Tips for understanding how doctors are compensated
Many doctors emerge from their medical training with little knowledge of what and how they are paid. It seems counterintuitive that, after such extensive education, physicians still need to learn about something so fundamental that will affect the rest of their professional lives.
In learning the business of medicine, physicians should start by gaining an understanding of their own compensation structure to avoid costly mistakes in their employment agreements.
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One of the most important standards against which a physician’s work is measured, and for which he or she is compensated, is the relative value unit (RVU). Understanding RVUs and their impact on earnings can go a long way toward helping physicians negotiate favorable employment agreements.
What Is an RVU?
Each procedure or service performed by a physician is assigned a CPT® code. “CPT” stands for Current Procedural Terminology and is a registered trademark of the American Medical Association (AMA).
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Each CPT® code is, in turn, associated with a specific RVU, used to measure the value of a service to determine reimbursement for that provider. RVUs are set by Medicare to account for the time, training, intensity, and skills needed to deliver such services.
The RVU is then multiplied by a conversion factor, which is typically defined in an employment agreement. The number of RVUs generated by a physician is considered to be a measure of that physician's productivity for a given period; as such, a physician's RVUs will be tightly correlated to his or her compensation.
“Easy” versus “hard” RVUs
For physicians, the idea of easy versus hard RVUs stems from the fact that certain procedures, office visits, and other tasks may be difficult and time-consuming, but generate fewer RVUs. Other activities, such as education and administration, produce no RVUs at all. Such activities are thus considered to represent hard RVUs. To maximize their compensation, physicians usually attempt to do the work that produces the most (or easiest) RVUs.
That said, patients need to receive care, and administrative tasks must be completed no matter how many or how few RVUs are produced as a result. Conflict is often the result in an organization in which a few doctors are obtaining all the easy RVU work, while others are assigned mostly hard RVU tasks and procedures.
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When negotiating employment agreements, doctors must be aware of work distribution and RVUs tied to particular services, so that they are not doing most of the work for the least amount of RVUs. In cases where this disparity arises, doctors should negotiate a stipend or other compensation tied to particular activities, such as a directorship, that do not produce RVUs.
Most physicians receive guaranteed compensation for the initial term of their employment. This initial term generally lasts from one to three years, but sometimes can be for up to five years. Employment contracts generally stipulate that during this time there is a compensation floor below which a doctor's compensation cannot go.
Physicians must educate themselves on their RVUs during this initial period. Why? After their compensation guaranties cease, these doctors will most likely be subject to a general, RVU-based productivity and compensation formula. A physician’s knowledge of his or her RVU production — and the value of these RVUs — can help when negotiating a subsequent employment agreement.
Before employment begins, doctors should also try to obtain a bonus for excess RVU production during the initial guaranty period, in case the work assigned is more than he or she expects.