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Physician Compensation: Finding a Healthy Balance
04/01/06
By: Kenneth R. Cerini, The Pulse
Like Every other business, physician practices are looking to find ways to share income and develop compensation plans to keep themselves and their employee physicians content. As a result, compensation plans have been established in practices that range from simple (defined salaries) to complex (based upon RBRVUs). The Pulse spoke with Paul Dorf, Managing Director of Compensation Resources, Inc. about the use of metrics in developing physician compensation plans.
The Pulse – What compensation approaches are you seeing out there and which do you believe are effective?
Dorf – Most people want pay for results…it’s like motherhood and apple pie, so pay for performance is the direction that a lot of physician’s practices and managed care units are heading towards. In moving in this direction, however, you need to tread carefully. We often start out trying to keep thins simple and we wind up putting so many bells and whistles into the program that it winds up being overly complex and hard to administer. In addition there could be so many factors in the plan that the physicians throw their hands up because they don’t know which way to go, but they know they have to do something to make more money.
The Pulse –What do you see are the primary metrics utilized by practices?
Dorf – They are evolving, but can be typically classified into two major areas, quantitative and qualitative. Qualitative metrics cover customer service and patient care issues. In many cases, doctors, particularly specialists, rely on referrals for new patients. They need their patients to want to go to them, and not just show up at their door because they have no choice. As a result, patient satisfaction because very important. because it means increased business, and thus potentially increased compensation for the doctor. On the other hand, you have quantitative metrics, such as RVUs or collections, which are much easier to measure than your qualitative metrics. With the advent of more sophisticated software packages, practices now have better means to track and measure practice results.
We see practices using encounters, RVU’s number of patients, and so forth. While all of those are important, the practice needs to decide what is most critical. If you peg compensation to certain objectives, it could be counterproductive as employees may have a tendency to focus on them at the detriment of other things that may also be important but not compensation linked. For example, take collections. If the emphasis is on collections, you run the risk of physicians miscoding or upcoding or having heavy handed collection attitudes. So the compensation policy could adversely affect the overall growth o the practice.
The Pulse – How do you determine how to segregate the compensation incentives between qualitative and quantitative metrics?
Dorf – I don’t think there is a set formula. I think that each practice has to feel its way based upon its area of specialty. If you are an electrophysiologist, you probably don’t have a whole lot of competition. If on the other hand, you are a family practice, you need to focus on growing your practice so you need to devote more attention to bedside manner and the care of patients.
The Pulse – Do you believe that a practice’s metrics should be changed on a regular basis?
Dorf – I’m not sure that plans should be regularly change as much as I belive that they should be periodically tweaked. Practices may have different focuses from time to time, and they should be considered and incorporated into the practice’s performance measurements.
We use a very simple acronym FARM. “F” is for focus. We want to be able to attract quality individuals, people that will fit in chemistry wise; people that have the same kind of attitudes and attributes as the other people in the practice. “R” is the need to retain these employees, so retention programs have become very important. Finally, “M” is for motivate. Cleary the whole purpose behind any kind of pay for performance based program is to provide a reason for people to do something. The challenge is to put the goals out there that will be effective… they have to be realistic, they have to be attainable, so the motivation has got to be something that an individual is not just striving for,, but actually has the ability to attain. If you put those together, that’s FARM. That’s what the objectives of a good compensation program should be. That holds true whether it is for the physicians, the owner/manager, or for the staff. In all cases, compensation should not just happen, but it should have a purpose, and it should be designed to achieve that purpose.
The Pulse – How would you typically factor in administrative responsibilities in developing compensation packages?
Dorf – O.K., that falls out on the soft side for the most part. The administrative governance aspects become very important. If you become the medical director of a hospital in their area of specialization, it may not bring money into the practice directly, but they often become an interface so that they can refer business to the practice. You have a hard time quantifying it, but it is something that is going to be very beneficial to the practice. Therefore it needs to be included in the compensation calculation. We have seen where practices did not do that and physicians just said “screw it, I’m not going to spend my time mentoring or doing any of those other things if I’m not somehow compensated.”
The result we’re seeing is that practices are trying to get their arms around how to develop an appropriate compensation plan for their practice that includes these areas that are harder to measure. At this point, we’re not seeing dramatic shifts but sort of evolutionary changes in physician performance measurements.
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