Things to think about in transitioning from a private practice to hospital-owned practice – productivity, pay, and metrics

Browsing the other day I came across a question asking about salary metrics.  A multi-specialty group (MSG) was looking at a sale to a hospital.  All providers were on flat salary.  (uh oh)   
Paying everyone a flat salary in a single specialty group (SSG) communicates that you are being paid for your time, not necessarily productivity.  This may work in some models (dept. of health clinics, clinics targeting the underserved, etc…) but in a SSG with multiple physicians, it will eventually cause problems as 1) different physicians have different productivity naturally and 2) paying a flat salary regardless of income is fiscally dangerous – you can’t spend more than you earn.   This approach may flatten productivity in a ‘lowest common denominator effect’.  

At the other extreme, is ‘eat what you kill’.  This creates a vicious practice environment where partners fight over high RVU & highly paid work, and ‘dump’ the unpaid or poorly paid work on each other, other clinicians, anyone they can!  Younger, less connected members of the group are taken advantage of by older, savvier partners.  This kind of practice (and they do exist!) is where medicine gets its reputation of “eating its young.”  It is an anti-collegial system, and results in high turnover, a lower level of overall care, possible legal risk, and ultimately a lawsuit when the providers split up.

So, how to resolve this problem?

1.  Its important that you KNOW your provider’s productivity.  How many RVU’s?  How many patients seen?  How many procedures?  What are their charges?  What are their receivables? You need to measure these items.  Billing records may give a reasonable approximation.  Consider basing productivity on charges, not revenue, as different payor mixes may have different reimbursement, and swapping a provider to another site/shift might account for differences in recovered revenue.  Also see discussion below in #3 for philosophy.

2.   Once you know the average productivity of the providers, then you can establish the level of salary from MGMA for a group of that % of productivity.  Consider establishing the base salary at a slightly lower level (i.e. if average group productivity is 65%tile – 85%tile, set your base salary at the 65th%tile not the 75th%tile mean) so that less productive members of the group are not dismissed at the first opportunity if they are not meeting productivity measures.  In a MSG setting, it might be better to treat it as a bunch of single specialty group contracts negotiated under a master agreement.

3.   Establish a bonus based upon excess RVU’s to encourage productivity.  Be careful here, as solely basing the bonus on RVU’s can cause the group to lose cohesiveness and collegiality.  Even better, if you can model it correctly, use a hybrid model of RVU’s, # of patients seen, total $ amount of charges.   This last part is important, as one of the big advantages of being a hospital-owned group is the ability to be separated (in theory) from accounts receivable.  Bottom line – providers are doing the work, and the hospital is doing the collection.  You (the providers) need to be paid for your work & the hospital needs to collect.  If the hospital is not able to collect, that is beyond your ability to control in a hospital-owned practice, and ultimately not your responsibility (although you must do everything in your power to help them collect by coding properly & compliantly).  It is a shift in thinking from shareholder to employee.  One neat thing that you can do here as a MSG is set a ‘group bonus’ tied to the overall productivity of EVERYONE now in the MSG swept into the hospital group and a separate ‘individual bonus’.  That might go a long way to maintain the culture which existed in the MSG and keep the providers happier. 

4.  Nobody likes to do work that they are not paid for.  So for administrative duties (chairmanships, committees, etc…) negotiate a small(er) bonus for that specific work.

5.  There are quality measures that need to be met under meaningful use criteria, and the hospital leadership may have set their own performance measures.  There should be a small bonus for meeting these measures as well as a small demerit for not meeting them. (+/- 0-2%?)  This should modify the overall group and individual productivity bonus to discourage folks from boosting RVU’s at the expense of quality measures.

6.  For call, you might be wise to negotiate a flat rate per call with the hospital (specialty-specific).  That way, those who hate call can ‘sell’ their call to those who like to take call or who are hungrier for earnings.  If you do so, you MAY need to hold the call earnings out of the RVU pool as otherwise those who take more call will have more RVU’s and skew the bonus pool.  However, the calculation may be difficult to do.  

7.  Finally, once you go through this process you can standardize a day’s pay, and those who want to work less can buy vacation days from those who want to work more.  This is a nice option if available.

8.   Be really clear about the metrics established for performance evaluation, promotion, and bonuses.  Try to make it fair but don’t provide incentives for uncollegial behavior, substandard care, etc…  It will save money and heartache later.  See previous post on “The measure is the metric.”  Solely basing employment on RVU targets is risky.

Z.B.  While I think its fine to ask on the net about options, there is no substitute for specific, expert advice from someone who has gone through this process before – preferably multiple times!  Being that a MSG has the income of multiple physicians, I think that it would be wise for them to hire a consultant who has guided groups through this kind of transition and can evaluate the practice intimately under a NDA and provide specific recommendations (which this post is emphatically NOT).  Perhaps the questions and comments above may serve as a very rough beginning of a process which will lead to a successful cash-out and transition from private practice to hospital-owned practice.