When preparing to sign an employment contract, don't be transfixed like a deer in the headlights. Be aware of how your employer calculates productivity and how it can affect your compensation.
Co-written with Dennis Hursh
Imagine driving down a dark road. Though your car windows are sealed shut, you still feel the chill of winter air seeping in through the car. Shuttering from the midnight cold, you notice that the heater is already cranked to full blast.
Then, suddenly, a deer darts right in front of your car. It stares you down — its eyes as big as teacups. It doesn’t know which way to go as it is transfixed by your headlights.
You impulsively swerve right. The deer, a stag bigger than you’ve seen in years, barely moves enough to sidestep its otherwise imminent death.
And just like that, the deer is behind you, bounding off into the woods in your rearview mirror. Your adrenaline is pumping through your veins, balanced only by a sense of overwhelming relief. You survived the ordeal.
Needless to say, throughout the rest of your drive, you have a heightened sense of fear for other hazards on the road in front of you, and a new respect for the unexpected that may lie ahead.
Ok, this may not be Stephen King material. But please, humor our tale for a minute. As with most of my narratives, there is a pertinent moral I will draw from it.
In our previous article, we discussed how, as residents and fellows are transitioning to practice, it’s so easy to get tunnel vision and focus on one area — salary.
They're overwhelmed with responsibilities and are used to being low person on the totem pole. What almost inevitably happens is that they just sign on the dotted line because they're so excited about the new job, the big raise, and the new opportunities.
Yet, how are they going to get paid? It seems really simple with salary and possibly a productivity bonus.
What we’ve found is that there's not enough time spent in understanding how productivity measures can vary from one opportunity to another.
Residents and fellows can be just like that deer. They are transfixed on the headlights and don’t realize what they are about to encounter.
Consider the huge chasm of differences between bonuses based on billings, collections, and RVU's.
By the way, our experience dictates that a new physician should never be paid strictly on productivity. Simply, you don’t have control over the patients that are going to present.
Doctors get stuck in this trap where they seem to think base compensation based on productivity is fine. They say, “I'll work hard and I don’t mind working hard. So, I'm not concerned!”
However, you can’t work hard if the patients aren’t presenting and sometimes that's not under your control. We believe a new physician should never agree to base compensation based on productivity. However, the models discussed below are reasonable ways to give you incentive compensation (i.e., bonuses).
One productivity model for young physicians is a bonus tied to billings.
That means your employer will have a threshold for what you bill, and if you exceed that number they will give you some percentage of the excess. This measure looks at the bill going out, rather than how much money was actually collected.
Most bonuses based on billings are based on the gross bill, not the contractually agreed upon discount for government and private plans. So, you will not be penalized if the practice or the hospital has agreed to steep discounts.
In some sense, that's good if you're dealing with an indigent or Medicaid patient. Your billings are going to be the same as if you're treating a patient with a “Cadillac” health plan.
Today, more common than the billing model is collections.
Consider that collections can be very difficult in a hospital setting. Think of all the years that hospitals have been employing physicians! Yet, it seems none of them have really learned how to bill for physician's services.
If your bonus is based on collections, you are totally at the mercy of the hospital's billing department that is not necessarily billing expediently and efficiently.
If the money is not coming in, then your bonus is not coming in!
Hospitals tend to batch a whole bunch of bills together. Then if Joe at billing is off for vacation, the bill isn’t submitted!
In comparison, most private practices will be generating bills the next day, sometimes even that day. Furthermore, most private practices are much more diligent than hospitals in following up if bills aren’t paid promptly.
A bonus based on collections could be great for private practices, which have efficiencies and are relying on those dollars to fund payroll every 2 weeks, but in the hospital setting, collection-based bonuses are less desirable.
Relative Value Units (RVUs)
RVUs can be great as a basis for calculating productivity, since all patient encounters generate the same RVU regardless of how (or if) you are ultimately paid for the service.
Yet this method also has a big disadvantage — the extras that are outside of the patient care.
There's going to be a RVU for pretty much anything that has a CPT code attached, anything you do treating a patient.
However, there isn’t going to be a RVU for department meetings. A lot of times part of your job will be helping with the budget. There's no budget RVU!
Also, you will be attending medical staff meetings and even getting involved in marketing. There's no meeting or marketing RVU!
If you are in that system or one similar to it, you have to be very aware of what other duties are being assigned and you have to realize that many of those activities are not going to generate RVUs.
Consider that teaching hospitals will require even more out of you than the aspects we have already mentioned. You are going to be helping out with the residents and the fellows and teaching and be responsible for many other tasks.
For example, what if you are going to be the head of a BRAND NEW department? Right now, the department may only be you. That means a significant investment of time in credentialing issues and everything else since you are the only one the hospital has to develop appropriate credentialing.
There's no problem with doing that work. Simply, that’s why the salary is there and perhaps in those situations it is worth negotiating a higher salary!
Each of the 3 models of billings, collections, and RVUs have their pros and cons.
Be aware of how your employer calculates productivity and how it can affect your compensation.
Don’t be transfixed like a deer in the headlights. Simply glance back, know where the car is, and keep on bounding towards your destination.
He is also the author of 5 Steps to Get out of Debt for Physicians, The Insurance Guide for Doctors, The Tax Reduction Prescription, and his new book, The Freedom Formula for Physicians. You can contact him at (800) 548-1820, at firstname.lastname@example.org, or visit his website at www.DavidDenniston.com/Physicians to get 3 free articles on financial issues specific to physicians.
Dennis Hursh is a physicians’ lawyer focusing on physician employment agreements. He literally wrote the book on this topic - The Final Hurdle — A Physician’s Guide to Negotiating a Fair Employment Agreement. You can contact him at (866) DOC-LAW1, at Dennis@PaHealthLaw.com, or visit his website at www.PaHealthLaw.com.
Dave Denniston, Chartered Financial Analyst (CFA), is an author and authority for physicians providing a voice and an advocate for all of the financial issues that doctors deal with.