American College of Physicians: Internal Medicine — Doctors for Adults ®

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Getting your fair share? Tips on distributing income

Q. The group practice I work for accepts both fee-for-service and capitated patients. How can we divide these different types of income in a way that's fair for everyone?

Editor's Note: This article is part of ACP Observer's occasional column dealing with questions about managed care. This month's respondent is Keith Borglum, a member of ACP's Managed Care Advisory Panel and a medical practice business consultant with Professional Management & Marketing in Santa Rosa, Calif.

A. There are a number of ways to structure physician compensation for a practice that has a mix of fee-for-service, discount fee-for-service and capitated reimbursement. The least appropriate formula in most groups, however, is to pay all the doctors equally, a method that does not reward hard work.

Fee-for-service and discount fee-for-service payments typically go directly to the physician who sees the patient. Many practices pay physicians 80% of what they normally earn in a two-week period; at the end of the month, the practices determine exactly how much the physician earned that month and return any reimbursement that was withheld. Some practices keep all or part of the withheld income to cover administrative expenses and to pay other providers to care for patients during physician vacations.

Distributing capitated income is more complicated. Some practices give all capitated revenue and bonuses directly to physicians. When other physicians care for that patient—during call or vacations, for example—that physician pays other providers using a prearranged fee schedule that typically resembles Medicare's fee schedule. If a physician is on vacation and a colleague must care for one of his patients, the colleague will be paid a fee for each service performed.

Alternatively, some practices give 75% of capitated payments to the individual physician and split the other 25% among all physicians in the group. In such practices, all physicians care for their colleagues' patients whenever someone is on call or on vacation. Practices sometimes also split bonuses or risk pool returns from capitated revenues.

Another issue to consider is how to pay physicians who provide administrative services to the group. Practices want to be fair, but they should be careful to discourage physicians from performing administrative duties instead of clinical activities.

One option is to pay a discounted rate for administrative duties. If physicians in the practice earn an hourly rate of $100, for example, the practice might pay physicians $66 an hour to perform administrative duties.

Practices can also create a point system, where the more points physicians earn, the more income they receive. Points can be earned for everything from performing administrative duties to working extra hours. In such a setting, working extra hours or seeing more patients usually means more points and a higher salary or greater share of bonus dollars. More time off, longer patient visits and greater administrative duties, on the other hand, typically equal lower pay. This type of plan provides flexibility and allows physicians to balance work, lifestyle, administrative duties and income as they wish.

Finally, perhaps the fairest way to divide expenses--this does not apply to new or part-time physicians--is to use a formula that divides some costs equally (e.g., rent and utilities), divides others by volume (e.g., labor costs for support staff), and assigns some costs directly to physicians (e.g., the cost of personal automobiles). This approach can accommodate a practice with many types of physicians and hundreds of different variables.

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