Provider compensation success factors, part one
This month covers 10 factors to increase provider satisfaction and lead to a more aligned cohort of owners.
Click Here to Manage Email Alerts
“I believe that when you do what you love, you find higher levels of satisfaction that can compensate for lower income.”
– Adam Neumann
“A large income is the best recipe for happiness I ever heard of.”
– Jane Austen
Having worked with every medical specialty in the last 40 years, I can report that no doctor is more gentle and diplomatic than an eye doctor. At least until it comes to partner compensation. No practice controversy runs as hot in private group practices as compensation modeling, which can turn mild-mannered ophthalmologists into table-pounding capitalists.
I once had an otherwise delightful surgeon call and express his dissatisfaction with a newly proposed comp model. This hard-working gentleman was earning $850,000 under the old comp model and was slated to take a mild cut under the proposed model, in part to help subsidize a new pediatric subspecialist. “You don’t understand,” he exclaimed. “Under the new comp model, my income is going to decline by $15,000, maybe even $20,000.” So it goes. Everyone gets to define their own version of “fair and reasonable.”
In this two-part column, I cover 17 compensation success factors — elements that, when present, increase provider satisfaction and lead to a more aligned cohort of owners. When providers perceive that their compensation model is fair and reasonable, it establishes the foundation for partner cooperation in every other area: new investments, technical and capital equipment priorities, and the admission of new providers.
1. If two doctors are using the same resources and generating the same revenue, then almost any compensation model is fair. In all other cases, the feelings and the math get complicated. This is especially true as a) boutique ophthalmology clinics are consolidating into larger regional or national systems, b) the “profit pie” is generally shrinking in both absolute and percentile terms, and c) a larger portion of profits need to be held back and reinvested in growth, technology and other innovations with long-cycle paybacks.
2. Compensation modeling is a zero-sum environment. Any change on the model creates winners and losers, so discussions in this sphere of practice life can become highly charged, which takes away from objective, consensus-building discussion. Try to resist this, and at the outset approach comp issues academically, as though you were sitting around the table at a graduate business seminar.
3. To be successful and well accepted by providers, the compensation model has to be transparent and simple. One acid test to see if this is the case is to ask any random provider in your group, “What’s our compensation model? Show me the math. Now show me where the underlying data can be accessed.” In many large groups with convoluted comp models, the answer is often, “I have no idea. I just have to take it on faith that I’m being paid properly.”
4. All doctors should receive and understand a monthly or quarterly recap of how the formula has been applied to them and should also have monthly evidence that their open receivables are being worked as hard as everyone else’s. (I have stepped into settings where senior doctors had their accounts well collected and the junior doctors less so.)
5. Even when a comp model is simple and transparent, it is possible for some members in a group practice to say, “I don’t really understand our formula, and I really don’t trust our practice leaders in this area.” To counter this, every practice should periodically remind providers how the comp model works, and it is incumbent on physician leaders to continuously build trust with their colleagues.
6. The best compensation models share profits, not expenses. Here are examples of each:
Good: “Twenty percent of annual profits available for MD compensation are divided pro rata to ownership, and 80% are divided pro rata to individual net revenue.”
Not so good: “Fifty percent of rent is divided equally, and 50% is divided pro rata to net revenue; 25% of staffing costs are divided equally and 75% pro rata to patient visits (except for the administrator’s salary, which is divided equally); legal and accounting fees are 100% shared pro rata to net revenue” and so on — you get the picture. When you try to devise a method for sharing expenses, this commonly leads to being overly granular and nitpicky.
7. The best compensation models index provider income chiefly to actual financial results (net revenue), not abstractions such as relative value units, patient visits or clinic days worked. This aligns each provider’s incentives with the incentives of the business to increase the top and bottom lines.
8. The compensation model has to be a fit with the strategic plan of the practice. Let’s consider a couple of extremes. A fast-growing, entrepreneurial practice may have to pay providers less in order to make costly investments that everyone may benefit from in the future. A conservative practice that has purposely leveled out at a revenue plateau and is now focusing on optimizing profits may be able to pay providers more. It is important that providers — associates and partners alike — understand and align with the strategic business goals and developmental stage of the practice.
9. Effective, enduring compensation approaches find a fair balance between subsidizing naturally low-revenue producers (eg, pediatrics, neuro-ophthalmology, preretirement docs) and fairly “taxing” high producers (eg, retina, refractive cataracts.) If your business model includes providing comprehensive services (including some low-profit services) and employing young doctors who are in the midst of forming a family (who want to work part time), then a shift in profits from high producers to low producers is inevitable. Depending on the sentiments of practice owners, it is important to honor the truth that the best eye care organizations are professional practices first and businesses second.
10. To the greatest possible extent, all employment contracts should be the same for each class of provider, ie, all associate ODs have the same contract terms, and the same for all partner MDs, all part-time providers, etc.
Next month I will cover the last seven success factors, including ways to handle compensation under capitation, balance compensation in practices with high and low producers, and the use of a compensation committee in a larger practice.
- For more information:
- John B. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979. He is the author of several books on ophthalmic practice management, including John Pinto’s Little Green Book of Ophthalmology: Strategies, Tips, and Pearls to Help You Grow and Manage a Practice of Distinction, UP: Taking Ophthalmic Administrators and Their Management Teams to the Next Level of Skill, Performance, and Career Satisfaction (with Corinne Wohl), Simple: The Inner Game of Ophthalmic Practice Success, and Ophthalmic Leadership: A Practical Guide for Physicians, Administrators, and Teams. Available now for purchase at healio.com/books. Receive 20% off with promo code PINTO20. He can be reached at 619-223-2233; email: pintoinc@aol.com; website: www.pintoinc.com.