How is Physician Productivity Calculated? | RVU and Net Collections
What are the different ways of calculating physician productivity? As someone who reviews contracts daily, I find that the two most likely methods of calculating productivity are either net-collections or RVUs. And so, let’s break both of those down. Suppose someone is an employee of a hospital network. In that case, their productivity will likely calculate through RVUs.
What is RVUs (Relative Value Unit), and How is it Computed?
RVUs are relative value units. CMS, Center for Medicare Services, issues a list every year and has different RVU values associated with the different types of encounters that the physician has. In most scenarios, whatever RVUs generate is multiplied by a conversion factor, and that number can also vary. It’s usually somewhere between $35 to $80, based on the physician’s specialty.
A Scenario for RUV Measuring Physician Productivity
Let’s take a scenario where a physician has been employed in the hospital network for a couple of years on an income guarantee. Then their contract will switch to just pure RVU production. Usually, the base salary level will be chosen below what they would’ve made the year prior. So, if somebody made $240,000 and their RVU production matched that in year two and then switched to production, maybe they’ll back down whatever the draw is, like what they’re paid per payroll. So, if they’re receiving 20,000 per month, perhaps they would back that down to 15,000. And then if the physician, when they did the RVU calculation, exceeded that, they would get paid that amount at the end of the month, or quarterly as well as a usual way of doing it.
If they’re doing RVU production, it’d rarely be less than quarterly or monthly. That’s how a physician gets paid for RVUs. You take the RVUs generated, multiplied by a conversion factor, and that’s what they get. And then, at some point, there’s always a reconciliation to ensure they are getting what they burn. And there are scenarios where a physician may make less than what they had been earning. Then, in that case, most contracts will carry forward deficit. So, a physician could have a negative balance in a month. And if so, the contract will likely state that the negative balance will be carried forward into the next month until a physician exceeds the negative balance.
The other way is through net-collections. Net-collections are literally what the practice collects for the physician services. Now, net-collections are utilized for the most part in private physician-owned practices. The difference between why someone would use RVUs versus net-collections is a hospital network operates RVUs because there are many times when a physician must provide care. They know the person they provide care to can’t pay the bill.
The hospitals and physicians also don’t think that’s fair that they are part of the job of giving that charity care. However, they still provide that care and want to get paid. And RVUs only consider the work that the physicians do. It doesn’t consider what’s collected. Whereas, with net-collections, most physician-owned practices utilize net-collections because almost everyone they’re providing care to in practice has insurance or private pay.
Most smaller physician practices aren’t going to provide that charity care. They want to know, will the physician be paid for what we receive? Now, why can it be different? Well, there could be write-downs from the insurance companies. There could be write-offs from patient care issues where they give a refund, something like that. So, even though the physician may provide care, what the practice receives could be less. And in a net-collections productivity model, usually, it would be monthly productivity.
Guaranteed Minimum Base Pay for RUV Model
The physician would likely much like the RVU scenario where they’d have a small, guaranteed base, or maybe it’s not even guaranteed, but just like a draw. Let’s take the same amount of money. Let’s say 20,000 a month for a physician. Most practices will say, okay, once your collections exceed your salary for the month. You will get a percentage of whatever is collected after that, usually somewhere between 20% to 35%. And once they reached the threshold, as far as they go up, let’s say they collected 40,000 in a month and had a 25% net collection with a 20,000 threshold. Then they would get 25% of 20,000.
Are Physicians Paid Purely of Net Collections?
Now, I’d say rarely is a physician paid purely on net-collections, meaning there’s no minimum guarantee or draw. It’s just whatever they do in the month, that’s what they receive. Those scenarios are challenging, especially when the physician is starting because there’s no guaranteed payment for the first couple of months. And so, they could be working for 30 days without receiving any money. I mean, the average accounts receivable cycle is somewhere between 30 to 90 days.
In that scenario, the physician wants to ensure a minimum draw, so they make at least a little bit of money in the first couple of months. Then it will ramp up over time. The last consideration is, and this goes for both RVUs and net-collections: if there is a bonus structure involved, there will be language in the contract that states, if the contract is terminated, how is the physician paid? There are times when it will state that the bonuses will only be paid out if the physician is an employee at the time of the payment.
So, even though they may have earned the bonus, if they terminate the contract or leave the employee who made it and it’s paid out, they won’t get any of it. Strategically, sometimes the physician must wait until the employer pays whatever bonus is coming. Then they can give notice and leave. I mean, that makes the most sense. So, that’s how physicians measured productivity, or at least the two main ones are RVUs and net-collections.
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What Can You Negotiate in a Physician Contract?
What can a physician negotiate in an employment contract? The short answer is everything. It ultimately depends upon the willingness of the employer as to whether they’re willing to negotiate terms or not. Extensive hospital networks are less likely to change an employment contract agreement significantly. Unlike if a physician is looking into a physician with a smaller physician-owned practice, there’s much more leeway for significant changes. What are the things that are important to the physician, and then what are the things that they can get changed?
