How Ophthalmologists Get Paid
Do you understand how productivity is measured, income is divided and compensation is planned in a group practice? It's in your best interest to know.
By Joseph W. Gallagher, Esq., LL.M., and Mark E. Kropiewnicki, Esq., LL.M.

Base pay and incentive bonus arrangements in employment contracts are important to most new associates and typically receive the most attention and negotiation. However, in our work with many associate ophthalmologists and ophthalmology group practices, we've found that very few new associates ask (or understand) how the practices they're joining pay their owners and divide their profits. It's important that you understand the factors involved with this critical process.

Productivity Issues

How does the group measure the productivity of each ophthalmologist? How does the group know if all ophthalmologists are "working hard" and if some are working harder than others? How does the group measure — and reward — each ophthalmologist's work effort? Or is this "intuitive?"

Defining, measuring and then rewarding "work effort" and productivity is no easy task. Each practice needs to determine the best tools and processes to reach an equitable distribution.

Defining exactly what productivity is and how work effort is  measured depends largely on what the practice wants to emphasize and the tools it uses to determine compensation. The central question becomes simply: When measuring work effort, what counts, and what doesn't?

Productivity Measurement

Ophthalmology practices generally divide most, if not all, of their income based on relative productivity, usually measured by either charges or collections. In some cases, the practice may measure relative value units (RVUs) as a surrogate for charges, which washes out the different payor fee schedule amounts among group members.

Any of these methods is a relative evaluation of each ophthalmologist's work effort, based on services rendered and billable to a payor. Work also can be measured and based on "output." For example, some practices measure economic work effort using patient encounters. Of course, there's always the intuitive principle that as long as you show up ready and able to work, you'll receive an equal share (just kidding).

Options such as charges, collections and RVUs allow a practice to choose what measures and rewards to use, and they allow a very flexible definition of "productivity." Consider what each of these items actually measures:

Charges: This comprises every service you render to a patient that can be billed.

Collections: This is the amount of payment those services are deemed to be worth as determined by the payors and patients.

RVUs: These are standardized values, organized by procedure code, for covered ophthalmologist services rendered to patients, often used to value the relative contributions of various members.

Each of these methods measures and rewards different behavior, and each method has inherently good and bad features.

For example, no real "productivity" measurement rewards non-payable activities without altering the fundamental premise of the measurement. In other words, how do you reward the members of the group who do things that benefit the group but not them specifically? This would include the group's medical director, president, rainmakers and politically connected leaders who help secure market position and referrals.

Another example is the managing ophthalmologist who spends a lot of time handling staff management, managed care contracts and practice promotion. This physician's throughput is typically (but not always) below average, even though his non-patient care work is immensely important to the practice (whether or not the practice's other ophthalmologists recognize it).

Thus, at least periodically, the practice owners should determine what behavior is in the best interest of the group — and should be rewarded — and what behavior the group wishes to discourage. Then, the practice's definitions should be tailored to fit the desired behavior.

Basically, you should be paid for the work you do. Three ophthalmologists providing the exact same service to three differently insured, or non-insured, patients, deserve the same compensation for their individual work efforts. In that light, consider the pros and cons of the various alternatives.

Productivity Based on Charges

This method encourages providing services, regardless of payment. It has its drawbacks, but overall we like it.

However, using this option alone as a productivity measure may result in inequity. For example, one doctor may order more tests per patient than another, or may work with nurses, ophthalmic techs or assistants to see more patients, the charges for whom are billed under the ophthalmologist's profile. This leads to higher charges and higher costs, although the latter may not be specifically included in determining the ophthalmologist's compensation. However, as a general matter, we prefer to calculate an ophthalmologist's productivity on the basis of the billings he or she has generated.

Productivity Based on Collections (Revenues)

Although it's logical to pay physicians based on what they can collect for their services, this method has some inherent problems as well. Specifically, each

physician is held responsible for both the payor mix and the payment policies of the group, even though the physicians are unlikely to be able to influence them
significantly. And don't forget that some subspecialties or services may be poorly reimbursed, relatively speaking.

In any event, collections-based measurement gives you an incentive to work hard and see many patients, which is not really different from a charge-based system. When the success of the practice depends upon how much business each individual ophthalmologist can do, a collections-based productivity compensation formula sends the message that productivity pays.

Productivity Based on RVUs

Relative value units relate each clinical encounter to each other encounter and translate that relationship to a mathematical scale. For example, an office visit of medium difficulty equates to 1.0, and other visits and procedures are compared to that standard, considering the amount of skill, risk, information to be digested, complexity of the decision-making, among other factors.

There are several relative value scales, and each has its drawbacks. The Medicare RVU schedule has been criticized as biased and has been the subject of heavy lobbying and politics. But overall, the Medicare schedule is probably the best for determining compensation. It's the most functional from a practical standpoint, and many payors other than Medicare use it to set reimbursements, bringing the scale closely in line with actual cash payments. Unfortunately, the Medicare RVU schedule does not provide RVUs for some common and important ophthalmic services, such as refractive surgery.

Developing a Group Compensation Plan

Compensating each ophthalmologist in direct proportion to the contributions made to the group's income recognizes that each doctor works differently. Speed, ambition, training, experience and motivation will differ from one doctor to the next.

A group's compensation plan should emphasize the following factors:

1. Practice success outweighs an individual's personal financial situation. The first priority must be the success of the practice. As the practice succeeds, so do all of the ophthalmologists within it.

2. Fairness, equity and simplicity are the hallmarks of an effective compensation plan. It's more important that a group's compensation plan strive to be basically fair (or "unfair") to as many of the practice's ophthalmologists as possible, knowing that complete fairness for all is not possible. In ophthalmology, as with other endeavors, competition among teammates is a fact that can neither be denied nor ignored. What's more, any compensation formula must be relatively simple, meaning easy to understand, easy to implement and easy to calculate.

Consensus Development

In developing a compensation plan, understand that, even in practices that appear to be stable, discussing compensation matters tends to be divisive.

What elements might tend to be important in measuring production? This will depend on each practice. The four major areas include clinical, business, group citizenship and economic ophthalmologist work effort. Aside from the most obvious production factor of charges/dollars/RVUs generated, these areas can be further broken down into issues of:

• Patient throughput
• On-call availability
• Patient satisfaction
• Patient outcomes
• Utilization
• Leadership and governance
• Rainmaking
• Personnel and systems management
• Practice representation in the community
• Academic/research related practice representation
• Managed care contracting
• Patient care skills/procedures
• Practice financial management
• Mentoring new associates.
• Make a Proper Determination

All these factors need to be considered. It's up to each practice to decide how it will weight each of these issues, and how to express their importance within its compensation system. The practice also must determine which of these issues is not important and which physician traits, habits or activities are critical to the practice, and ultimately, have factored in those items into components of its compensation plan.

In the end, the compensation plan should be fair, equitable, even-handed and accurate. It should foster the achievement of practice goals and the accomplishment of practice success by rewards that can be offered for good behaviors or the compensation that can be withheld for bad behaviors.

The authors are principal consultants with The Health Care Group Inc. and principal attorneys with Health Care Law Associates, P.C., both based in Plymouth Meeting, Pa. You can reach them at (610) 828-3888 or jgallagher@healthcaregroup.com; mkrop@healthcaregroup.com.