What Should You Consider When Planning Physician Compensation?

The changes in health care reimbursement and the rising costs of the health care business have prompted groups to look at options related to physician compensation. The addition of mid-level providers and ancillary services, the revenue and costs in a practice can look quite different than it did five to 10 years ago. A group may have adopted a compensation plan for collegiality based on keeping the group together long-term. This model is beneficial due to its simplicity, but only if the physicians worked at an equal pace and the costs were consistent among the group. It is rare to see this model, due to the fact that highly productive physicians want to be compensated for their work. Some physicians are more efficient and confident with electronic aids and can see more patients than their counterparts.

The ultimate goal in physician compensation planning is to ensure everyone believes the plan is fair, transparent and it rewards individual physicians for their work. Our team of accountants and consultants work to understand the goals of the group and the nuances that must be considered to arrive at a fair and compliant decision. The practice administrator’s opinion should be considered in compensation planning, but a trusted advisor is key to leading the effort due to the fact it is a sensitive subject that requires an objective opinion.

Six key issues are important when preparing for a change in physician compensation models. To begin, interview the physicians to get their thoughts on the current compensation structure and what should be considered in a new plan.  Secondly, review the segmentation of revenue by physicians and other billable providers. Dissect professional, technical and ancillary services and review for Stark Law implications related to physician compensation. Review employment contracts related to employed physicians or providers to assure the compliance of a proposed bonus structure.

In addition, analyze the overhead to assign costs as fixed, direct or variable categories. Fixed costs are consistent each month, such as; rent, administrative staff, equipment lease, etc. Variable costs change as the volume of service increases or decreases. Direct costs are those associated with each physician, such as individualized staff, equipment or other resources.

Fourthly, review nuances in the group related to medical directorships, mid-level supervision and lines of business, for example, Obstetrics vs. Gynecological services. Some groups are joining accountable care organizations or engaging is value-based contracts or capitated arrangements that require analysis to assure its effect on the compensation plan.

Fifthly, it is important to plan at least three options for the allocation of revenue, costs and bonus structure revealing the pros and cons for each arrangement. Place a quarter of historical data into a sample to reflect each option for every physician. This allows for questions and requested variations to arrive at the best decision for the group.

Lastly, the group and advisors should meet regularly after the new plan is implemented to address any unforeseen outcomes and continue the impact analysis of the plan.  As value-based revenue and other revenue streams evolve, it is reasonable to review the compensation plan at least every three years to assure practice changes aren’t adversely impacting the group.

Article contributed by Tammie Lunceford, Healthcare and Dental Consultant, Warren Averett Healthcare Consulting Group. Warren Averett is an official Gold Partner with the Medical Association.