In my mind, when I’m talking to a physician, the things that stick out as the most important would be:
- The signing bonus,
- Relocation assistance,
- How to terminate the contract agreement,
- Making certain there’s without-cause termination that’s a reasonable length,
- Productivity bonuses,
- Tail insurance and,
- Who pays for tail insurance if it’s a claims-made policy?
Physicians Contract Negotiations
Let’s go through each of those and come up with some tips on negotiating. First, as far as compensation goes, the physicians need to know their and their specialty’s value. Getting the MGMA data is helpful. It is beneficial to talk to colleagues about what they’re being offered or what they’re currently making in different organizations. Sometimes, the associations for each specialty can provide information on your specialty’s average salary. That’s one way to look at it. As far as productivity goes, this is a little more difficult. It’s going to be completely based upon, I guess, the arrangement. Is it kind of a hybrid between a base salary and RVU production? A base salary and net-collections? Is it all RVU? Is it all net-collections?
This one is dependent upon the type of structure. You’re getting a base plus a certain amount if it’s net-collections or a hybrid model. Let’s say. For instance, the expectation was 20,000. Anything collected is over 20,000 by the medical practice, and the physicians will get 15 to 25% of that. That would be a standard percentage. If the physicians are purely on net-collections, around 40 to 45% is average. As far as RVUs go, there are two things you can negotiate: the threshold, meaning how many RVUs you must generate to get a certain amount, and the compensation factor, which is the monetary value associated with the RVUs. That has some leeway as well. Regarding signing bonuses and relocation assistance, the main things are the actual number, obviously, but more importantly, what’s the repayment schedule?
Forgiveness Period in Physician’s Contract
Almost every contract is going to have a forgiveness period. Let’s say the physician gets a $20,000 signing bonus, and the initial term of the contract agreement is two years. Usually, they’ll have to stay for that initial two-year term to have the entire $20,000 forgiven, so they don’t have to pay anything back. The same goes for relocation assistance. Between $10,000 and $15,000 should be the cost of relocation assistance. The signing bonus can vary widely from 10 to 75. That one is specialty-dependent. As far as non-compete goes, this does vary state by state on what’s considered reasonable. There are a few states where it’s wholly unenforceable; California and Mexico, for instance. Usually, the non-compete shouldn’t be any longer than a year. The geographic restrictions should be 5 to 15 miles from your primary practice location. Where to negotiate with this?
Terms That Matter for Physician Contracts
You want to keep the length at one year or shorter. You want the non-compete to only apply to a few locations. Some employers will say the non-compete applies to every facility we own in the city. Instead of having one office within 10 miles, you could have 30. So, that’s very important. And then specialty as well. Some specialties can do multiple things. Let’s say you are in internal medicine. You can be a hospitalist, and you can go into family practice. You can do urgent care. If the non-compete states that you can’t practice medicine within that geographic restriction, you’re out of luck. Whereas if you keep it to the specialty of what you’re providing to that employer. Specifically, in this case, let’s say you are a hospitalist.
You could go to family practice or urgent care for a year, and then when the non-compete ends, go back to being a hospitalist. That’s something to consider. And then malpractice insurance is always a considerable discussion with the physicians’ coworkers. First, you must identify whether it is a claims-based or occurrence-based policy. If it’s a big hospital, they might be self-insured. And after you determine what type it is, if it is a claims-made policy, tail insurance will need to be purchased after the contract terminates. And then who pays for that? Most of the time, if you’re in a small private physician-owned practice, the physicians must pay for tail insurance when they leave. You rarely have to pay for tail insurance with an extensive hospital network. Now, tail insurance usually costs about twice what your annual premium is.
Physician Employment Contracts & Negotiation Tips
Your family practice’s annual malpractice premium is somewhere between $6,000 to $8,000. If you had to pay for tail insurance, it’s somewhere between 12,000 to 16,000. One thing you can negotiate is who pays for tail insurance coverage. Sometimes an employer will say if you’ve been with us for one year, we’ll pay for a quarter, then two years, half, and then three years, 75%. Some ways of getting out of having to pay the entire amount depending on the situation. Now, the first thing I talked about was whether the employer was willing to negotiate or not. Some employers will say this is a take-it or leave-it deal. I don’t think those employers will be great for getting together. If an employer is unwilling to budge on anything, it will likely be challenging to team up.
It means they’re not going to accommodate the physicians somehow. So, I caution any physicians who has been given a job offer. We ask for some clarification or certain concessions, and they say no, this is it. That’s usually a red flag. And I tell the physicians that you may want to continue looking for a job because this might not be a good fit for you. Anything in the contract is negotiable. You need to figure out what’s most important to you. Sometimes, a non-compete is absolutely the number one thing. For others, it’s the compensation. For others, they do not have to pay tail insurance. It depends upon the physician’s wants and needs and then tailoring the negotiations to get them to that point.
