Understanding Productivity-Based Incentives

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Dear Director,
I’ve worked for a group for several years as an hourly employee but they now want me to get paid on a productivity based incentive plan and I have a lot of concerns. Can they do this and should I be concerned?

Private practitioners have lived with a productivity-based model for decades. Stay busy in the office and survive, or be unproductive, lay off staff, and move to a smaller office. I lived through your exact situation about 10 years ago when productivity-based compensation was just gaining traction. And like you, I had significant concerns. Most of us like the guarantee of an hourly wage because at the end of the day, we know exactly what our paycheck will be. We know that with enough clinical hours we’ll be able to cover our bills and plan for the future. At the same time, let’s face it, we also know what it feels like to work with our “slow” colleague who, at the end of the shift, has seen 12 patients to our 22 while getting paid the same amount. That doesn’t seem fair either.

Can My Employer Change My Contract?
Although it ultimately depends on your employment agreement, most contracts allow for the employer to make changes. After all, contracts are not eternal, and when they expire they are essentially open to renegotiation. Your contract may allow your employer to change the pay structure without your approval depending on the language of the contract. Of course, more than likely, your employer will have already discussed with your leadership about the changes and the anticipated feelings or consequences to the group. If your contract is expiring, as most do annually, your employer can make this type of change and you can agree and stay on or disagree with the proposed contract and find work elsewhere.


For background purposes, everything that we do, document, or diagnose can be converted to a relative-value unit (RVU). Our level-of-care billing codes have assigned RVUs and each procedure or level-of-care bill has a designated amount of expected revenue associated with it by insurance carriers and translates to a specific billable amount to uninsured patients.

The Critical Mix
Believe me when I say that a plan can be created so that anything can be incentivized, and incentives can work whether it’s 25%, 50% or 100% of pay. Incentives are typically implemented for productivity, but can also be used for core measure achievement, patient satisfaction, meeting attendance, etc… From the manager’s point of view, the goal of tying compensation to productivity is to increase productivity which can be seen in documentation and patients per hour. From the employee’s point of view, increased compensation has to be worth the extra work and this is achieved by striking the right balance in the percentage of the compensation that is tied to the productivity portion. There is a critical amount of incentive that must be at risk in order to change behaviors and it’s probably at least 30% of pay. This method of compensation is easier to implement if the providers are given a guarantee for the first few months that monthly income will not decrease. Remember, compensation is based on the averages of the month or year so at the very least, if people keep doing what they’re doing and the average stays the same, the pay should stay the same (over that same period). While someone may occasionally have a quiet, non-productive shift, this should be balanced by a higher acuity, chaotic shift.

While the private office practitioner would generally get no payment from an uninsured patient and would likely not take that patient on, we don’t have that luxury of choosing which patients we see. Therefore, these plans need to be based on overall averages of reimbursement and will be troubling to everyone if pay is tied to the individual patient’s payment.


How Big is the Pie?
Like any business, your ED works off of a budget which is more or less based on the amount of money coming into the department from your patient population (+/- an additional stipend that the hospital may contribute to balance your liabilities/expenditures). From these assets, you will pay your liabilities, the biggest one being provider salaries. Additionally, overhead may include payments for malpractice insurance, billing costs and administrative salaries (i.e. medical director, support staff, etc…). In your department’s professional fee budget, about 60-80% will be earmarked for salaries and benefits.

Let’s keep the math simple, so take a 50,000 visit ED, with an average of 2.5 RVUs/pt, and an RVU collection rate of $40/RVU which leads to a budget of $5,000,000 in professional fee revenue. The RVU billable rate is fairly constant and is defined by your regional CMS carrier. The collection rate is what the group actually takes in after allowing for bad debt (self pay patients who don’t pay). Now that we know our accounts receivable, we can determine what’s available for the physician practice once we deduct the overhead (which we’ll set at 25%), which would leave $3.75 million for salaries. When we’re all asking for raises every year or two, wouldn’t it be easier to accept our 75% of the pie if we knew the pie would be bigger every year? So the question becomes, how do we make a bigger pie?

The ingredients of the pie include total annual patients, patient acuity and documentation (RVUs/patient), and physician productivity (patients/hour which is also impacted by ED length of stay and efficiency. On the liability side, billing, malpractice and management costs are fairly constant but the decision to add clinical hours (staffing) can significantly increase the costs.

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How does this work?
As mentioned above, the RVU billable rate is pre-determined. Your group’s collection rate will vary based on your payer mix and collection rates. Now, how much of our example $40/RVU goes to the doc? Again, keeping the math simple, let’s keep our 25% overhead for billing, malpractice, etc…leaving $30/RVU for the physician compensation portion of the budget pie. At $30/RVU and 2.5 RVUs/patient and 2 patients/hour, this equates to $150/hour for physician compensation in our budget. While the value of the RVU collection figure remains a constant, documentation and patients/hour are variables that can be improved upon. Additional RVUs can be generated by performing (and documenting) procedures. Thus, the physician who cares for higher acuity patients, some of whom are intubated or required central lines, documenting at 3.0 RVUs/pt and sees 2.4 pts/hr is generating $216/hour towards our budget pie. Incentives and budgets can also be created to include a night differential (if nights are historically slow and wouldn’t generate lots of RVUs) or higher rates for holidays. What’s difficult to build into a pay for performance model is a guarantee minimal rate while allowing no maximum ceiling pay that would protect every shift with a minimum amount of compensation.

