Physician Compensation: Issues and Negotiations

1. Physician Compensation:Issues and Negotiations Larry D. Sneed, Esq. Healthlaw Advisory Group, LLC

2. Compensation Generally • Direct Employment Relationship with a Private Practice or Organization • Relocation Assistance (Hospital Based) for Employment with an Existing Practice • Direct Employment with Hospital/Healthcare Organization • Private Practice Opportunity

3. Direct Employment in a Private Practice or Organization • How long has the practice been established? • Has the practice experienced turn-over? Why? • Financial Viability: New Start vs. Estabilshed • What are the expectations of the Practice in bringing on a new physician? • Practice Demographics (ie…location, payor mix, opportunity for growth) • Partnership Opportunity/Buy-In or Buy-out • Lifestyle: Call Obligations? Inpatient vs. Outpatient Practice

4. Relocation Assistance: Hospital Provided • Remember: this arrangement will involve a three way agreement with the existing practice/hospital/ and physician candidate • Will require a long term commitment to the Hospital’s community service area • Has potential pay back obligations in the event the contract is breached by the group and/or physician candidate

5. Relocation Agreements: Considerations • What is the relationship between the hospital and the physician practice? Particularly, are there other financial arrangements between the parties. • Why is the Practice considering hospital support as an option for its recruitment needs?

6. Relocation Agreements:Considerations • What types of financial assistance will the hospital be providing to the Practice on the Physician Candidate’s behalf? • Salary/Income Guarantee • Incremental Expenses to the Practice • Relocation/Moving Expenses • Malpractice • Other?

7. Relocation Agreements:Considerations • What are my obligations to the Practice? To the Hospital?.....in the event the arrangement doesn’t work • Commitment to stay in the Hospital’s Community • Can I start my own practice? Can I join another group? • If it doesn’t work out, what are my options?

8. Direct Employment with Hospital or Healthcare Organization • “Employer” to “Employee” Relationship • Why is the hospital looking to employ physicians? • To start a new primary care base in the community • To develop existing programs and expand services • What kind of experience does the hospital have with physician employment and management? • Is this the first venture? • Who will you be reporting to? Organizational Structure?

9. Direct with Hospital or Healthcare Organization • Benefits • Negotiation for additional benefits in addition to those typically offered: • Disability Insurance • Any special circumstances with family, etc. • What are the hospital’s expectations? What are the support mechanisms available to help you meet those objectives?

10. Private Practice:Am I Ready and Can I Do It? • First Question: • Debt Load: Personal and Family • Personal Financial Resources: • Presently Available • Credit Worthiness • Impact on Personal Lifestyle and Family Expectations

11. Private Practice:Am I Ready and Can I Do It? • Find a Good Consultant/Trusted Mentor • Develop a Business Plan from the Beginning • Establish a Financial Pro Forma • Set Expectations • Know your market • Know your Risk Taking “Threshold”

12. Let’s Crunch the Numbers:Current Market Trends and Analysis • Five National Surveys: • MGMA 2007: $164,021 • Watson Wyatt 2007: $148,400 • Hospital & Healthcare 2007: $136,564 • Hay Group, Inc. 2007: $157,800 • Sullivan Cotter 2007: $160,876

13. Let’s Crunch the Numbers:Current Market Trends and Analysis • Average of 4 out of 5 Surveys: • Nationally: $157,800 • Hourly: $79.00 (Low End: Based on 2000 Hours) • Hourly: $110.00 (High End: Based on 2000 Hours) • MGMA 2007 Based on Years of Experience: 1-2 Years Experience: $145, 033 3-7 Years Experience: $ 157,606 8-17 Years Experience: $170,851 18 Years or More: $170,113

14. Let’s Crunch the Numbers:Current Market Trends and Analysis • MGMA 2007: Geographical Regions • Eastern: Median Income: $152,782 • Midwest: Median Income: $162,239 • Southern: Median Income: $170,870 • Western: Median Income: $169,963 • NOTE: Assume Mature Practices/Ranges from $125,897 (Low End) to $295,779 (High End)

15. Productivity:Bonus Payments/Expectations • Generally Bonus Payments are calculated in one of two ways: • EBITDA (Earnings Before Income Tax, Depreciation, and Amortization) and the Profitability on those earnings • Productivity: CMS RBRVS Method (Worked RVUs)

16. EBITDA • May be calculated a number of ways: • Ancillary Services Margins • Actual Billing and Collections • Even Distribution Among Partners or Practitioners • You need to CLEARLY understand the formula and calculations: EXPECT THIS IN WRITING IN THE CONTRACT

17. EBITDA • MGMA 2007 Collections: Median $356,060 • MGMA 2007 Gross Charges for Physician with 1-2 Years Experience: $445,799 • Typical Gross to Net Return: approx. 30% • NOTE: The above does not consider any Non-Physician Provider or Technical Component $$$

18. EBITDA • Questions to Ask: • Practice History with both Gross Charges and Collections for an Individual Physician • Demographic Payor Mix: Managed Care –vs- Government Payor Sources (Medicare and Medicaid) • Might be a good option IF: • Payor Mix is favorable and practice is stable • Ancillary Services/NPP may be included in your compensation structure

19. CMS RVRVS Method:Worked RVUs • Relative Value Units (RVUs) are nonmonetary, relative value units of measure that indicate the value of health care services and relative difference in resources consumed when providing different procedures and services. • RVUs assign relative values or weights to medical procedures primarily for the purpose of the reimbursement of the services provided. • They are the standardized industry method for analyzing resources involved in providing medical services to patients. (generally following the Centers for Medicare and Medicaid methodology)

20. Worked RVUs: • Simply Put: The more complicated the visit or procedure the more weight and value its given and therefore…..increased revenue. • Driven by CPT Code: Each CPT has an RVU • Example: CPT 99201 Office/OP Visit, New .045 • Example: CPT 99205 Office/OP Visit, New 3.00

21. WORKED RVUs: • What is the general expectation or threshold: • MGMA 2007 Median RVUs: 4,092 • Physician Ambulatory Encounters with 1-2 Years Experience: Median 3,390 • NOTE: DIFFERENCE between WORKED RVUs and TOTAL RVUs

22. Worked RVUs: • What is the practice history for an individual physician? Is this a mature practice or a start-up? • Might be a good option IF: • New Practice Start-Up: You have the potential to earn more based on your work effort in the practice • Demographic Mix of Patients is Less Favorable: • Patient Population: Chronic -vs- “Worried Well” • Payor Source Mix

23. Worked RVUs • Calculations may be made in a variety of ways: • Threshold + Some % = Bonus Earnings • Bonus Earnings: RVUs x Fixed $$ amount per RVU over the Threshold

24. FINAL CAUTION: • Be very careful with compensation schemes that may appear to be tied to numbers of referrals/volume of patients • Employers may set expectations, but MAY NOT interfere with your independent medical judgment or require you to do things that you believe are medically unnecessary or adverse to patient care • DO NOT ACCEPT A VARIABLE COMPENSATION SCHEME

25. Last Word: GET IT IN WRITING: Understand your compensation and ask for an “accounting”