contract Doctor. In them, I offer free advice to physicians seeking employment on a variety of contracting issues, including compensation. I just posted one called What Doctors Need to Know About Maximizing Income, which I wrote in response to a question sent to me by a reader last week.

If you want to understand some of the concerns that new physicians have and why they make certain contract requests, or if you are new to contracting, you might scan that article, as well as some of the other articles at Contract Doctor.

And let me know if you have questions about contracting you want to explore further.

Subscribe by going here: Subscribe Here

Or email me directly here: john.jurica.md@gmail.com

The post What’s Driving Physician Obsession with Compensation And How Can You Help? appeared first on NonClinical Physicians.

physician employment contract

“Let's call it quits.” I said. “We've been negotiating this agreement off and on for three years.”

The CFO looked at me: “I'd like to.”

He was frustrated because he knew that the only way the deal we were offering would work out for us was if everything went just right for the next five years:

• The physician we were recruiting would have to remain highly productive, generating over 15,000 wRVUS per year;
• He would have to remain healthy;
• There couldn't be any unexpected crisis, like a death in the family or similar issue;
• He would have to shift the work he was doing elsewhere to our facility;
• His office would need to be run very efficiently;
• Some of our employed PCPs would need to start referring to him; and,
• Newly recruited physicians would have to accept his vision of the practice.

We were both concerned that we had spent hundreds of hours on this negotiation, which would seem a waste if we stopped now. But we were not as sure as the CEO that adding this physician to our already large network would be a good fit.

But, we scheduled another meeting for the following week. And we called our attorney to go over some of the latest requests from the physician.

What's Behind the Shift?

Hospitals have been recruiting physicians in order to:

• increase market share;
• maintain certain service lines like neurosurgery and cardiac surgery;
• promote closer alignment with physicians to help reduce variations in care, meet CMS quality incentives and move toward bundled payments;
• create leverage with insurers; and,
• accelerate the development of accountable care organizations.

Physicians who sell their practices do so for some good reasons. They want to:

• eliminate the hassle of running a practice;
• generate higher income;
• obtain better benefits;
• get a nice lump sum for their practices;
• arrange more consistent call coverage; and,
• enjoy a more predictable work schedule.

Is Employment Sustainable?

However, I have to ask if this scenario is sustainable. I have noted several common threads among these transactions.

• Due to a hospital's urgency to recruit, it will often pay a very generous salary.
• The cash value paid for a practice is also often at the high-end of the reasonable range.
• Physicians often optimize their productivity during the years leading up to a sale to increase the assessed value. Then they subsequently generate only a fraction of the pre-sale wRVUs ( wRVUs described here: More on Understanding RVUs).
• Physicians who  kept their expenses down by running a streamlined office now require 2 or 3 additional staff once they are employed.
• The same physicians that only took 1 or 2 weeks off each year, are now is entitled to 4 to 6 weeks of paid time off.

For these reasons, hospitals, on average, have consistently lost over $100,000 per employed physician. According to a report in Medical Economics (Hospitals Employing Physicians See Greater Losses), a recent survey commissioned by the Kentucky Hospital Association confirmed that 58% of hospitals reported losses of over $100,000 per employed physician. Primary care doctors posted lower losses, and specialists generated losses of over $200,000 per year.

A Scary Calculation for the CFO and Legal Advisers

Let's do a calculation of the financial impact of employing physicians, based on the following assumptions:

• Your local health system employs a balanced mix of PCPs and specialists.
• The losses per physician are slightly above average at $175,000 per year due to liability insurance and staff salaries.
• Your system employs 100 physicians.

Running those numbers results in an annual hit to the bottom line for the practices (excluding the “downstream” revenues from imaging and admissions) of about $17.5 million. That's a hard pill for the CFO to swallow.

And that amount, albeit an annual hit, pales in comparison to what the OIG (Office of Inspector General) might confiscate if it decides that the $17.5 million exceeds fair market value (see Physician Salaries and OIG Risk). For example, it looks like Tuomey Regional Medical Center (now called Palmetto Health Tuomey), in Sumter, South Carolina, is going to be paying over $70 million in fines related to allegations of improper arrangements with its employed physicians under the False Claims Act.

