ATTORNEY ADVERTISING
Last week we began a new blog series on Breaking Down Physician Compensation. After all, there are so many different ways physicians are paid these days, and how does it all really work? In this installment, we are taking a closer look at an increasingly popular form of compensation- production compensation. Production compensation has always been the norm for physicians who are partners in private groups, but it has also gained a lot of traction for employed physicians in all different types of settings.
Production compensation is not to be confused with some type of bonus compensation. Instead, production compensation (often referred to as "incentive compensation") is where a physician is literally paid for what they actually do. Production compensation typically takes 2 forms: collections-based compensation, and wRVU-based compensation. Collections-based compensation is most typically seen in the private practice setting, and wRVU-based compensation is more typically seen in a hospital setting.
With private practices, production compensation is relatively straight forward. As a physician, you bring in a certain amount of money (your collections), and you will have to pay out of those collections certain types of overhead. There are both direct and indirect overhead expenses that must be covered, and sometimes private practices handle these expenses by allocating to each physician their direct overhead expenses, plus a prorated share of the indirect overhead expenses, and deducting that total amount from the physician's "gross collections," which leaves the physician with their "net collections" as their take home pay. All of this hugely depends on whether the physician is a partner or an employee, which can change the math dramatically, but the idea is typically the same. You bring money in, you have to pay your bills, and you keep the rest.
In the hospital setting, wRVU-based compensation is typically favored for various different reasons. A wRVU is a unit assigned to pretty much every medical service a physician can offer (there are some exceptions). The wRVU value of each service, procedure, surgery, etc. is meant to account for all aspects of the service- not just how much it costs to perform, or how much a payor is willing to pay for it. For instance, if a surgeon performs a surgery that is complex and requires enormous amounts of time, training, and experience in order to complete, the wRVU value will be higher than a surgery that takes less time and is less complicated to perform. wRVU-based compensation is favored in the hospital setting because hospitals have such great overhead, and their payor population may be mixed such that certain types of physicians, depending on their specialty, are not likely to actually collect for most of the services they provide (for instance, an ER physician at a safety-net hospital that has many uninsured patients). With this type of compensation, the physician is paid a dollar amount for each wRVU they perform. The dollar amounts vary hugely based on specialty, region of the country, the physician's training and background, etc.
While we are only really scraping the surface in this article on production compensation, it is important for each physician who is offered a contract to carefully consider the manner in which they will be paid. Make sure you are comfortable with the way in which the employer spends the money that comes in, and ensure you are fairly compensated as compared to other similar physicians.
For more information on production compensation, and all other methods of physician compensation, and help with your physician contract review, please contact us at 317-989-4833 or loneill@lauthoneill.com.
ATTORNEY ADVERTISING