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Understanding the Market Relationship Between Physician Compensation and Production

Understanding the Market Relationship Between Physician Compensation and Production

When a physician has the opportunity to earn compensation through a production based compensation plan, it is important to understand the market relationship between compensation and production.  Often, our clients will ask us why a physician who produces at the 90th percentile of the reported market data cannot earn a compensation per WRVU rate that is also positioned at the 90th percentile of the reported market data.  We believe that it is appropriate to reward physicians for increased production, however, it is important that production based incentives are established appropriately and are based the facts and circumstances of that particular arrangement.  More specifically, the reward to the physician should be an increase in overall compensation, and not in the compensation rate per unit of production.

To demonstrate the market relationship between total cash compensation and productivity, we have used market data as reported in the Medical Group Management Association 2014 Physician Compensation and Production Survey to compare the reported compensation per WRVU rates to the imputed compensation per WRVU rate (reported market total cash compensation divided by reported market WRVUs) as calculated by using the national total cash compensation and WRVU productivity data for family practice (without OB) physicians: 

 

Family Practice (without OB)

 

 

25th Percentile

50th Percentile

75th Percentile

90th Percentile

National Cash Compensation

$175,139

$211,452

$268,915

$345,540

National WRVU Productivity

3,695

4,763

5,887

7,342

National Comp/WRVU Rate

$38.43

$45.34

$55.25

$71.03

Imputed Comp/WRVU Rate

$47.40 1

$44.39

$45.68

$47.06

 


1 $175,139 / 3,695 WRVUs = $47.40

As seen in the table above, the imputed compensation per WRVU rate is relatively flat when comparing a physician who has total cash compensation and WRVU productivity positioned at the market median to a physician who has total cash compensation and WRVU productivity positioned at the 75th and 90th percentiles.  In some instances, depending on the specialty, the imputed compensation per WRVU rate for physicians who have total cash compensation and WRVU productivity at the 75th and 90th percentile may even be lower than the imputed compensation per WRVU rate for physicians who have total cash compensation and WRVU productivity positioned at the market median.

It is important to understand that the reported market rates of compensation per WRVU are the rates calculated based on the reporting sample and that the cash compensation represents total cash compensation from all sources.  As such, the physicians that are most typically paid rates at the upper end of the market range, e.g., the 75th percentile compensation per WRVU rate, are represented by physicians that are paid at a level for which they do not have correlated WRVU productivity. For example, a new physician that is building their practice may receive a base salary guarantee of $230,000, but may only produce 3,000 WRVUs during the practice ramp up period.  This results in that physician generating an effective compensation per WRVU rate equal to $76.67 per WRVU and thus driving up the reported market compensation per WRVU rates.  This is also true  for physicians who serve in administrative roles, have large quality incentive payments, or serve in other non-WRVU generating capacities.

Based on our experience valuing physician productivity models across the country, we find that highly productive physicians are typically paid compensation per WRVU rates around the median of the market compensation per WRVU data.  This is supported by the table above as a physician with total cash compensation and WRVU productivity positioned at the 90th percentile generates an imputed compensation per WRVU rate of $47.06, which is just slightly above the reported market median compensation per WRVU rate of $45.35.

As such, when developing and evaluating production based physician compensation models, it is important to be able to understand that as physician production increases, providing the physician with compensation per unit rates that increase towards the high end of the market is the inverse of actual market practices unless supported based on mitigating facts and circumstances.  Similarly, it is important to understand that the reported compensation per unit rate market data that is positioned at the high end of the market is typically reserved for physicians who earn compensation that is not correlated to their per unit productivity.

If you have any questions or would like to learn more about understanding the market relationship between compensation and productivity, call 612-339-0919.

Rob Lenio

Rob Lenio is a Senior Consultant with the Physician Services practice of Integrated Healthcare Strategies, a division of Gallagher Benefit Services, Inc.  Mr. Lenio has experience working in the healthcare industry, including physician practice management and general business development.  In his previous role, Mr. Lenio oversaw multi-specialty ambulatory clinics for a large integrated healthcare system where he focused on operational performance, EMR implementation, process improvement, labor management, and enhancement of patient, physician, and staff satisfaction.

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