Will History Repeat Itself?

At some point, hospitals will be forced to bring their physician practice income statements into some kind of balance. That means reducing expenses since fees and collections are basically capped and physicians are already too “burned-out” to see more patients. It looks like physician salaries will be going down at some point.

When salaries go down, physicians become unhappy and angry and tend to:

• complain loudly,
• look for a better position elsewhere,
• organize and form new independent groups, and
• retire or shift to a non-clinical career (see Is It Time for a Non-Clinical Career?)

Practice management companies like PhyCor went on a binge buying medical practices in the 1990s. It ended with many of the deals falling apart, physicians returning to independent practice and the company's filing bankruptcy. The circumstances are different now, but the end result may be the similar.

What do you think might happen with physician employment? Do you think that hospitals will divest themselves of physician practices as the management groups did in the late 1990s? Or will pressures from the federal government to align or integrate preclude this from happening?

The post Health System Physician Employment Is Still Growing appeared first on NonClinical Physicians.

Here is my take: Hospitals and health systems that use survey data (such as MGMA and AMGA) to set compensation levels for newly employed physicians are under intense scrutiny. This scrutiny results because:

• it appears that collections generated by the employed physicians do not support the salaries being provided, or
• salaries of newly employed physicians significantly exceed compensation previously generated in their independent practices.

The Stark and FCA regulations require that physicians that care for Medicare patients not be paid for referrals. And health systems must pay employed physicians based on fair market value. In the past, it was assumed that direct evidence of payment for referrals (e.g., emails, memos, board meeting minutes, etc.) was needed in order to demonstrate such a violation.

More recent cases seem to indicate that if a practice is not profitable, and a hospital system continues to pay a physician in spite of perpetually losing money on the practice, the OIG will infer that such losses are only being allowed as a result of referrals that otherwise benefit the system.

Example

It is fairly common for a procedural specialist such as a cardiologist or orthopedist to be paid at the median salary survey level, even as their collections and worked RVUs only reach the 25th percentile or less.  This may represent a loss to the practice in excess of $100,000 per year, when considering only the payments received for the care personally provided by the physician.

I once asked a physician that was unable to build a practice to leave our medical group, in part because of his inability to generate the income needed to justify his salary (in spite of years of aggressively marketing his practice).

Such losses may be acceptable in situations where the system is the only provider of important services. But when system board members or executives indicate that such losses are balanced by “downstream” services like imaging and surgical care, the OIG may interpret that as a violation of Stark and FCA regulations.

Recommendations

What can you do to reduce this risk as you hire new physicians into your medical group? Here are five suggestions:

1. Be aware of these issues and NEVER imply that your system can afford to pay a higher salary because of “downstream revenues”. Instead focus on the actual patient encounters and procedures that the new physician must provide in order to generate the collections needed to cover her salary.
2. Once hired, assist new physicians with marketing themselves so that you can build visits and worked RVUs as quickly as possible. Your organization can allow for a negative bottom line for a practice initially, but must strive for a financial break-even after a year or two.
3. Work closely with the billing office and teach new recruits about billing and coding so that they can appropriately capture the payments for the work that they do.
4. Provide employed physicians with regular (at least quarterly) reports listing the following: encounter volumes, coding distribution, billings, collections, worked RVUs and income and expenses for the practice. Teach physicians how to interpret these reports.
5. Require your management team to meet with their physicians regularly to go over the reports, track their performance, define goals for the practice and develop joint plans to meet those goals.

With a good team, clear communication, and effective goal setting and execution, you should be able to build a practice for your new physicians that they can be proud of, that reaches a financial break-even, and that enables you  to avoid allegations of Stark and FCA violations.

What other employment issues have you had to address in your organization?

Disclaimer: I am not an attorney and I do not provide legal advice. I offer advice about management and leadership topics that can assist physician executives in addressing common management issues. You should always engage a qualified attorney in negotiating and executing employment agreements with physicians and in evaluating your organization's potential risk for OIG investigations related to physician employment.

