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Finding fairness in physician compensation, part 2
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If your “equal split” practice is reaching the conclusion that this approach no longer serves, you can avoid major upsets with simple modifications.
For example, a part of each monthly or quarterly profit can be held back and divided up based on a majority or super-majority vote of the board. This might give your practice enough flexibility to reward higher producers who might otherwise be on the verge of leaving unless they are better compensated.
A far more common approach to physician compensation today in a group practice is some variation on the “eat what you kill” (EWYK) model. The purest form of EWYK is to first pay for all of the practice’s expenses and to then index profit distribution to each doctor’s personal production based on charges, collections, patient visits or Relative Value Units.
Let’s run through an example. Drs. Jefferson and Smith, two cataract surgeons, practice together. Jefferson collects $1 million per year, Smith collects $600,000. The practice’s total overhead is $900,000, leaving distributable profits of $700,000. Since Jefferson is generating 62.5% of the revenue, he gets $437,500 of the profits, whereas Smith gets 37.5%, or $262,500.
Pure EWYK, as you can imagine, tends to lead to competition rather than collaboration among partners. But it has another, more insidious vice: EWYK allows doctors to step away from active practice without a proportional economic punishment.
I was recently in a practice where the senior doctor was taking 2 days off a week, yet the practice was staffing as though he was there full time. The wasted overhead was being carried by his partners. This is not fair, which is why I was called in by the younger partners to referee.
In this case, we tinkered with the practice’s pure EWYK system and agreed that certain relatively fixed/baseline costs (ie, general rent, marketing, administrators, reception staff, etc.) should be borne equally by all full-time partner-doctors. We also agreed that variable expenses that were most sensitive to patient volume, such as techs, cleaning services and repairs, should be shared pro-rata to collections by each partner. Note, the same result could have been achieved by arbitrarily saying that a third of the expenses would be equally split, rather than designating categories.
It was further agreed that either the senior semi-retired partner could return to full-time status, or he could step back down to being an associate, be bought out and simply receive a flat percent of his collections.