When I am reviewing a contract for a physician, many times they’ll bring up, okay, well, what are industry standard numbers? And then how do we find them out? One tool that I think is very helpful is the MGMA physician compensation data and I’ll kind of go through what it includes and how I use it. First, the MGMA is the medical group management association. It’s an association for professionals that manage or assist with physician practices, and then each year, they will do a survey of physicians by specialty, which gathers a lot of information about how they’re compensated. What goes into the numbers?
Physician Compensation with a Salary
First, they’ll do total compensation of what’s an average salary for a physician in a specialty, RVUs, what are the total RVUs generated in that specialty, what’s the average compensation factor, I’ll get into the specifics of that in a second, and then lastly, what are the average net collections for a physician in that specialty as well. And I kind of break down each one and then how I use it. If a physician is given a contract that just has a base salary, no productivity at all, then it’s helpful to investigate the MGMA numbers and see what’s the normal amount for a physician in that specialty, in that area. The MGMA numbers are broken down by region. You have Eastern, Midwest, Southern, and Western. It’s also broken down into a physician-owned practice versus a hospital/healthcare network as well, because those numbers can fluctuate dramatically.
Once we get into those numbers and see what the average is, it’s a helpful tool. Should it be the only thing relied upon? Absolutely not. I think it’s a terrible idea for a physician to base whether a job is worth pursuing or not just based upon compensation. You have several other factors. What are the benefits? What’s the non-compete like? Is it easy to get out of the contract if things go south? What’s the non-solicit? Do they pay tail insurance? It’s not just compensation, it’s kind of the totality of things, but certainly the compensation is kind of the wow factor numbers and it’s probably the first thing that a physician thinks about in determining whether a job is good or not. Other blogs of interest include:
MGMA and Healthcare Coding
Getting back to, if they just have a base offer, we can look at those numbers and see if it’s industry standard. I would also suggest for any physician to talk to colleagues, see what offers they’re getting, especially for people in residency. Comparing offers is I think the best way of utilizing whether an offer that you’re getting is fair or not. Next, let’s talk about collections. If a physician is given a contract that’s just based upon net collections, what that means is every dollar that the practice receives, the physician gets a percentage of, usually somewhere between 35% to 45%. In this case, let’s just say someone has a 40% net collection Each month, whatever they collect, they get 40% of that.
And it’s simple. How the MGMA data is helpful is knowing what the average collections are annually for a specific specialty. In that way, the physician can at least kind of forecast what they’re going to make. Now, obviously, its volume-dependent upon the practice, how efficient they are in billing and collecting. But having these numbers certainly is a good base point. Another way of being compensated is via RVUs. Just talking about the collections quick. I find that physician practices utilize net collections-based models, and then hospitals use RVUs. It would be very rare that you’d see a private physician in practice to use RVUs. And then, alternatively, it also would be very rare to have a hospital use net collections, that just doesn’t happen very often. In this case, if they have an RVU contract, I mean there are different hybrid models.
Let’s just say it’s straight RVUs. You just take the RVUs generated by the physician, multiply it by a compensation factor and that’s what they make. So, it’s helpful to know what is the average RVUs generated per year in your specialty, in your area. What’s the average compensation factor? As I said before, the compensation factor is just the dollar value and it varies by specialties, usually between $35 to $65. And you just multiply that number times the RVUs generated and that’s how much you make. Sometimes in contracts, we can negotiate both the RVU thresholds and the compensation factor number as well. Many places will kind of tier.
They’ll say, alright, if you generate anything between 5,000 to 6,000 RVUs, you’ll get $50, and then anything from 6,000 to 7,000, you get $10 above that or $5 above. That’s a normal way of doing it. That’s why this data is so helpful. Now, the downsize, in some specialties, the sample size is so low that it can’t really be relied upon or isn’t statistically significant. When you get into the real subspecialties that took three or fellowships to get into and there just aren’t that many of them out in the country, it’s just difficult to have a lot of people respond to the survey and therefore some of the numbers provided, I don’t think can be completely relied upon. It’s a great tool. Is it the only tool? No, other places have Merritt Hawkins, it’s another one that provides data. Another question I get regularly is, how can I see this data?
Well, it’s tough. There may be some MGMA data online that’s old that you can find just by Googling around, but it would be virtually impossible to find the most current MGMA data online for free. I mean, we must pay for it every year. Just Google around for media compensation and try to find some numbers, but I think these are probably the most accurate numbers that we can get. But like I said, they’re not the only number. So, hopefully, that was a real brief rundown of what is the MGMA physician compensation data, and how it can assist in negotiating the contract.
MGMA and RVUs in Medicine
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.
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.
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.
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.
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.
Employment Contract Questions?
Contract Review, Termination Issues, and more!