How Reliable is the Data?
Going to $208/hr from $150/hr might be a “Wow!” example, but before I would
jump into this plan I would need to know how reliable my baseline data is. Are the patients that I’m seeing each day truly being billed under my name (thus giving me the credit) or does our billing company make errors and bill under another provider’s name a small percentage of the time? Do we lose or not bill a lot of charts, keeping in mind that if I see 20 patients a day and one chart never gets billed, that can equate to a 5% pay cut for me. Does your registration department properly identify the patient’s address and their insurance carrier? Finally, I would want to know that our coders are fairly consistent and that there is agreement among our coders about how to code and bill. Large variability in coding could mean that some charts are billed as levels 4 or 5 by one coder while another might view the medical complexity component to be a 3, thus creating a lower RVU code.

How Efficient is your ED?
Productivity-based compensation works best when physicians know they will always have patients to see and that they will always have the space to see the patients. But who really works in that nirvana? If your ED has large boarding problems or is very inefficient and you’re only seeing 1 pt/hr despite having a waiting room full of people, you will have some work to do to make the kind of compensation that you desire. Certainly, starting with an efficient ED makes implementation of this plan easier. If your department spends a lot of time on ambulance bypass and has a high left-without-being-seen rate, you definitely have the opportunity to see more patients. In our example, if the ED had a 4% left-without-being-rate, at an average of 2.5 RVUs/pt and a collection rate of $40/RVU, the group is letting $200,000 of revenue walk out the door. If they have 15 physicians in the group, each is losing approximately $10K in salary. Basing compensation on productivity has the added benefit of pushing providers to be more efficient and think outside the box. Seeing a patient in triage when there are no beds available becomes a better option when it’s tied to your bottom line.

Getting Started
I found that it was easier to implement this when we built in a raise from the beginning. That is, if our providers did exactly what they were doing, they were going to get a 5% raise. That gave us some buy in from the get go. Additionally, having several months of the provider’s individual data allowed everyone to see how they would have benefitted from this program or where their weaknesses were that would need to be improved upon in order for them to hit our targets. Because documentation is so critical to our overall productivity, having significant documentation workshops in the beginning of this program and then regularly throughout the year is a must. Finally, I think it’s important to understand that once the program is in place, there will need to be assessments of its assumptions on a monthly basis for the first several months. The targets may need to be adjusted, which essentially means adjusting the value of the RVU, to make sure that physicians are hitting their targets and are happy with the ratio of the incentive split.

It’s Not all Sunshine
Before you jump headfirst into this pool, be aware of a few concerns. Although everyone will likely get a raise over the first 12-18 months as productivity improves, it becomes harder to get raises once productivity and ED efficiency are maximized. I’ve seen physicians get greedy and start to view patients as dollar signs rather than as human beings. This can also lead to chart hoarding which ultimately leads to inefficiency. Also, if you have physician assistants in your mix, there needs to be rules and guidelines to share their RVUs if appropriate. Finally, as mentioned above, the super slow shift during a snow storm may lead to very little money being earned if there is not a baseline guarantee or a 50/50 split between baseline pay and RVU incentive.

Aligning Objectives
The patient wants to get seen quickly. The hospital wants a short length of stay with high patient satisfaction. The billing company wants to maximize reimbursement. You want to get paid a competitive rate for the hard work that you perform. Productivity-based compensation packages align incentives of all stake holders from patient to physician. And it will certainly have you taking a second look at that dental pain patient who arrived 30 minutes prior to the end of your night shift.

Michael Silverman, MD, is chairman of emergency medicine at Harbor Hospital in Baltimore, MD and is on TEAMHealth’s Medical Advisory Board.


EXECUTIVE EDITOR Dr. Silverman is Chair of Emergency Medicine at VHC Health. He also taught a leadership development course for over a decade. Dr. Silverman’s practical wisdom is available in an easy-to-use reference guide, available on Amazon. Follow on Twitter @drmikesilverman

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  1. Our group has always been 100% “eat what you kill.” So long as volume is over 12,000 or so visits per year, it is the only way to go. The efficient doc gets rewarded, the inefficient doc doesn’t. Patient satisfaction goes up because speed and a happy patient are both incentivized. Incomes must be based on your % of BILLINGS, and that % is then paid to you out of COLLECTIONS. The system eliminates financial bickering amongst the docs, though “chart hoarding” is a potential problem. Usually the nurses keep that under control.

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