Choosing the Right Physician Compensation Plan for Your Practice

Choosing the Right Physician Compensation Plan for Your Medical Practice

CPAs & Advisors

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Offering the right compensation plan is essential to hiring and retaining good employees while keeping payroll costs under control. Employees should feel as though they are being compensated fairly for the work they do, the education they possess, and the standards of the industry in which they work.

Questions to Consider Before Choosing a Compensation Plan

  • What are the pay ranges for each job classification?
  • What are other companies in the industry paying their employees?
  • Under what conditions will employees receive a pay increase?
  • What benefits will be included in the compensation plan?
  • Will employees’ pay be increased based on annual inflation?

Once employers answer these questions, they can determine which compensation plan is right for them. In general, physicians can be paid on a salary basis, a production basis, or a combination of both. The following are some of the common compensation plan models.

  • 100% Salary: Physicians are paid a fixed salary. This is the easiest compensation plan to manage, but it does not provide incentives for physicians to bring in new patients.
  • 100% Salary Plus Incentive: Physicians are paid using a fixed salary and an additional incentive based on personal productivity.
  • Relative Value Unit (RVU): RVUs involve assigning work values (wRVUs) to codes and determining a set compensation amount for each wRVU. For example, if an office visit is coded 99213 and the work value assigned to it is 1, the physician will receive one wRVU whenever they code 99213. Compensation is then calculated by determining the dollar value per wRVU and multiplying it by the actual wRVUs recorded. If the physician in the previous example earns $60 for each wRVU and records 4,000 total wRVUs, they will earn $240,000 for that year.
  • Percent of Revenue: Physicians are paid a percentage of the total revenue the practice collects. For example, if revenue is $400,000, and the physician is compensated based on 50% of net revenue, they will receive $200,000.
  • Tiered Model: The RVU and percent of revenue models can be established in a tiered format. As a physician generates more revenue for the organization, they earn more money per work unit or receive a higher percentage of revenue.

In addition to salary, employers must also consider benefits packages for their employees. Benefits impact position attractiveness, morale, productivity and retention. Different benefit offerings have varying degrees of complexity and cost. Benefits such as vacation, holidays, and sick leave can be simple to administer, whereas benefits such as healthcare, retirement, disability, and dental can be more complex and expensive. When deciding which benefits to offer, identify those that are most desirable to your employees, yet most cost-effective for your organization.

Ensuring that your employees receive adequate compensation can be complex and difficult to manage. To make sure that your plan works for both you and your employees, contact your Yeo & Yeo advisor.

Source: Practice Management Training Manual: Certified Physician Practice Manager (CPPM®). CPT® copyright 2018 American Medical Association. All rights reserved.

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