Physician Compensation: Issues and Negotiations

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Physician CompensationIssues and Negotiations

• Larry D. Sneed, Esq.
• Healthlaw Advisory Group, LLC

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Compensation Generally

• Direct Employment Relationship with a Private
  Practice or Organization
• Relocation Assistance (Hospital Based) for
  Employment with an Existing Practice
• Direct Employment with Hospital/Healthcare
  Organization
• Private Practice Opportunity

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Direct Employment in a Private Practice or
Organization

• How long has the practice been established?
• Has the practice experienced turn-over? Why?
• Financial Viability New Start vs. Estabilshed
• What are the expectations of the Practice in
  bringing on a new physician?
• Practice Demographics (ielocation, payor mix,
  opportunity for growth)
• Partnership Opportunity/Buy-In or Buy-out
• Lifestyle Call Obligations? Inpatient vs.
  Outpatient Practice

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Relocation Assistance Hospital Provided

• Remember this arrangement will involve a three
  way agreement with the existing
  practice/hospital/ and physician candidate
• Will require a long term commitment to the
  Hospitals community service area
• Has potential pay back obligations in the event
  the contract is breached by the group and/or
  physician candidate

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Relocation Agreements Considerations

• What is the relationship between the hospital and
  the physician practice? Particularly, are there
  other financial arrangements between the parties.
• Why is the Practice considering hospital support
  as an option for its recruitment needs?

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Relocation AgreementsConsiderations

• What types of financial assistance will the
  hospital be providing to the Practice on the
  Physician Candidates behalf?
• Salary/Income Guarantee
• Incremental Expenses to the Practice
• Relocation/Moving Expenses
• Malpractice
• Other?

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Relocation AgreementsConsiderations

• What are my obligations to the Practice? To the
  Hospital?.....in the event the arrangement
  doesnt work
• Commitment to stay in the Hospitals Community
• Can I start my own practice? Can I join another
  group?
• If it doesnt work out, what are my options?

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Direct Employment with Hospital or Healthcare
Organization

• Employer to Employee Relationship
• Why is the hospital looking to employ physicians?
• To start a new primary care base in the community
• To develop existing programs and expand services
• What kind of experience does the hospital have
  with physician employment and management?
• Is this the first venture?
• Who will you be reporting to? Organizational
  Structure?

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Direct with Hospital or Healthcare Organization

• Benefits
• Negotiation for additional benefits in addition
  to those typically offered
• Disability Insurance
• Any special circumstances with family, etc.
• What are the hospitals expectations? What are
  the support mechanisms available to help you meet
  those objectives?

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Private PracticeAm I Ready and Can I Do It?

• First Question
• Debt Load Personal and Family
• Personal Financial Resources
• Presently Available
• Credit Worthiness
• Impact on Personal Lifestyle and Family
  Expectations

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Private PracticeAm I Ready and Can I Do It?

• Find a Good Consultant/Trusted Mentor
• Develop a Business Plan from the Beginning
• Establish a Financial Pro Forma
• Set Expectations
• Know your market
• Know your Risk Taking Threshold

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Lets Crunch the NumbersCurrent Market Trends
and Analysis

• Five National Surveys
• MGMA 2007 164,021
• Watson Wyatt 2007 148,400
• Hospital Healthcare 2007 136,564
• Hay Group, Inc. 2007 157,800
• Sullivan Cotter 2007 160,876

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Lets Crunch the NumbersCurrent Market Trends
and Analysis

• Average of 4 out of 5 Surveys
• Nationally 157,800
• Hourly 79.00 (Low End Based on 2000 Hours)
• Hourly 110.00 (High End Based on 2000 Hours)
• MGMA 2007 Based on Years of Experience
• 1-2 Years Experience 145, 033
• 3-7 Years Experience 157,606
• 8-17 Years Experience 170,851
• 18 Years or More 170,113

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Lets Crunch the NumbersCurrent Market Trends
and Analysis

• MGMA 2007 Geographical Regions
• Eastern Median Income 152,782
• Midwest Median Income 162,239
• Southern Median Income 170,870
• Western Median Income 169,963
• NOTE Assume Mature Practices/Ranges from
• 125,897 (Low End) to 295,779 (High End)

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ProductivityBonus Payments/Expectations

• Generally Bonus Payments are calculated in one of
  two ways
• EBITDA (Earnings Before Income Tax, Depreciation,
  and Amortization) and the Profitability on those
  earnings
• Productivity CMS RBRVS Method (Worked RVUs)

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EBITDA

• May be calculated a number of ways
• Ancillary Services Margins
• Actual Billing and Collections
• Even Distribution Among Partners or Practitioners
• You need to CLEARLY understand the formula and
  calculations EXPECT THIS IN WRITING IN THE
  CONTRACT

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EBITDA

• MGMA 2007 Collections Median 356,060
• MGMA 2007 Gross Charges for Physician with 1-2
  Years Experience 445,799
• Typical Gross to Net Return approx. 30
• NOTE The above does not consider any
  Non-Physician Provider or Technical Component

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EBITDA

• Questions to Ask
• Practice History with both Gross Charges and
  Collections for an Individual Physician
• Demographic Payor Mix Managed Care vs-
• Government Payor Sources (Medicare and Medicaid)
• Might be a good option IF
• Payor Mix is favorable and practice is stable
• Ancillary Services/NPP may be included in your
  compensation structure

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CMS RVRVS MethodWorked RVUs

• Relative Value Units (RVUs) are nonmonetary,
  relative value units of measure that indicate the
  value of health care services and relative
  difference in resources consumed when providing
  different procedures and services.
• RVUs assign relative values or weights to medical
  procedures primarily for the purpose of the
  reimbursement of the services provided.
• They are the standardized industry method for
  analyzing resources involved in providing medical
  services to patients. (generally following the
  Centers for Medicare and Medicaid methodology)

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Worked RVUs

• Simply Put The more complicated the visit or
  procedure the more weight and value its given and
  therefore..increased revenue.
• Driven by CPT Code Each CPT has an RVU
• Example CPT 99201 Office/OP Visit, New .045
• Example CPT 99205 Office/OP Visit, New 3.00

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WORKED RVUs

• What is the general expectation or threshold
• MGMA 2007 Median RVUs 4,092
• Physician Ambulatory Encounters with 1-2 Years
  Experience Median 3,390
• NOTE DIFFERENCE between WORKED RVUs and TOTAL
  RVUs

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Worked RVUs

• What is the practice history for an individual
  physician? Is this a mature practice or a
  start-up?
• Might be a good option IF
• New Practice Start-Up You have the potential to
  earn more based on your work effort in the
  practice
• Demographic Mix of Patients is Less Favorable
• Patient Population Chronic -vs- Worried Well
• Payor Source Mix

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Worked RVUs

• Calculations may be made in a variety of ways
• Threshold Some Bonus Earnings
• Bonus Earnings RVUs x Fixed amount per RVU
  over the Threshold

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FINAL CAUTION

• Be very careful with compensation schemes that
  may appear to be tied to numbers of
  referrals/volume of patients
• Employers may set expectations, but MAY NOT
  interfere with your independent medical judgment
  or require you to do things that you believe are
  medically unnecessary or adverse to patient care
• DO NOT ACCEPT A VARIABLE COMPENSATION SCHEME

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Last Word

• GET IT IN WRITING Understand your compensation
  and ask for an accounting