Samuel Gerhardt and other physicians share the benefits of productivity-based compensation
Samuel Gerhardt and other physicians share the benefits of productivity-based compensation

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Revenue and RVUs

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“It takes a little legwork to understand [productivity compensation], but it’s worth it,” says Samuel Gerhardt, D.O. - Photo by Jesse and Gena Photographers

 

“It takes a little legwork to understand [productivity-based compensation], but it’s worth it,” says Samuel Gerhardt, D.O. – Photo by Jesse and Gena Photographers

Whether you’re fresh out of residency or simply looking for a change, odds are some of the job offers coming your way will include a productivity component.

According to the Medical Group Management Association’s (MGMA) 2019 compensation survey, nearly a third of primary care positions and more than 22 percent of specialist positions include some portion of productivity-based compensation.

For many physicians, this prospect is nerve-racking. Productivity-based compensation isn’t guaranteed, which is why a lot of physicians favor straight salaries. But rejecting productivity-based compensation out-of-hand may be costly, especially over the long run.

By limiting your search to straight-salaried positions, you could be missing out on great employers or locations, and there’s a good chance you’re also losing money.

“Some docs shy away from productivity incentive compensation because they’re concerned about or don’t understand it, but they’re leaving money on the table,” said Samuel Gerhardt, D.O., chief family medicine resident at Methodist Community Hospital in Henderson, Kentucky.

Just like medicine, business and finance are specialized fields with their own terminology, which physicians rarely hear or use in medical school and residency. Then along comes an offer with a multifaceted compensation plan, and he says, “What usually happens is the physician sees the complex pay model and drops it because they don’t understand it.”

Gerhardt points out that physicians are by nature accustomed to basing decisions on their own expertise. Productivity-based compensation plans can play havoc with that expectation. “When you’re in a situation where you’re no longer the expert, you back off,” he says. “When you only understand the base salary, that’s the only thing you can look at.”

Productivity-based compensation in context

 
“It very much is my experience that physicians are nervous about productivity, but I don’t think they should be,” says Seger Stacy Morris, D.O. - Photo by Hunter Hart

 

“It very much is my experience that physicians are nervous about productivity, but I don’t think they should be,” says Seger Stacy Morris, D.O. – Photo by Hunter Hart

 

Some physicians are also concerned that emphasizing productivity takes the focus off of patient care.

Seger Stacy Morris, D.O., internal medicine program director and division chief of Mississippi internal medicine programs at Baptist Memorial Medical Group in Oxford, Mississippi, says, “It very much is my experience that physicians are nervous about productivity, but I don’t think they should be.”

 

According to Morris, modern medical training doesn’t give physicians a good sense of the workload they’ll be able to handle. These days, residents are assigned fewer patients than in the past.

“Physicians coming out of training are not being trained in starting a business,” he explains. “They’re being trained to be employed. Volume is completely deemphasized, even discouraged, in most programs. Throughout your training, there is very little about what the real world will expect in terms of your productivity.”

In some ways, Morris says, productivity expectations have changed more in training than in actual practice. Doctors are in short supply, and patients need care. But the same regulations that seem to deemphasize volume, including the Affordable Care Act, also mandate that access to care be more universal.

“Some physicians get interested in MIPS [merit-based incentive payment system], thinking that it [and other quality programs] will change everything,” Gerhardt says. “But improved quality won’t replace the need for people who can see more patients. Speed and efficiency are still what makes money in any setting.”

In the simplest terms, productivity-based compensation is pay based on the volume of work a physician does. Volume can be calculated in a variety of ways, which complicates things a bit. But a well-designed productivity incentive program can be a much fairer arrangement for both physicians and employers than a one-salary-fits-all contract.

“Some physicians are risk-averse and just want to know what they’ll be paid,” says Satish Prabhu, M.D., pediatrician and owner of Rainbow Kids Clinic in Clarksville, Tennessee. “But their employers want to share risk.”

Prabhu says productivity-based compensation can be a win-win because physicians can earn more pay by allowing their employers to manage risk. It also helps reward clinicians who face unexpected increases in workload—for example, from an unusually stressful flu season or a colleague’s maternity leave or retirement. This can head off resentments and boost morale.