The post Physician Salaries and OIG Risk appeared first on NonClinical Physicians.

Suppose that your organization is offering the following salary proposal: two years at a fixed salary, followed by a third year in which it converts to a fixed component PLUS an RVU based bonus. Let's review the rationale and then look at actual MGMA (Medical Group Management Association) numbers upon which the offer might be based.

Your Perspective (as Employer)

You know that you must offer a competitive salary, along with other forms of compensation and benefits, in order to entice a new physician to sign. For most specialties, there is still moderately fierce competition for solid, well-trained physicians. The number of established physicians available is relatively small in comparison, so most recruiting is aimed at physicians coming out of residency and fellowship training programs.

In order to establish a reasonable offer, most systems or groups are going to use one or more salary surveys to inform them as to what other organizations are paying. In the past, my colleagues and I tended to consult the MGMA (Medical Group Management Association) survey, but there are surveys collected and published by the American Group Management Association (AGMA), by consulting firms like Jackson and Coker, by publications like Medscape, and by many of the larger recruiting firms.

Each one has its strengths and weakness, and the results of each are never exactly the same. But they are fairly consistent, taking into account expected differences between the expected respondents to each of the surveys.

The surveys generally present both salary means and salary medians. Employers and recruits tend to focus on the medians because they are less impacted by outliers. The surveys, in addition to listing means and median salary levels, generally provide salary data at the 25th, 75th, 90th and 95th percentiles.

Example 1

Let's walk through a simple example in which a salary survey might be used to determine an offer.

Below is a table with hypothetical data about internal medicine physicians. Note that the actual survey has much more information, including collections, total RVUs, worked RVUs, encounters and ratios of the various components. There is additional data about salary variation by years in practice and other factors. But, we need to start somewhere.

If you look at this small part of the survey report, you will notice several things. There is a pretty big difference between the highest and lowest paid physicians in every geographic area. And the median salaries for hospitalists are higher than those of traditional internists which are higher than those of outpatient internists.

Further Analysis of RVUs

If I were recruiting a hospitalist, and my facility was located in the Midwest, I would consider offering a salary close to the 25th percentile for a new graduate. I choose this salary because I know that the new physician will not be able to actively manage as many patients as a more experienced physician, and will generate less billable services and collection.

I would consider other survey data if they are available. And I would review the compensation for my existing hospitalists.

Here is another set of data to review as we consider how a salary might be considered.

Here I am trying to provide some insight into the reasons for the varying salaries noted above. The median salaries differ significantly between the three types of internists. Since the hospitalists take care of  a more complex and ill patient population, the average wRVU per visit (1.93) is higher than that of the other two subcategories of internal medicine practices (1.5 and 1.43 wRVU per encounter). That accounts for part of the difference in compensation. But it is also true that the hospitalists are paid more per wRVU. 

The variations in compensation per wRVU among various specialties and locations is a bit more difficult to explain, without looking at specific examples. But I can offer some possible reasons. If there are billable activities occurring that are not captured in the individual physician's work, some of the revenues and collections may be attributable to the physician and subsequently justify paying a higher payment per RVU.

Example 2

The hospitalist might supervise an advanced practice nurse (APN). The APN would assist in patient care, allowing the physician to see more patients. But the RVUs might be attributed to the APN rather than the physician. Additional collections will be generated for the employer, making it appear that there are more funds generated per physician RVU, even after covering the costs of the APN. If so, then it is reasonable to assign a higher payment per RVU to the physician.

Similarly, in a primary care practice, if the physician is able to see more patients and generate more volume and income by using his staff more efficiently, he/she may be able to generate more billings and collections, which can then be reflected in a higher compensation per wRVU.

Other Considerations

I would be very reluctant to agree to a higher salary for a new physician than my current staff, unless the new recruit brings special new skills that the other physicians don't have. If possible, I will try to construct an offer that pays the same amount per wRVU as other physicians, with differences in base salary related to expected productivity.

