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Physician Compensation and RVUs: Part II


Posted by Anonymous at 6/7/2011 1:28:48 PM

Ten Tips for RVU Compensation

Part II


Last week in this blog we explored the fact that Relative Value Units (RVUs) have rapidly become the most common productivity measure in compensation methodology for physicians.  According to the MGMA, over the last 4 years there has been a 112% increase of medical practices using RVUs as a factor in determining physician remuneration, and a 79% increase of physicians reporting their income is influenced by the RVUs they generate.


While legislators, the media and executives have debated healthcare reform, our industry has experienced this very noteworthy and substantial trend affecting the way a majority of doctors are paid.  Merritt Hawkins, the nation’s leader in physician recruitment, has received numerous inquiries regarding prudent ways to structure an RVU Productivity Model for employed physicians.  We therefore offer these Ten Tips for RVU Compensation.   I will review five of the ten this week and discuss the remaining five in next week’s blog.


1.) Keep it simple.  One of the benefits of utilizing an RVU compensation model is the ability of physicians to focus on patient care as opposed to spending an extensive amount of time managing the business of medicine.  This can be a positive attribute for recruiting and retaining quality providers, but that value is diminished if the formula being used to determine the doctor’s pay is overly complex and confusing.  One simple solution is to establish an affordable and predetermined dollar amount the physician will receive per Work RVU generated.  This “Compensation per Work RVU” figure can be benchmarked for the physician’s respective medical specialty using an annual report by organizations such as the Medical Group Management Association (MGMA), the American Medical Group Association (AMGA), or with the help of a knowledgeable physician search firm.  The physician’s guaranteed base salary can be divided by this dollar amount to set a threshold of Work RVUs that must be generated before the physician begins receiving a Productivity Bonus.  The physician would receive this Compensation per Work RVU for each Work RVU exceeding the threshold.  Salary and bonuses can be calculated annually or on a quarterly basis.


2.) Ensure administrators and physicians have a clear understanding of the difference between the CMS Resource-Based Relative Value Scale (RBRVS) method, which functions on the “Total RVU” system, and the specific formula being used in the compensation section of the physician’s employment contract to determine how the provider will be paid.  These are not identical.  CMS reimburses for services based on Total RVUs (which includes the Work RVU, the Practice Expense RVU and a Malpractice Expense RVU), and this Total RVU is adjusted by locality according to the Geographic Practice Cost Index (GPCI) and then multiplied by their current Conversion Factor (CF) in calculating the reimbursement for a service.  However, physicians are most frequently compensated by their employer per the “Physician Work RVUs” they generate.  Very few physicians have an incentive bonus based on Total RVUs.  In either case, all of the RVUs generated by the physician are typically tracked and credited toward the doctor’s overall productivity since they will see patients from payers other than CMS.


3.) Stay informed of developments with the RBRVS method.  Every Current Procedural Terminology (CPT) code used in billing for services has a corresponding Relative Value.  These are periodically updated and can be downloaded from the CMS website by navigating to the Physician Fee Schedule (PFS), and clicking on the PFS Relative Value Files.  The most recent version was posted on 05/24/2011 as revised for the July 2011 release.


4.) Don’t’ believe the myth that an RVU Productivity Model will always pay a physician uniformly based on the amount of work they perform.  No system is perfect.  As an example, the national median Compensation per Work RVU for a Pediatrician is $38.89; however, the median Compensation per Work RVU for an Orthopedic Surgeon is $60.05, according to the 2010 MGMA report.  Discrepancies occur amongst physicians within the same medical specialty as well.  Internal Medicine residency trained physicians report their compensation per Work RVU is 30% higher on average when they are employed as a Hospitalist, instead of working in a traditional inpatient and outpatient general Internal Medicine practice.


5.) Discuss hospital and physician alignment.  In an era where health systems and large practices are moving toward Accountable Care Organization models with an emphasize on providing lower cost preventive medicine and a potential return on investment from shared savings, implementing an RVU compensation program can act as a bridge allowing doctors to treat all people in the service area (regardless of insurance status) without concern for having these patient encounters negatively affect the physician’s personal income.  This is likely one of the primary reasons we’ve seen the proliferation and growth of RVU compensation models in the last several years.


There is more to be said regarding this important topic, and next week I will review RVU tips for compensation six through ten.


Meanwhile, if you have questions, please feel free to contact me at peter.cebulka@merritthawkins.com or at 800-306-1330. 


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