Some physicians decide to go the "equal" route because they want to avoid competition among the members of the group and do not want to encourage overutilization, overbilling, and the like by its member-doctors. The negatives of paying everyone equally are that each doctor is different and each physician is not contributing to the practice in the same way that all of his/her partners are. We are seeing fewer and fewer groups sticking with a "purely equal" approach.

To go on a pure productivity (be it based upon relative collections, relative gross billings, relative net billings, or some other measurement of work such as RVUs) formula is the other extreme. One advantage of this approach is the recognition that those doctors who produce the most in that practice are paid the higher compensation amounts. It also incentivizes doctors to put in the extra time, work harder, and work more efficiently.

For example, in comparison to a "pure equality" situation, a doctor can believe that he will be receiving additional compensation if and when he puts in that extra time at the end of the day to see that "walk-in patient." Those who espouse a productivity approach do so because they believe that to not reward additional effort will end up hurting the practice by causing the doctors to go to the "lowest common denominator." In other words, "If he is not going to put the extra time and effort in, than neither am I."

To simplistically explain the situation, assume for discussion purposes that for every dollar that comes in fifty cents goes to overhead. In a practice with two partner doctors, if a doctor did one hundred dollars worth of extra work, the overhead would be fifty dollars and each of the two owners would split the remaining fifty dollars at twenty-five dollars a piece. If a pure productivity element were used, after paying the fifty dollars of overhead, the doctor who did that work would get an additional fifty dollars of compensation. Among the arguments given by opponents of a pure productivity approach are that it encourages overutilization, competition among the partners in the group, and even potential billing/coding issues.

There is indeed no one approach that works in each practice setting.

It is beyond the scope of this article to get into the impact of Stark and the "incident to" rules on allocating production for compensation purposes among doctors in a group. Suffice it to say that we factor them into the compensation arrangements we propose. But things must be carefully structured to comply with the law.

However, in my experience, a great majority of practices with which I am involved "split the compensation pie" at least partially on the basis of relative productivity.

To come up with the right approach for a particular practice entails the partners openly and frankly discussing and agreeing what they hope to accomplish as a group, what their personal and professional goals are, the practice’s mission, vision, and values, and what each partner is contributing or should be incentivized to contribute to the practice.

This would include a discussion as to what the group members believe is most important to the compensation equation. Is there an "all for one and one for all" mentality or do the members believe in an "eat what you kill," more competitive, approach?

Many groups go through this discussion and ultimately arrive at a compromise somewhere in the middle of the two extremes of "equality" and "pure productivity." Once you get into that middle ground, the possibilities are endless and could be discussed and explored for days.

Some groups decide to start with and agree to a "low" base salary. Some of them might peg this base salary at a low percentage of the Medical Group Management Association (MGMA) statistics, perhaps the 25th or 50th percentile for doctors in their speciality. That might be the equal portion or it might be the "pre-agreed to" portion whereby the base salaries are predetermined for each doctor based upon various factors. By pegging the base salaries at a relatively low level, there should be enough funds available for reasonably substantial bonuses. Those bonuses might then be paid on the basis of relative productivity. That is one approach that we have seen.

Other groups decide to lump all of the "net income" of the practice into one big pot. It is important to clearly define how net income is defined before deciding how to split it. For many it is defined as a practice’s gross receipts minus operating expenses. What is included in operating expenses is often a topic of some discussion. For example, should malpractice insurance be included there or should it be charged against each doctor’s share of the net income pie – in effect to be fully paid for by that doctor? In today’s world, where there may be large disparities in malpractice insurance costs among members of a group, this approach is being used more often than it used to be. Other "more discretionary" items such as automobile and CME costs are also more commonly handled in this fashion.

Many groups then allocate the practice’s net income among themselves in some combination of equality and productivity. For example, many of our clients decide to divide half of the net income equally and half on the basis of relative collections. Groups who decide to do things that way have determined that they believe that being together merits splitting half of the income equally and they also believe that half of the formula should reward those who put more dollars on the books.

Other groups weigh one or more of the factors more heavily and come up with another percentage split (for example 20 percent equally and 80 percent on the basis of relative productivity).

The above described approaches set forth formulae whereby the "bottom line" (the amount of money available for the owner doctors to split after paying all of the practice’s operating expenses) would be divided in the aforementioned ways.

Other groups go into a much more complex approach which looks not only at the income side of things but also the expense side.

For example, we have a three doctor subspecialty surgical practice which allocates all of the gross collections coming in to the doctor who did that work. In that particular practice, they have decided to split all of the operating expenses equally among the three owner-doctors. "Semi-personal" legitimate expenses (such as meetings, dues, automobile expenses, CME, and the like) are allocated to each individual doctor. Whatever is left after subtracting all of those expenses from each doctor’s revenue is what that doctor’s entitlement is for that particular period of time.

Other people will allocate the overhead on much more of a "cost accounting" approach. They may decide that certain items of overhead are "fixed" and might best be equally allocated among the owner-doctors. Rent is one example of this quite often. Professional fees often are as well. Other operating expenses might be allocated in direct proportion to the relative collections of each doctor, that being rationalized by the fact that more overhead may be involved in helping that particular doctor generate his or her gross collections. This often includes things such as billing costs, supplies, and some personnel.

Note that the approaches I mentioned earlier dividing the net profit line based upon one of the above formulae of equality, pure productivity, or one of the "combination" approaches in reality allocates the expenses, revenue, and net income all in the same fashion. That may or may not be fair since it is possible that a doctor who is unproductive from a dollars generated standpoint still might use a lot of staff, dictation time, exam room space, and the like. To arrive at an equitable resolution involves a lot of give and take by the parties involved. Quite often, the end result is a good one which "no one likes" since everyone had to compromise to get there.

Many times, we have gotten involved in helping a group arrive at a remuneration arrangement. Sometimes this is best accomplished by privately and confidentially interviewing each of the individual doctors, talking to the group as a whole, and then coming back with a recommendation for the group to "chew on" and (hopefully) ultimately agree to. We urge doctors to have the numbers run relative to the various compensation arrangements under serious consideration. That number crunching exercise can facilitate the decision-making process. Oftentimes, the dollar differences among the various alternatives turn out to be smaller than the parties had imagined.

Recognize that a compensation arrangement is a living thing and does merit thought and review on a periodic basis. Times change. Economics change. People change.

Keep in mind that the compensation plan can and should be reflective of the group’s make up. In the end, it is really a guide as to how the physicians in that practice are expected to handle things and how they will make their pay. Say what you will, but compensation is one of the few truly objective measures of "value" out there. Besides the need of dollars to "live," how much money one makes is viewed by many as evidence of how "successful" they are. Rightfully or wrongfully, it is often the case and may cause real problems in a practice if not openly discussed and constructively resolved.