I might agree to pay a fixed salary of about $235,000 per year for the first two years, and an amount during the third year of $60.00 to $70.00 per wRVU above a threshold of 3,000 wRVUs (which correlates with the 25th percentile level of wRVUs for hospitalists in the Midwest). This productivity bonus will generally be paid at the end of the third year, although we might consider paying some of it on a quarterly basis if it looks like the wRVUs are going to exceed the threshold.

As a good employer, I will help the new physician establish herself and build volume over the first two years of employment. I will also be sharing reports that show visit volume, visit distribution by CPT codes, and worked RVUs. And I will be teaching the physician to understand how documentation affects coding, which in turn determines the billable amount and the RVU value attached to each patient encounter.

In this way, I hope to offer a fair salary that encourages us to  work together, while providing some income security during the first two years.

What questions or comments do you have about designing employment agreements?

Disclaimer: I am not an attorney and I do not provide legal advice. My role is to provide education and coaching to physicians to help them find a great job and avoid costly mistakes as employed physicians. I strongly recommend that every physician entering into an employment agreement, or any contract, engage an experienced local attorney to assist them in their negotiations.

The post More on Understanding Relative Value Units (RVUs) in Employment Agreements appeared first on NonClinical Physicians.

I quickly found that there was a significant backlog of employment agreements that needed to be addressed. We had several physicians whose old contracts were due to expire. We were actively recruiting for several specialties as we tried to double the size of our medical group. Several candidates had contracts in hand and were contacting me with questions.

I quickly needed to understand contracting basics, especially compensation, productivity and how to calculate bonus payments. 

Needed Expertise

Physicians executives are often asked to help address questions of newly recruited physicians during the interview process. Their most common concerns center around the following five contract issues:

1. Understanding the salary structure (and salary surveys)
2. Potential bonus and how is it calculated
3. Signing Incentives
4. Liability Insurance Tail Coverage
5. Time Off (Vacation and Conferences)

The first two issues require an understanding of worked relative value units (wRVUs).

Salary Surveys

As physicians prepare to seek new employment opportunities, they quickly begin to access national physician salary surveys such as the MGMA (Medical Group Management Association) survey. But the information presented in the surveys is easily subject to misinterpretation.

A salary survey is just that: a survey. It is an inquiry sent by the surveying entity to obtain salary information from a sampling of physicians, either directly or from their employers. The salary data are collected, analyzed and published for employers and others to use in comparing compensation levels in their organization to the external data.

The surveys generally present both salary means and salary medians. Employers and recruits tend to focus on the medians because they are less impacted by outliers. The surveys also generally provide salary data at the 25th, 75th, 90th and 95th percentiles. Other information that may be included in such surveys is gross revenues, collections, office expenses, and worked RVUs. The data can be subject to certain biases.

For example, it is probably not appropriate to expect a new residency graduate to be paid at the median level when he/she cannot produce or bill for a similar volume of services during the first few years of practice.

This topic is made more complicated because compensation may change during the term of a contract. It is not uncommon for compensation to start out as a fixed salary (generally paid on a bi-weekly basis), and transition into one partially or wholly based on productivity and other performance measures.

For example, hospital systems tend to offer higher salaries to physicians than physician groups. And some of the salary surveys, such as the MGMA survey, have a higher representation of responses from such hospital-based groups, while others (such as the American Medical Group Association) are more representative of physician owned groups. It’s unlikely, therefore, that a physician-owned medical group will make an offer equal to the salary suggested by the MGMA survey.

Also, the survey might have a small number of responses in certain specialties and geographic areas, so linking salary levels to such numbers might not be justified.

Understanding Worked RVUs

Physician productivity is often measured and reported in terms of wRVUs. They are often used to determine the size of a bonus payment or even 100% of a physician’s salary.

Before RVUs were developed and applied, Medicare paid for services based on usual and customary fees, which were highly variable and arbitrary.

In order to standardize payments, the Health Care Financing Administration (now known as the Centers for Medicare and Medicaid Services, or CMS) adopted the resource based relative value scale (RBRVS) after it was development in the late 1980s. A team led by William Hsiao, Ph.D., at Harvard University, published its RBRVS in the Journal of the American Medical Association (JAMA) in 1988. Its use was formally signed into law in 1989 and began to be used in 1992.