Productivity-based compensation can also provide more flexibility, Prabhu adds. For example, a physician could take on more work to help with buying a home, paying down debt or planning an extended vacation.

How productivity-based compensation models work: A brief overview

Compensation is typically structured as a mix of salary and incentives, including bonuses.

The salary is the guaranteed portion: the amount you get for showing up to work and completing the basic requirements of your job. Additional incentives are a way for your employer to recognize your work and encourage you to create more value.

Incentives are usually based on some productivity measure, typically calculated based on billable services or actual collections. They can make up a tiny percentage of your overall compensation or as much as 100 percent. The American Medical Association reported in 2016 that an average of 32 percent of physician compensation was tied to personal productivity.

In hospitals, HMOs and other large organizations, productivity is often calculated using work RVUs (wRVUs), a standardized measure of physician effort assigned to each CPT billing code. Andrew Hajde, CMPE, assistant director of association content at MGMA, sees an ongoing trend of larger employers moving away from measuring productivity using revenue and toward an RVU-based approach.

Work RVUs are a fairer way to gauge work and effort,” he says. RVUs track the type of work performed instead of revenue. This frees physicians from worrying about how much a patient’s health plan pays or how effective the billers are. Also, most electronic medical records systems make it easy for physicians to track their own RVUs.

Revenue-based productivity measures encourage proper coding and documentation, too. Employers want to be sure physicians give these administrative tasks sufficient attention, since they determine how much and how quickly your employer will get paid.

Before your search: Empower yourself with information

Productivity-based compensation could be a part of any job packages you’re offered, and you can’t evaluate these offers unless you understand the terms and know what you’re signing up for. Arm yourself with knowledge to help make sure you’re getting a fair deal.

Start by getting familiar with common productivity benchmarks.

For example, many organizations use MGMA compensation and cost survey data to set thresholds for incentives. Accessing the complete survey data requires a subscription, but the association publishes select metrics each year through other channels. Older MGMA data is also available online. Specialty societies often do their own surveys, too. Many make some reports available for free—or at a low cost—to members.

If you’re not yet at ease with CPT coding, you should also study up on billing. It will serve you well in your new job, and it’ll also help you make the most of productivity compensation. Since CPT codes provide the RVU data that often determines productivity, it’s crucial to understand coding relevant to your specialty. That way, you can get an idea of how billing patterns will affect your income.

“Your specialty society and other medical organizations are good places to start,” Morris says. He adds that E/M University can also be a great resource and says that without a solid understanding of CPT coding, you could end up seeing more patients than necessary to meet your RVU goal.

Researching supply and demand can help you gauge how hard it will be to build a panel and reach your productivity goals. There are many online databases to help you calculate how many physicians in your specialty are practicing in your target location and compare those numbers with population trends.

As Prabhu points out, it’s much easier to build a high-productivity practice if the patient population is growing and new patients are looking for doctors.

Mike Blaney, M.D., a general surgeon and founder of Live Healthy MD in Augusta, Georgia, adds that your employer’s contracted insurers (a.k.a., payer mix) may also affect your earning potential. “In Beverly Hills, you’ll find 80 percent or more of your patients will have good commercial insurance with excellent reimbursement. But in other parts of the country, your practice might be as much as 50 percent Medicaid,” he says.

Payer mix will directly impact productivity pay that’s tied to net collections. It can also affect how much your employer can afford to pay you in salary. Having a basic understanding of reimbursement economics can help you understand the sort of offers you might get and if there’s room to negotiate more pay for higher productivity.

Ask about key factors that enable productivity

Your own initiative is essential to hitting volume targets, but it’s unlikely you’ll reach your highest levels of productivity without help. One of the first things you should ask an employer is what kind of resources you’ll have. You’ll want to know if your employer plans to invest in marketing your new practice and how much business development you’ll be expected to do on your own.

For specialists, developing a network of referring primary care physicians takes time. Will you be able to rely on overflow from other physicians in the practice to fill your schedule while you make connections in the local community? Will you receive a higher salary while you build your stream of patients—and if so, for how long?

