This document summarizes different physician compensation models for allergy practices. It discusses straight salary, salary plus productivity, full productivity-based compensation, equal sharing, salary plus contribution margin, and compensation based on revenue, cost centers, full-time percentage and shares. The key advantages and disadvantages of each model are provided for both employees and employers. It also outlines steps to structure a compensation system, including defining goals, physician input, appointing a committee, and balancing group and individual objectives.

1. Practice Management Workshop July 9-11, 2004 The Westin O’Hare  Rosemont, IL

2. Compensation and Benefit Distribution for Allergists in Larger Single Specialty Practices Robert J. Holzhauer, MD, MBA, FAAAAI and Michael J. Caruso, CPA

3. Part One Basic Principals of Compensation Systems Michael J. Caruso, CPA

4. No Compensation System is Perfect

5. No Compensation System Lasts Forever

6. No Two Compensation Systems are Alike: “Once you’ve seen one compensation system, you’ve seen one compensation system.”

7. The Ideal Compensation System for a Practice is one in which each Physician is Equally Unhappy

8. The Compensation Formula Should Fit the Group’s Goals and Objectives

9. Need to Define the Goals and Objectives of the Group (i.e., mission statement or practice vision, a good starting point)

10. The System should be Simple and Understandable

11. The System should be Fair and Equitable

12. Types of Compensation Systems Equal Productivity Based Hybrid (pros and cons)

13. Understanding Expenses Direct/Allocated Equal Production Based

14. Outside Constraints Stark IRS

15. Part Two Physician Compensation Formulas: Robert J. Holzhauer, MD, MBA, FAAAAI

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. Part Three Structuring a Compensation System to Balance Group Goals with Individual Physician Needs

31. Define the Goals and Objectives of the Group (i.e., mission statement or practice vision)

32. Expression by Physicians of Individual Goals and Objectives

33. Appointment of Compensation Committee and/or Outside Assistance Team (i.e., CPA, Consultant, Attorney)

34. Review of Equal versus Productivity Based Systems, and applicability relative to Balancing Group and Individual Objectives

35. Definition of Equal, Production and Direct Expenses (for your group)

36. System Proposals (Based upon Prior Year and/or Pro-Forma Data)

37. Group Discussion

38. Approval

39. Implementation and Documentation