Warning: This column contains more questions than answers. Stop reading if this is a problem for you. Many of these issues are situational. Solutions depend on the facts of a specific situation, practice culture and stablished policy and precedent.
When I was younger, a lot younger, my grandfather took me on car-buying expeditions during which I always thought purchasing a car was secondary to torturing the salesman. My grandfather, himself a former car dealer, delighted in mixing up various options and accessories until everyone was confused, except for him. Back then you could order a basic model and color, and select from a menu of options. Today you can only order packages of options ranging from a bare-bones option (tires and a steering wheel) all the way up to the golden package, which includes a flat-screen television.
So what does this have to do with physician compensation? During the last 10 years, many of us from the MGMA Health Care Consulting Group have had opportunities to work with private physician practices and those associated with integrated delivery systems. The typical request for assistance tends to focus on a basic compensation model that ranges from a simple salary or sharing methodology to a complex productivity and expense allocation model. More recently, requests have included the development of some type of pay-for-performance or value-and-quality component.
Starting point
Frequently, a number of additional compensation considerations are not addressed until well into the plan development process. These considerations are the options to the basic compensation plan. The following list, which is not all inclusive, provides issues and related questions that might be considered during the construction of the plan foundation.
Ancillary profit and loss: Many private practices are developing ancillary services as part of their overall scope of services.
- How are profits or losses allocated in the practice?
- Do physicians receive compensation for managing ancillary services?
- Are there regulatory issues related to referrals and compensation?
New physicians: Does the present or future compensation plan provide guidance for recruiting new physicians and integrating them into the basic plan?
- Does this component of the primary plan support recruiting activities?
- In a private practice, is the migration to ownership addressed?
- How do you deal with physicians who don’t want an ownership interest?
Retiring physicians: In private practice and integrated systems, there is usually a need to address the issue of physicians who want to cut down on productivity and phase out their employment with the group. Your compensation plan should support a policy that addresses this issue.
- Do you try to keep the physician on the primary plan or move him or her to a reduced salary model?
- Are there call considerations to be addressed with the individual and other department or group physicians?
Part-time physicians: On the other end of the longevity spectrum — or maybe in the middle — are physicians who want to work part time. How are they integrated into the compensation model?
- How is call coverage compensated or is it required?
- How are benefits addressed?
- How are ownership interests addressed?
Nonphysician (NPP) supervision: Are physicians compensated for supervising NPPs?
- Is this a time issue for physicians?
- Are physicians losing clinical productivity as a result of their supervision of NPPs?
- Are physicians being compensated for potential malpractice exposure? Should they be?
- How are profits or losses attributed to NPP collections and expenses allocated?
- Does your NPP and physician compensation plan promote productivity and unhealthy competition for patients?
Administrative compensation: How does the plan address compensation for a physician’s administrative activities, such as medical directorship, committee and board service, department leadership and site leadership?
- Do these activities take away from clinical productivity time?
- Are the activities outside of normal clinical activity?
- Is there a basic expectation for everyone to provide some nonclinical support?
Exceptional physicians: We know that a majority of physicians are exceptional, but I’m referring to physicians who don’t fit into a standard compensation plan for some reason. Maybe they are on a special arrangement established in an earlier contract that can’t be changed. I have seen a growing number of plans constructed with multiple components and exceptions in special circumstances. However, most plans should have the following components:
- Primary production component for most physicians
- New physician component for those who had previous contracts and will migrate to the production formula
- Component for physicians on a part-time arrangement
- A wild card component for physicians who do not fit into the previous slots, such as a position that would never be supported by patient demand and therefore wouldn’t support a production-based formula
Keep it simple
These options don’t include small issues, such as call coverage, outside income, research activities and teaching — all factors that can add complexity to your formula. It almost seems like the current environment is designed to torture administrators with the kind of options I mentioned in the first paragraph.
While administrators have to consider these complexities, nobody should give up on simplicity and understandability. Evaluate your current plan methodologies and look for opportunities to streamline the process or bundle multiple options under one policy or methodology. For example, a few physicians might earn outside income from medical directorships while others get individual incentives for managed care participation. Rather than establishing multiple exceptions to the primary compensation plan, consider a policy that requires all outside income that flows through the organization to individuals to be taxed a small percentage to cover additional overhead expenses, such as payroll taxes incurred by the organization.
Each compensation plan is different depending on a variety of factors, including organizational goals, strategic objectives and culture. Successful groups have compensation plans that evolve over time in relation to their environment and internal needs. Developing these plans requires assessing current plan components and rebuilding with a structure or foundation for the future.