“Some physicians have the personality to go and sing their own praises,” says Blaney. “Others have more farmer than hunter mentality.” It’s important to know what kind of self-promotion you’ll need to do and how you plan to do it, given your personality and skill set. If you’re building a flow of referrals from scratch, you’ll need to know how long the practice expects that to take and if you’ll receive a higher guaranteed salary during that build-up period.

Primary care physicians should ask how many new patients are joining the practice each month and how they’re assigned. If the local market is not growing, how does the practice plan to attract new patients for your panel? The type of patients makes a difference, too.

For example, if you’re in an OB/GYN practice where maternity care is the fastest way to earn productivity compensation, you need to make sure there are enough new patients of childbearing age.

Prabhu suggests pediatricians ask how newborns are assigned. Babies have many more check-ups per year than older children, so infant patients can boost a pediatrician’s numbers. Similarly, he adds that a pediatrician taking over for a retiring physician should ask about that doctor’s patient demographics. If many of those patients are teenagers, they may leave a gap in the panel when they move on to an adult primary care practice.

Physicians should also make sure they’ll have enough support staff. Hajde says physicians should ask questions like, “Will I be able to get an extra medical assistant if I’m a high performer? Will I get a scribe?”

Prabhu agrees. His practice was one of the first in Tennessee to be certified as a patient-centered medical home (PCMH). He explains, “We created our own workflow initiative to help our physicians achieve the standards of PCMH and enable them to focus on patient care.” Prabhu says it’s critical to make sure your employer understands how to support you in ways that increase productivity and reduce stress.

Scheduling is an important factor, too, according to Prabhu. He recommends physicians ask about available time slots and whether they’ll have input in setting them.

If you have any doubts about how realistic the productivity expectations are, don’t hesitate to ask for details. Morris says, “A good recruiter should be able to show you the number of patients you need to see to break even and how much you’ll make if you see two or three more than that.” It’s fair to ask for and expect examples of how the practice’s physicians meet their numbers, along with details about their schedules and staff support.

Test assumptions and look for “gotchas”

Once you’re comfortable with the basics of an offer, it’s time to dig into the math. As you do, challenge your assumptions and watch out for “gotchas” in the contract. It’s important to ask detailed questions to make sure you fully understand how you’ll be paid if you accept the job.

In some settings and some specialties, some of your work may not be legally eligible for bonus pay. For example, hospitals can’t incentivize you to recommend procedures they profit from. So if you take on a role as a cardiologist, reading echocardiograms may be excluded from productivity calculations.

“Different settings have different rules,” explains Morris. “In a large group, where the machine is not owned by the group, those readings can count toward productivity. But if you’re employed by the hospital and the hospital owns the machine, they can’t incentivize doctors to do that work.”

Billing processes can determine what counts toward productivity, too. For example, surgeries or maternity care may be billed as a global package. If your job will include maternity check-ups, surgical assists or follow-ups, those activities may be excluded from your productivity calculations.

If you’re inheriting a panel, the practice’s definition of an active patient is also important.

“Some practices may consider a patient who hasn’t been seen in 18 months to be inactive, but others might not until it’s been three years,” Prabhu says. As you can imagine, if the panel you inherit includes a significant number of patients who haven’t returned for two or more years, it may not provide you with the volume you need to reach your productivity goals.

If your productivity is calculated based on your practice’s profitability, you’ll also need to pay attention to how overhead is allocated. In a multispecialty practice, the economics may even differ from physician to physician.

Blaney recalls that early in his career, he was bringing in much more revenue from cash-based bariatric surgeries than some colleagues whose patients were primarily on Medicare or Medicaid. Because the cost allocations were based on revenue, he was charged for more of the overhead than he was actually consuming.

“I was bringing in 70 percent of the revenue but was paid only 25 percent of it after overhead,” he says. Luckily, he was able to work out a fairer arrangement with his practice. But not everyone is so lucky. Once you’ve signed a contract, it can be hard to revise the terms, so it’s important to understand how overhead will work upfront, when there’s still time to negotiate.

