Financial management and physician compensation: ​Your roadmap for success

Physician compensation represents one of the primary areas of responsibility for us as practice managers. While it’s largely financial in nature, physician compensation also encompasses the need to be aligned with the practice’s vision, values and strategic goals. Let’s look at the financial aspects of physician compensation.

Financial variables in physician compensation are numerous: charges, collections, adjustments, numbers of visits, numbers of procedures, work RVUs, days worked, hours worked, shifts worked and the list goes on. Numbers and financial variables play a large part in the financial management of physician compensation.

One of the most powerful and robust tools that we have at our disposal is benchmarking – both internal and external. But before looking at numbers, we need a plan.

1. What is our goal for the compensation plan? How does it align with our organizational vision?
2. How do we achieve the compensation plan goal?
3. What impact does the new plan have on each physician, the organization’s bottom line and future sustainability? 

When using data for benchmarking, here are some key strategies:

1. Use the median for comparison.
2. Ensure that you compare apples to apples, such as size, specialty, number of providers, ownership and other factors.
3. Select a data set for comparisons and stick with it. Don’t use national data for one benchmark and a geographic selection for another.
4. Study data with trends. They tell far more of a story than does a single data point.

Once you’ve identified compensation plan goals and aligned them with the organization’s vision, it’s time to work with the numbers: actual data, benchmarking data and proformas. 

1. Agree on the methods for measuring productivity, then benchmark internal data to normative data from external surveys.
2. Agree on the relevant numbers for determining nonclinical work effort, such as administrative time, committee or board work, and hospital work if appropriate.
3. Look at past compensation compared to productivity. Benchmark and analyze compared to national normative data.
4. Develop pro forma models based on potential compensation models. Show the impact of a specific model on past compensation: whose compensation increases, whose decreases and by how much. 
5. Evaluate, analyze and review based on the original organizational goals and vision.

This area of financial management requires touches of science, chemistry, mathematics, calculus and psychology. Some might call it alchemy. It is a critical component of the financial management area of the practice and it is one that you can master. 

Do you need help navigating physician compensation within your organization? Contact Ken Hertz at khertz@mgma.com.