Use objective measures to incentivize midlevel providers for increased productivity

April 8, 2014

Creating an incentive plan for midlevels can go a long way toward increasing their productivity.

Adding midlevel providers such as nurse practitioners (NPs) and physician assistants (PAs) can substantially increase a primary care practice’s capacity. And as with other employees, the right incentive program can enhance a midlevel’s productivity and ensure that he or she benefits, rather than hurts, the practice’s bottom line.

Midlevel providers can enhance a medical practice by improving patient care, and providing additional availability for appointments and practice hours in order to reduce fixed costs per provider and increase profitability for the physician owner.

Creating an incentive plan for midlevels can go a long way toward increasing their productivity. The steps below will walk through important information when bringing midlevels on board and how to set up an incentive program to minimize the cost of additional staffing and boost practice income.

Employee or independent contractor?

Check your own state law to ascertain whether midlevel professionals are classified as exempt or non-exempt workers.

In most states, they are judged exempt as opposed to non-exempt (hourly wage workers) from overtime under the “professional” classification.  This is preferable because they should be treated as the professionals they are. Physicians do not get paid overtime to perform their patient care duties, including charting, nor should midlevels.   

If midlevels are paid on an hourly wage basis, it may create motivation to extend working hours to complete charting, for example.

Most midlevel providers should be classified as employees, rather than independent contractors. The Internal Revenue Service has resources to determine whether a worker is an independent contractor or an employee. Check with a certified public accountant or labor attorney regarding these rules and classifications for your particular practice situation.  

Under U.S. law, a worker is considered an employee if the person for whom he/she works has the right to direct and control the way he/she works, both as to the final result and the details of when, where, how, and in which sequence the work is to be done-for example, scheduling the hours the midlevel provider works.

Next: Track profitability and set goals


Track profitability

Many physicians who employ NPs or PAs, do not track the productivity of these midlevels, so do not know whether they are profitable.

It is very important to insurance credential the midlevel provider and identify the rendering provider when performing any patient care duties. Billing software can track the midlevel provider’s productivity by billed charges and payments.

If you load work Relative Value Units (wRVU) into the software by Current Procedural Terminology (CPT) code, these will be tracked as well. If not, an Excel spreadsheet can be easily developed to determine the wRVUs the midlevel has performed by CPT code.

Set goals for productivity

Draw up a written contract that spells out the wage terms, including productivity and incentive bonuses for the midlevel provider.

Here is a recommended formula for an incentive bonus structure that is easy to implement and will motivate the midlevel provider to achieve greater productivity. This formula also works with employee physicians.

First, determine the wage you will pay on a per diem or salary basis.  Survey your local area to obtain salary data. is an excellent resource by city/zip code.  Calculate the value of benefits you will also provi›de.  These are the midlevel’s direct costs.  (See Figure 1, Direct cost)

Indirect costs

Each midlevel or physician generates additional variable costs, such as medical and office supplies and vaccines. The more patients seen, the more operations costs will increase.  

Additional staff, such as front desk or medical assistants, may be necessary. Billing also increases with additional volume. If you use a billing service, you will pay a percentage to collections or revenue for the midlevel’s work. Rent may increase with additional space, but these fixed costs can either be added into the bonus formula or not depending on your philosophy or generosity to set the incentive program.   

You must first deduct all the owner personal direct costs because it is not fair to include these in the production formula for a midlevel or an employee physician. Subtract from your overhead ratio the owner direct costs such as auto, travel/entertainment, meals, pension, continuing medical education, and malpractice insurance. The remaining percentage will be your operations overhead ratio.

Next: Calculating a midlevel's bonus payment


Incentive bonus

After you have calculated the break-even amount and your operations overhead ratio, you can calculate the incentive bonus. (See Figure 3, “Calculating a midlevel’s bonus payment.”)

If the midlevel provider’s break-even collections are $220,133 and the midlevel generates $235,000 in collections for the year, the midlevel has brought in revenue of $14,867 above the break-even amount.

With these additional collections come increased operations overhead costs, so you must apply the operations overhead ratio to this difference. In our example below, this is 52%. This leaves the remaining 48% to devise the incentive bonus structure and split the profits between the owner and the midlevel.

The owner physician should have a return on investment (ROI) on the midlevel’s work. The owner physician can be more or less generous with this percentage depending on practice needs and individual goals. For this example, a 30% ROI was assigned.  That leaves an 18% annual bonus for the midlevel provider, which is calculated as $2,676 in this example.   

Once you inform the midlevel provider of the break-even amount needed to be reached and the bonus percentage, this usually motivates the midlevel provider to be productive and earn a bonus.  The owner physician can start with a lower percentage on initial hiring and increase the bonus percentage with additional years of service.

The advantage of this formula is that it is based on objective factors. It has worked successfully for both midlevel incentive and physician employee bonuses. This same type formula can be utilized with wRVUs with a break-even point and bonus potential.