Get help if you need it

Studying up on productivity arrangements might feel like delving into the business side of things you hoped to avoid by going into medicine. But as Morris advises, you still need to know enough to make sure you’re not getting taken advantage of.

Instead of throwing up your hands in frustration, get help from experts who can fill in the gaps in your knowledge. For example, you can reach out to consulting businesses like Gerhardt’s MedAnalysis Practice Consultants, which he recently started to help physicians compare compensation offers.

Legal advice is also indispensable. “Get a health care attorney—not just a regular business attorney, but a lawyer with experience with health care and physician contracts—to review any contract you’re considering signing,” Morris recommends.

A salary-only deal might seem simpler and safer in the short term, but it likely means leaving money on the table. Plus, there’s really no such thing as a job where productivity isn’t important. Even if you sign a salary-only contract, your employer will still be evaluating the value you bring to the practice.

As Hajde explains, “In most cases, physicians do have to grow their business. If they don’t do it, health systems may have to let them go. It’s the reality of being a physician today, the same as any other business.”

What to ask when your offer includes productivity-based compensation

Marketing: Will you be doing marketing or advertising to help me build my practice? If so, will this overhead cost be spread across the business—or deducted from my earnings? When marketing attracts new patients, how are they assigned to physicians?

Exclusions: Are any procedures excluded from productivity calculations? How will these tasks be shared? How will I be compensated if I’m asked to take on responsibilities like serving on committees?

Support: How many members of support staff will I have? How will they be trained? If my productivity increases, can I get more help?

Payments and reporting: How often are productivity bonuses paid? If I take paid time off or a leave of absence, how will this affect my future earnings? Can I have on-demand access to productivity numbers? If not, how often will I receive reports?

Benchmarks: May I see a sample of the benchmarks you’re using and how productivity is calculated in practice?

Panel management: Am I inheriting a panel from a retiring or departing doctor, or am I starting from scratch? At what point are patients who’ve not been seen for a while considered to have left the practice? If I inherit a panel with many inactive or aging patients, will I have assistance with reactivating them or expanding my panel?

Special skills: What happens if the type of patients I’m seeing affects the volume I can handle or the expected revenue per patient? Will my productivity pay be adjusted for these time-consuming contributions to the practice?

Compensation mix: If I prefer to have a higher base salary and lower bonus potential, is this negotiable? If I participate in quality programs and help improve metrics, will I earn bonuses for this as well?

Ramp-up time: If I need to build my own panel, will I be paid a higher salary initially? Will I receive help with networking, such as introductions to the hospital colleagues and staff, marketing to local primary care physicians, and reimbursement for joining networking groups and attending or leading events?

A little math can mean a lot of money

As both a practicing physician and a consultant who helps other physicians analyze compensation options, Gerhardt has worked with many colleagues who’ve been tempted to reject productivity-based plans out-of-hand. RVU programs can seem more complicated than they actually are, so many physicians prefer the option that seems safer—even if it means forgoing a bigger paycheck.

Gerhardt says just a little effort can help you make a more informed decision. “It takes a little legwork to understand [productivity compensation], but it’s worth it,” he explains. “It could make a big difference in your compensation over the next two to five years of your career.”

Consider Gerhardt’s hypothetical example: You’re offered two contracts. Option A has a base salary of $240,000 with a bonus of $42 per wRVU for all wRVUs exceeding the $240,000 threshold. Option B has a $210,000 base salary with $50 per wRVU exceeding the $210,000 threshold.

At first glance, option A seems like the safer choice. After all, the $240,000 base salary is significantly higher than option B. But a little arithmetic reveals that’s not necessarily the case:

To start earning bonuses with Option A, you’d have to produce a third more RVUs than with Option B. Under option B, you’d only need to produce 4,800 RVUs to earn $240,000 (4,200 for the base, plus 600 at $50 each to earn the $30,000 difference as a bonus). That’s less work than option A!

By locking the higher guarantee under Option A, you’re committing to a plan that makes it very difficult to earn any more than the guaranteed base. By accepting a little more risk, you can earn more with a less stressful schedule, plus you’ll have a much better upside if you work harder.

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Laurie Morgan

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