Can Physicians Terminate a Contract Without Notice?
Can a physician terminate an agreement without notice? In my mind, that just simply means can they leave a job without any amount of notice and then move on without repercussions? The answer is that you can go without notice. Still, there will be legal implications, and you are opening yourself up to liability for a few reasons.
The first reason is that there will be a termination without-cause clause in almost any physician employment agreement. Sometimes it’s called for no good reason. And in that scenario, the physician contract will state that either party can terminate the agreement with a certain amount of notice to the other party. So, terminated physician contracts don’t need a reason, no one has breached the physician contract, or maybe nothing is wrong.
It’s just the physician who wants to move on. Or maybe the employer is laying off the physician due to lack of volume or something like that. The physician contract will state either party can terminate the physician contract for any reason. However, they must provide a certain amount of notice, as stated in the physician employment physician contracts. Most of the time, it’s either 60 or 90 days. That’s the standard. In that scenario, let’s say the physician wants to leave.
They would, in writing, provide notice to the practice that says, under the physician contract, I’m giving you 60 days’ notice. My last day of providing care will be X date. And then you move on with your employment. Now, just because the physician contract was terminated without-cause doesn’t mean there aren’t some problems for you or at least issues that you need to deal with when it’s over with
Things to Consider in a Physician Employment Contract Termination
Some things that will follow when you terminate a physician’s contract without-cause, or at least usually follow, there will be a restrictive covenant. And that is either a non-compete or non-solicit in the physician’s agreement. In terminating an employment agreement without-cause, they will still apply. And so, you need to consider, alright, what are the restrictions on my practice after I leave the employer? Many employers will have repayment obligations for bonuses they’ve paid out.
If you start employment, then you leave within a year or two. The employer will prorate that bonus based on how long you’ve been there since you started. Let’s say you were given a $30,000 signing bonus and your initial term was three years. Then the employer may say that one-third of that $30,000 is forgiven yearly. So, if you were to leave between years two and three, you’d owe them back $10,000 at the end of the physician contract. And same goes for relocation assistance. They gave you some money upfront. Usually, it’s forgiven over time. Then you’d have to pay back whatever the outstanding amount is.
What if Your Physician Employment Contract Includes a Productivity Bonus?
Another thing to think about if you terminate a physician contract without-cause is if you have a productivity bonus in the physician contract, either net-collections or RVU. Many of them will state that if you’re not employed when the compensation is given out, you’re not going to get it. Or maybe if it’s like an annual bonus, they won’t prorate it either. The timing of when you give that notice is essential so you’re not losing out on whatever productivity bonus you earned.
What Will Happen if Your Medical Contract Contains a Claims-Made Policy?
And then kind of the last thing that can usually follow is if you have a claims-made policy, who’s going to pay for tail insurance? If the physician is responsible for tail insurance, they must pay that amount before the contract ends. And that can usually be somewhere between ten and a hundred thousand for OB-GYN or maybe a high-level surgeon.
What Are the Effects of Terminating a Physician Contract Without Notice to the Employer?
What happens if you don’t provide notice to the employer? In the physician contract, as I said before, there will be a clause that says you can terminate the physician contract without-cause with this amount of notice. So, what happens if you don’t give any notice? You walk in on a Monday and say this job sucks. I’m out of here. You walk out, and that’s it. Well, you’re in breach of the physician’s contract. What are some things that can happen when you breach physician employment contracts? Well, the employer could assert damages.
Meaning lost revenue for the patients that you would’ve seen that they don’t have coverage for recruitment fees for replacing the physician. Also, expenses are incurred when there’s no physician to be there with staffing or vendors. And so, how that would work is that the employer would sue the physician for breach of physician contract. Then they would claim those damages, then fight it out in court, or if there’s an arbitration clause, they will arbitrate. It’s a terrible idea to walk out on an employer if there’s a without-cause termination clause.
Physicians, Remember Continuity of Care for Patients
Another consideration is continuity of medical care for your patients. If you were to leave a job without providing any notice, what will happen to your patient? Although employed, they may be your patients. They are the employer’s patients. So, the physician couldn’t just up and take all the patients to a new practice for several reasons. There’s probably a non-compete and non-solicit that would prohibit that in some legal way.
Now, patients can choose who their provider is, and I’m not going to get into that right now. But the continuity of care aspect is something that needs to be considered. Are there bridge scripts written if they’re maybe psych patients absolutely in need of medication? Has there been any opportunity to refer the patients out to someone else? Is there someone in-house who can take over the patients? Not only could you get sued for damages, but if you just up and leave all the patients in the lurch, you’re also asking for a board complaint, and nobody wants to deal with their state board.
I promise you I’ve represented hundreds of professionals before the licensing boards, and it’s not a fun process for a provider. So, can you terminate a physician’s employment contract without any notice? Yes, but it’s a terrible idea that could open the physician to many problems.
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