The RBRVS, as adopted by CMS, is used to pay for medical services, including medical care provided in hospitals, clinics, emergency rooms, nursing homes and elsewhere. The RBRVS is composed of three parts: physician work, practice expense and professional liability costs.

The latter two of these factors also take into account geographical variability. Medicare payments are determined by applying a dollar multiplier to the relative value of a procedure (generally between 0.0 and 30.0).

The physician work part of the formula (wRVU) is what is used to compare the productivity of physicians and to create compensation models (NOT the total, or tRVU).  The wRVU results from consideration of its components: the time needed to deliver a service, the relative mental effort and judgment required, and the intensity as it relates to the risk to the patient.

The complete list of tRVUs and their components (including the wRVUs) are updated and published annually by CMS (Physician Fee Schedule – January 2015 Release). Each year, CMS adjusts the multiplier in order to create the payment schedule for physician payments. To get an idea of the relative weight of various types of services, I am including a very small sample of wRVUs and their weights below:

Notice that a typical new patient office visit of moderate complexity (99204) runs about 2.43 wRVUs. An established patient office visit at the same level runs only 1.5 wRVUs. Operative procedures run much higher values. The total of a physician's wRVUs is calculated by simply adding up the RVU assigned to each of the visits.

RVU Averages

Using these weighted values, it is possible to compare the productivity of physicians in the same specialty, and even in different specialties. Typically, an internist or family physician will generate 4,000 to 5,000 wRVUs per year, or roughly 100 wRVUs per week (assuming 48 weeks of work). If the average visit has a weighting of 0.97 wRVUs, 100 visits will generate 97 wRVUs. If the average weighting is closer to 2.0 (such as for new patients or procedures), then fewer of these more complex visits (about 50 per week) will still generate about the same 100 wRVUs per week.

A general surgeon may generate 7,000 to 8,000 wRVUs per year; an invasive cardiologist or neurosurgeon perhaps 10,000 or more, primarily because of the heavy weighting of procedural visits/codes.

While initial salaries may not be linked directly to wRVUs, there will usually be an expectation by the employer that the wRVUs being generated (through patient visits and procedures) will meet the wRVUs of similarly compensated physicians.

Consider a hypothetical Dr. Smith who was hired at a salary equal to the median salary for his specialty of $160,000 per year. Two years later he seeing about 50 patients per week and generating 3,500 wRVUs annually. Unfortunately for the physician and the employer, this wRVU level correlates with the 25th percentile level for his specialty in the survey. He will probably be generating revenue and net collections for his employer at the 25th percentile as well, which probably does not cover the costs of his salary, benefits and overhead expenses, since he is being paid at the median. He seems to be overpaid and this will need to be reconciled in some manner.

There are many other similar nuances to the use of RVUs that can render their use in employment contracts somewhat challenging.

Sometimes, wRVUs are used to define bonus thresholds. But what if the work that is being done does not generate visit codes for the physician (e.g., time spent in research, teaching, or as adviser or medical director), and therefore would not be reflected in a bonus calculation.

Consider, for example,  an internist who is to be paid a bonus for wRVUs personally generated and billed above a threshold of 4,500 per year. In addition to seeing patients in the office and the hospital, she is collaborating with an NP that sees overflow patients and she is working part-time as a medical director for a nursing home. Since these additional duties do not generate billable visits and RVUs for the physician, she will not be compensated for those duties under an RVU bonus model, even though those duties take her time and effort to accomplish.

A good working knowledge of wRVUs will be useful to the new physician executive. The link below goes into some more detail about RVUs in employment contracts.

The Basics – RVUs

What questions do you have about worked RVUs and negotiating physician employment agreements? What issues have you encountered when working with physician employment contracts?

Disclaimer: I am not an attorney and I do not provide legal advice. My role is to provide education and coaching to physicians. I strongly recommend that every physician entering into an employment agreement, or any contract, engage an experienced local attorney to assist them in their negotiations.

The post Physician Employment Agreements appeared first on NonClinical Physicians.