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Practice Perfect: The RVU Fallacy – Back to Compensation Plan Basics 5/9/11

May 9, 2011 News No Comments

The RVU Fallacy – Back to Compensation Plan Basics

Resource Based Relative Value units and their sub-component, Work RVUs (WRVUs), too often create perverse incentives for the participant physicians in a compensation plan when used as the main measure of productivity.

This is a controversial statement in today’s physician compensation environment. But it is not so controversial when viewed in light of the changes coming in the form of ACOs and other forms of reimbursement that emphasize collaboration and outcomes over “RVU piecework.”

Examples abound where current productivity-based compensation plans have created bad situations. We have seen plans where the physician is owed more in compensation than the organization has to spend (comp based on WRVUs without regard to paid WRVUs). Physicians have slighted post-surgical follow-up.

They have criticized an otherwise well-functioning IT revenue cycle product and process because of a lack of trust in how it captures and creates the WRVUs that drive their compensation. This has been heightened, perversely, by the move to integrated EHR and revenue cycle IT platforms.

Using WRVUs in a compensation plan is not a bad thing, but it should not be the main thing. The goal is to balance and align the needs of the individual with those of the organization. Align productivity (measured by WRVUs) with the ongoing changes in reimbursement linked to quality indicators and a plan becomes a forward-thinking approach to physician compensation. A plan that simply rewards physicians for producing WRVUs mistakes productivity for achievement.

To design and implement a good physician compensation plan requires a basic set of principles that are understandable, relatively simple, measurable, and widely held by the members of the group. The following are often overlooked principles that a compensation plan should be grounded in.

  1. It must be fair economically. Not necessarily producing equal compensation, but fair.
  2. It must be easily understood, especially to the physicians that are part of the group and therefore the plan.
  3. It must not be difficult to monitor and administer and it must be flexible enough to allow for reasonable modifications as the practice and the environment change.
  4. It should be consistent with the financial situation of the practice and responsive to changes in the financial situation. It must incent participants to control cost reasonably and as a normal part of their daily work.
  5. Most importantly, it must stimulate its physicians to be effective and aligned with the group, with definable financial rewards for behavior and activity the practice needs and wishes to encourage.

In our experience, a base salary + incentive plan is the most common and best meets the needs of most of our clients. This is because it addresses the two most important concerns mentioned in the beginning of the article and, critically, it is the most flexible of all the models. There are as many ways to implement base + incentive compensation plans as there are physician groups.

In summary, the most important thing to remember when designing an effective and efficient compensation plan is, “Exactly what kind of behavior am I trying to elicit?” Make sure there is a clear understanding of your data source quality (aka, your revenue cycle product). Ask yourself; is it really more RVUs that are important to success of the practice? Or is it new patients, reduced wait times, increased room and equipment usage, better outcomes, higher margin, or increased grant or research activity?

There is no cookie cutter solution. Each group or subspecialty might have some basic principles, but each will almost certainly have slightly different goals.

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Victor Arnold is managing partner with AsquaredM Resources.

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