When a physician is either switching a job or many times when someone is coming out of training, they may be offered an employment agreement that contains RVUs. An obvious question to most people who aren’t used to being compensated in that way is: what is an RVU, and then how do I get paid for it? I’m going to break this down in the simplest way possible and make it easily digestible for people who are maybe looking at a job where they may be paid based on RVUs. Just as kind of like an initial matter, most of the time, if you’re going to enter a job, there’ll be a guarantee period prior to a productivity-based agreement kicking in.
WRVU Physician Fee Schedule
For instance, let’s say, a gastroenterologist is employed at the hospital. They’ll usually have an income guarantee for the first year or two. Basically, a base salary that is not tied to productivity in any way. Then maybe after year two and then entering year three, it’ll transition into productivity model. In most cases, at least as far as being employed at the hospital, it would be RVU based. Let’s kind of talk about what is an RVU and then how do you get paid for it? An RVU stands for relative value unit and the CMS, Center for Medicare, and Medicaid services kind of came up with the system. I believe it was in the early 90s when essentially every CPT code is given a value or a number based upon how long it takes, how acute it was, how much time and skill is involved in it.
All of the specialties with all the encounters and CPT codes have an RVU number attached to them. There are three types of RVUs. You have the work RVU for the physician, you have the practice expense RVUs, and then the malpractice RVUs. The only RVUs that matter to the physician is the work RVUs. That just considers what the physician does. One of the benefits of RVUs versus net collections, which is another common way of being compensated for production, is that RVUs kind of take out any type of collections problems. Even though a physician may do a service, provide a service to a patient, if they’re being compensated via net collections, if the money isn’t received by the practice or the hospital or whoever the employer is, the physician won’t see it.
RVU Services
Let’s say write-offs, reductions by insurance companies just straight defaults by the patient in paying, all of those will go towards the physician doing the work, but not getting paid for it. RVU kind of takes that away. It’s only based upon what the physician does. In this case, as I was saying before, each encounter is given a number and then that number is then multiplied by what we’d call a conversion factor. Then that’s how much the physician will get paid. Let’s just do primary care for instance. Let’s say the median RVUs generated in a year for primary care is roughly between 5,000 to 6,000. If they were being compensated annually based on RVUs, you’d take 6,000 RVUs and you multiply those times the conversion factor, and then that’s what they would make for the year. Other blogs of interest include:
Obviously, there are multiple ways of paying them. No one’s going to wait till the end of the year. Generally, they would have a draw. So, there’d be a number that they’d agree to where the physician would be paid that amount. Then either monthly or quarterly, there’d be reconciliation. Then if there’s a leftover amount, meaning they’ve generated more RVUs than they were actually paid via the draw, then they would receive that as a bonus at the end of the month or the quarter or whatever the reconciliation period is. There is no negotiation as far as what an encounter is worth, as far as RVUs go. That is set by CMS and that’s what it is. There can be a negotiation in the conversion factor that changes based upon specialty. One specialty maybe has a conversion factor of 35, which is kind of like the average, whereas maybe, like a neurosurgeon might be 75 or $80. It just depends.
Practice RVUs
If you’re with a health network or a hospital, they usually have their own kind of internal benchmarks as far as what each specialty will receive for their compensation factor. Maybe if you were with a small physician-owned group that was using RVUs, you’d have some more leverage in negotiating what your compensation factor would be. How to kind of use this information practically, I would just search right out on the internet for kind of what an annual RVU amount would be in your specialty. Then also, look for the compensation factor as well. Another way of compensating physicians is they’ll have tiers. For instance, if their expectation is 5,000 RVUs in a year, then maybe between 5,000 and 6,000, they’ll be paid this comp factor 6 to 7, it would raise up to maybe $5 more and then 7 to 8, another $5.
That’s not uncommon either. Anyway, that is what an RVU is for a physician. Once again, you only care about the work RVU. There are multiple ways of compensating from it, but hopefully, that’s kind of like a bare-bones analysis to at least give you knowledge about it.
