Hospital group seeks break-even, strong production incentive

Physician Compensation Report, August, 2003

If a physician's collections do not reach his or her threshold, says Ring, then the chief medical officer may analyze the physician's practice to determine what the problems are. The group may cut the doctor's base salary the next year by up to 10%.

Bonuses Can Hit 70% of Collections

Holy Family pays production bonuses by tiers. Each tier is $50,000 "wide" for PCPs and $100,000 wide for specialists, and pay rates rise by 5% from tier to tier. There are five tiers. For example, if a PCP finishes the year with $110,000 in NPP over threshold, and the bonus rate in the lowest tier is 50%, then the bonus would be determined as follows, Ring says:

* Tier 1: $50,000 x 50% = $25,000.

* Tier 2: $50,000 x 55% = $27,500.

* Tier 3: $10,000 x 60% = $6,000.

* Tiers 4 and 5, nothing.

The bonus totals $58,500. If the PCP's base salary is $120,000, total compensation is $178,500.

The bonus rate in the lowest tier, also called the "market NPP payout rate," is calculated by dividing the median benchmark ratio of compensation to gross charges for the relevant specialty by that specialty's median benchmark ratio of collections to gross charges. (That expression can be simplified to the ratio of compensation to collections, the converse of the overhead multiplier.)

This rate is between 50% and 60% for most specialties, Ring says. Physicians insist on a rate of at least 50%, reasoning that for every two bonus collection dollars, at least one should go to the doctor, he adds. Also, HFM places a cap of 70% on Tier 5 rates.

In light of HFM's nonprofit status, the health system brings in a consultant every year to check that physician pay levels are in market ranges, and also to be sure they're sufficient to avoid retention problems.

Contact Ring at (920) 683-8427 or jring@hfmhealth.org.

RELATED ARTICLE: Family practice at a glance.

Central pay range: MGMA 25th and 75th percentiles, 2001--$124,000 to $181,000; AMGA 20th and 80th percentiles, 2001--$122,000 to $180,000 (both figures for FP without OB).

Pay direction: Upward slowly (often less than rate of inflation) in last several years, according to MGMA, AMGA and several other surveys.

Clinical practitioners: Between 70,000 and 75,000. AMA says there were 61,000 FPs in 1997. There are about 65,000 board-certified FPs; AAFP said there were 53,000 in 1999.

Entries to and exits from field per year: In 2001, there were many new FP residency graduates, some spurred to enter the field in the mid-to-late 1990s by the ascendancy of the gatekeeper model of managed care. But also in 2001, the number of FP residency entrants was down to 2,400 from 2,900 in 1997, and the number has continued to fall. A key reason is the dramatic rise in pay for several specialties. Internal medicine residency leads to many specialties; FP residency does not. There are predictions of a shortage of FPs developing over the next three to 10 years based on a rising elderly population, a falling number of entrants into family practice, and a looming general shortage of physicians (PCR 7/03, p. 1). About a third of new FP residents are foreign medical graduates. FPs' relatively high Medicare and Medicaid payer mix is causing revenue problems in the field. Also, family practitioners who do obstetrics bear the full brunt of the malpractice situation. What family practitioners do/subspecialties: According to the AAFP's ad, "We specialize in all of you." As primary care physicians, they conduct a wide variety of diagnoses and treatments, and work in industrial medicine and urgent care. While this specialty as a whole is hurting economically, some practices are very prosperous as a result of building up ancillaries and other revenue raisers. FPs perform many specialty procedures, such as colorectal scans and treadmill tests. Many FPs handle OB, particularly in small towns.