Compensation Larger Practices
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Compensation Larger Practices

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    Compensation Larger Practices Compensation Larger Practices Presentation Transcript

    • Practice Management Workshop July 9-11, 2004 The Westin O’Hare  Rosemont, IL
    • Compensation and Benefit Distribution for Allergists in Larger Single Specialty Practices Robert J. Holzhauer, MD, MBA, FAAAAI and Michael J. Caruso, CPA
    • Part One Basic Principals of Compensation Systems Michael J. Caruso, CPA
    • No Compensation System is Perfect
    • No Compensation System Lasts Forever
    • No Two Compensation Systems are Alike: “Once you’ve seen one compensation system, you’ve seen one compensation system.”
    • The Ideal Compensation System for a Practice is one in which each Physician is Equally Unhappy
    • The Compensation Formula Should Fit the Group’s Goals and Objectives
    • Need to Define the Goals and Objectives of the Group (i.e., mission statement or practice vision, a good starting point)
    • The System should be Simple and Understandable
    • The System should be Fair and Equitable
    • Types of Compensation Systems
      • Equal
      • Productivity Based
      • Hybrid
      • (pros and cons)
    • Understanding Expenses
      • Direct/Allocated
      • Equal
      • Production Based
    • Outside Constraints
      • Stark
      • IRS
    • Part Two Physician Compensation Formulas:
      • Robert J. Holzhauer, MD, MBA, FAAAAI
    • Physician Compensation Formulas: Straight Salary
      • Advantages to Employee
      • No worry about how much you will be making (assuming practice solvent). Can plan personal budget with degree of certainty
      • Less need to work very hard
      • Disadvantages to Employee:
      • Salary is limited
      • Ownership position in practice less likely
    • Physician Compensation Formulas: Straight Salary continued….
      • Advantages to Employer:
      • Salary obligation is known & limited. Can plan
      • practice budget with degree of certainty
      • Would not be expected to share ownership or
      • profit of practice
      • Disadvantages to Employer:
      • At risk for salary regardless of performance of
      • employed physician (could lose money)
      • Salaried physician has little incentive to work
      • hard, limit costs and improve practice profit
    • Physician Compensation Formulas: Salary Plus Productivity
      • Advantages to Employee
      • Less worry about how much you will be making.
      • Can plan personal budget with fair degree of
      • certainty
      • Can earn larger share of fruits of labor
      • May be able to become a practice owner, sharing
      • more fully in its profit
      • Disadvantages to Employee:
      • Will have to work harder and probably longer
      • hours to maximize income
    • Physician Compensation Formulas: Salary Plus Productivity continued….
      • Advantages to Employer
      • Employed physician has strong incentive to work
      • harder and longer hours to maximize practice
      • income and profit
      • Disadvantages to Employer:
      • Remains at risk for guaranteed portion
      • In most Salary Plus Productivity formulas the non-
      • owner physician has little financial incentive to limit
      • costs to help increase practice profit
    • Physician Compensation Formulas: Full Productivity-Based Comp
      • Advantages to Employee
      • May have potential for largest share of fruits of
      • his/her labor
      • Should be able to become a practice owner. In
      • most circumstances, a physician would not enter
      • into this type of arrangement without high
      • likelihood of ownership
      • Disadvantages to Employee:
      • Most worry about salary; hard to budget
      • Will have to work harder and longer
      • hours to maximize income
    • Physician Compensation Formulas: Full Productivity-Based Comp continued….
      • Advantages to Employer
      • Employed physician has strongest incentive to
      • work harder and longer hours to maximize
      • practice income and profit
      • Disadvantages to Employer:
      • In most Productivity formulas the non-owner
      • physician has little financial incentive to limit
      • costs to help increase practice profit
    • Physician Compensation Formulas: Equal Sharing
      • Advantages to Employee
      • May promote camaraderie among partners
      • assuming that each is working approximately
      • equally hard and productively
      • Equal sharing of risk & reward of practice
      • Disadvantages to Employee:
      • May promote discord if one or more partner(s)
      • perceive that the group is not working equally
      • hard and productively
    • Physician Compensation Formulas: Equal Sharing continued….
      • Advantages to Practice
      • Egalitarian feeling engendered by equal
      • sharing of risk & reward, may reduce conflict
      • Disadvantages to Employee:
      • With equally sharing owner/physicians, each has
      • somewhat reduced financial incentive to work
      • hard, limit costs and increase practice profit
    • Physician Compensation Formulas: Salary Plus Share of Contribution Margin Contribution Margin= Revenue minus Marginal Cost Marginal Cost=Costs attributable solely to the Revenue in question Costs which practice bore before new physician(s) arrive are not part of Marginal Cost
    • Physician Compensation Formulas: Salary Plus Share of Contribution Margin continued….
      • Advantages to Employee
      • Less worry about how much you will be making.
      • Can plan personal budget with fair degree of
      • certainty
      • Can earn larger share of fruits of labor
      • May be able to become a practice owner, sharing
      • more fully in its profit
      • Disadvantages to Employee
      • Will have to work harder and control
      • costs to maximize income
    • Physician Compensation Formulas: Salary Plus Share of Contribution Margin continued….
      • Advantages to Employer
      • Employed physician has strong incentive to
      • work harder and control costs to maximize
      • income and practice profit
      • Disadvantages to Employee
      • Remains at risk for guaranteed portion of salary
    • Physician Compensation Formulas: Compensation Based Upon Revenue and Cost Centers, Percentage of Full-Time Work and % Full Shares Individual Productivity X Clinical Profit % (CP%) +Practice Productivity X Full-Time % (FT%) X Full-Share%(FS%) X CP% +Research Revenue X FT% X FS% X Research Profit % +Management Compensation =Total Compensation -Benefits =Salary
    • Physician Compensation Formulas: Compensation Based Upon Revenue and Cost Centers, Percentage of Full-Time Work and % Full Shares continued….
      • Advantages to Shareholder Employee
      • Reasonably equitable way to share
      • risk and rewards of practice
      • Does not severely punish physicians spending time seeing
      • less remunerative patients, e.g., rheumatology & young kids
      • Disadvantages to Shareholder Employee
      • Physicians rewarded less for spending many
      • hours seeing patients than with a compensation
      • system solely based on patient revenue production
    • Physician Compensation Formulas: Compensation Based Upon Revenue and Cost Centers, Percentage of Full-Time Work and % Full Shares continued….
      • Advantages to Practice
      • Shareholder physicians have some incentive to
      • work hard and control costs to maximize practice
      • profit
      • Disadvantages to Practice
      • Incentives for shareholder physicians to work
      • hard and control costs are weaker than in a
      • compensation system based upon contribution
      • margin
    • Part Three Structuring a Compensation System to Balance Group Goals with Individual Physician Needs
    • Define the Goals and Objectives of the Group (i.e., mission statement or practice vision)
    • Expression by Physicians of Individual Goals and Objectives
    • Appointment of Compensation Committee and/or Outside Assistance Team (i.e., CPA, Consultant, Attorney)
    • Review of Equal versus Productivity Based Systems, and applicability relative to Balancing Group and Individual Objectives
    • Definition of Equal, Production and Direct Expenses (for your group)
    • System Proposals (Based upon Prior Year and/or Pro-Forma Data)
    • Group Discussion
    • Approval
    • Implementation and Documentation