Net Collections Compensation
Today, I’m going to talk about physician compensation models that are pure percentage of collections. We’ll kind of work through how that works and then how the physician is compensated in those types of models. I guess as an initial matter, if a physician works for a hospital or healthcare network, it’s very rare that they would be compensated just based on net collections, that doesn’t happen. Most of those organizations, if they’re going to use a productivity model, it’s going to be via RVU based compensation. The kind of organizations that use net collections the most are smaller physician own practices, and it’s also specialty dependent as well. I find dermatology, anesthesiology use net collections the most in their compensation.
It’s probably rare for peds or primary care to use pure net collections based. There are two types of ways of doing the net collection model: One, you can have a hybrid of where you would get a base salary guarantee, and then you would also have percentage of net collections threshold. ‘What are net collections’ is probably a great thing to touch on first. Any kind of services that the physician does and is billed for and then the practice receives, are net collections. The main difference between RVUs and net collections is, under RVUs, it doesn’t matter what the organization collects. Sometimes there are insurance companies who will then write down what is actually paid out, there’s bad debt, meaning, the physician will provide a service, but then a patient for whatever reason doesn’t end up paying.
Or like I said before, the insurance company doesn’t pay, there are write-downs. Maybe for whatever reason, charity care-specific situations to practice will discount a bill. And any of those scenarios, those things are passed through to the physician. A physician could do a service, but if the company is not paid, the physician will not reap the reward of those collections. Now in an RVU based compensation model, it doesn’t matter about collections. It’s simply what does the physician do, what are the encounters that they did, and then what are RVUs generated. That one thing to consider is how efficient is the billing for the practice that you’re joining. If they are bad at collecting, it’s going to affect you as well.
You need to make certain that they’re using a positive and efficient biller. Many uses outside third-party billing companies and others have it in-house. It just kind of depends. What are the two types? One, as I said before, you could have a base number, and this is a common way of doing it. You have a base compensation number for the year, and then this scenario, it’s usually done monthly. The employer will say, once you’ve collected enough to cover your salary, you then get a percentage of the net collections above that monthly. Let’s say someone makes 20,000 a month. Once they collect 20,000, then anything above that, they’ll get a percentage of, normally, somewhere between 30% to 40% is kind of an industry standard.
It’s most likely not going to be more than that. I don’t recall ever seeing a net collections-based agreement over 45. In that scenario, you do have a base, so there’s a minimum amount. However, if you’re ultra-productive, then you’ll also kind of reap the reward of that from the collections you get. A monthly way of doing that is the most common. They could also do it quarterly. It would be pretty rare for a place to do that on an annual basis. The physician generally wouldn’t accept that because they would have kind of a smaller amount throughout the year than they’d get, or at least theoretically, they would get a big check at the end of the year. Most people would prefer getting it spread out over the year than one big lump at the end of the fiscal year or calendar year, depending upon how the employer does it. Are net collections-based agreements fair? Certainly, they’re fair, it just depends upon what’s the actual number and then what are the different thresholds as far as what you get. If it’s an absolute pure net collections model, which is the kind of the second way of doing it, you simply get paid everything that you collect and then multiply by that percentage. The problems with that are usually just at the beginning. Like an average accounts receivable cycle from when a physician has an encounter to when the practice gets paid, is usually anywhere between like 30 to 90 days.
So, in that model, a physician comes into the practice, they’re working, they’re doing a bunch of counters procedures, whatever, but the practice isn’t getting paid for 60 days beyond that. Well, the physician is not going to make any money in month one or two or even three. I mean, it will obviously increase over time. Many times, in that scenario, if that’s absolutely the model that the employer insists upon, then we’ll have base draw work in the first couple of months. And then that will be kind of either forgiven or taken away over time from what the physician produces so they don’t make zero or a very small amount of money in the first couple months of the employment arrangement.
It normally takes around 12 to 18 months for practice to reach maturity. Once again, it’s kind of specialty-dependent, but in that case, your net collections will continue to increase over time throughout the first year and into year two as well. If you’re joining a practice and you’re replacing someone, you’re going to have a head start. But if you’re joining a new practice or maybe like a new branch of practice, it’s not going to happen instantly, it’s going to take time to build up. So, those are the different collection percentage models for a physician.
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