Issue link: https://beckershealthcare.uberflip.com/i/665044
61 Executive Briefing the rate of compensation per production unit for a high producer will be lower than that for a low producer in many cases. 4. Perform diligence in selecting "benchmark" compensa- tion metrics Although value-based compensation is gaining momentum, productivity-based compensation remains the dominant model. Employers should avoid blindly defaulting to median compensation rates for use in production-based compensation plans. While the median rate can result in FMV compensation in many cases, there are certain instances where it may not be appropriate. For example, a median compensation per wRVU rate applied to a very highly productive physician may result in annual compensation that benchmarks materially higher than his or her clinical production. Alternatively, even a median rate may result in a substantial compensation increase for the physi- cian and cause sustained practice losses for the new employer. In any case, the compensation rate should reflect what is sup- portable based upon the facts, circumstances and economics of the specific arrangement. 5. More complex doesn't mean better We frequently encounter tiered production compensation plans with escalating conversion rates. Under such plans, the physician's conversion rate increases as production increases. Unless these plans are carefully structured, it is common for these arrangements to result in a material disconnect between annual compensation and production. It is useful to per- form sensitivity modeling to evaluate the potential total cash compensation under various production scenarios. If the plan results in compensation that benchmarks materially higher than clinical production, evaluate whether the physician will rea- sonably achieve the production levels at which the distortion occurs. If so, consider redesigning the plan. Plans that align compensation rate benchmarks with annual production bench- marks (e.g., 75th percentile compensation per wRVU applied to 75th percentile annual wRVU production) will almost certainly be problematic from a compliance standpoint. 6. Identify and address common compensation stacking issues Physicians are being compensated for more clinical and ad- ministrative duties than ever before. A physician may receive a base salary, production-based incentive compensation and several additional forms of compensation that may include quality-based compensation, call coverage compensation, medical director compensation and midlevel provider super- vision compensation. As these various forms of compensation are "stacked" on top of one another, it can result in aggregate compensation to the physician, whether on an annual or "per unit" basis, that exceeds supportable levels. To mitigate stacking concerns, employers should ensure that separate forms of compensation are attributable to separate and distinct services and time. It is a good practice to structure medical directorships as hourly arrangements, with detailed time sheets required, rather than annual stipends. Midlevel provider supervision payments are also becoming commonplace. Before implementing such compensation, employers should evaluate whether these duties reasonably warrant additional compensa- tion (e.g., the services result in a productivity drag that impacts the physician's potential to earn production compensation), or whether the physician is already being compensated for this time in his or her base salary. Additionally, midlevel providers can contribute significantly to a physician's performance relative to quality objectives. If the physician is eligible for both a qual- ity-based bonus and midlevel provider supervision compensa- tion, employers should ensure that the compensation reflects separate and distinct personally-performed services. It is common for physicians to be compensated for providing emergency department call coverage. In our experience, many employers require a certain number of shifts to be provided on an uncompensated basis (usually at least five shifts per month). Additionally, as mentioned previously, since the surveys' com- pensation data reflects total cash compensation, the reported compensation rates already include a certain "market-level" amount of call pay. Therefore, to avoid a disproportionately high level of call compensation relative to the market, it is advisable to build in similar uncompensated coverage require- ments and provide additional compensation only for shifts in excess of this threshold. Recruitment packages often include signing bonuses, commence- ment bonuses, student loan assistance and other up-front one- time payments. It may seem obvious, but these payments must also be considered when assessing the physician's total com- pensation. To evaluate whether stacking is a concern, it can be beneficial to evaluate the physician's potential total compensation under the agreement on a "per unit" basis based on expected clinical production. If this metric approaches or exceeds the 75th percentile, consider whether this benchmarking makes sense for the subject arrangement. A relatively high implied compensation per wRVU rate may be justified for a physician who devotes a significant amount of time to administrative duties or provides a disproportionately high amount of call coverage. Physician employment arrangements are becoming increas- ingly complex, and the risk of a non-compliant arrangement are significant. The considerations outlined herein should be of assistance to employers seeking to successfully navigate the FMV review process. When in doubt, seek independent guidance as early as possible in the process to ensure the best outcome possible. n HealthCare Appraisers, Inc., a nationally recognized valuation and consulting firm, provides services to clients nationwide exclusively in the healthcare and life sciences industries, including: • Fair Market Value opinions for compensation and service arrangements (e.g., physician employment, call coverage, medical directorships, co-management arrangements, hospital- based collections guarantees/subsidies, and equipment lease/use arrangements); • Business Valuation for all types of healthcare entities and transactions (e.g., ASCs, hospitals, physician practices, diagnostic/ treatment facilities, fixed assets and intangible assets); • Real Estate Valuation (e.g., medical offices, hospitals, ASCs and LTAC/specialty hospitals); • Transaction Advisory and Strategic Consulting; and • Litigation Support. 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