As I am on the road moving from the east coast to the west, I wanted to review an old topic that we’ve discussed here before. This week’s episode is part 2 in our series about RVUs and income benchmarking to help pain physicians understand the link between RVUs and compensation. This is a very broad topic which we will continue to discuss in the coming weeks and the purpose of this series is to provide some context to the topic.
What’s up everybody? Welcome to episode 50 our one half Centennial episode of the anesthesia success podcast. I’m your host, Justin Harvey. I’m very pleased to be speaking with you today doing part two of two in our series talking about RV use and income benchmarking and helping pain physicians specifically understand what is the link between RV use and compensation. How do you evaluate in a job offer or employment agreement? How does the income offer stack up against applicable peer groups? How do you evaluate the competitiveness of an offer and how do you understand what the potential outcomes are for an offer based on different levels of productivity? This is a pretty complex topic. We’re going to give it what I would call a criminally superficial flyby overview today. This is something that’s broad and deep and we’ll continue to look at in the coming weeks, but wanted to just give a little bit of context today and review this topic.
So here’s the background with regards to looking at contracts. The purpose of this podcast is to help close the information gap in all things, career, contract compensation, et cetera. Contracts are pretty complex. They have a lot more in them than just how much you get paid. There’s the mechanism for your pay, there’s duties and responsibilities, noncompete, your non-solicit, intellectual property, et cetera, et cetera. A lot of things that contracts talk about. What we’re going to focus on today is just the compensation piece and specifically only the compensation piece for RV use. So there’s a few different types of RVU comp. As you can see here, I’m boiling this down into some simpler categories just for summary purposes. There’s also a like a salary plus bonus model as well as percent of collections as well as percent of net collections, which requires a physician to manage their own P.
And. L. We’re going to be limiting our review today. Two items, one, two and three on this list, which is like straight dollars per RVU base plus tiered RVU and then base plus a per RVU bonus. And for our listeners, I would encourage you today, this is going to be a video podcast, so if you’re listening audio only, I’m going to be going through some slides that are going to be sharing some technical content here. So if you’re listening, you’re welcome to listen, but I would encourage you even more to click the link in our show notes, which will link to our YouTube channel where you can watch the video of this podcast and see the slides that I’m going to share as we go. The goals of compensation analysis. Basically what you want to do, three things. Number one is make sure there’s no unpleasant surprises.
You want to make sure that expectations are clear for you and your employer of what kind of deal you’re getting and how that changes at different levels of production. You also want to understand, you know, if you do X number of RV use or 1.5 X or two X, what is the range of potential outcomes for you? Who has the upside and the downside as far as the compensation arrangements go. And then finally you want to understand, is this compensation a competitive offer? Is this, am I getting a good deal based on my peer groups based on other physicians have similar experience and productivity in a similar geographic locale? Because at the end of the day, you just want to be in a situation where you’re getting paid fairly and where you have opportunity to grow and to earn what you’re worth. So in a production model, the more overuse you’re able to complete, the more you’re going to get compensated.
And you just want to be very clear about how that’s going to function. So in the context of a specific agreement, there’s three important questions I want to answer. Number one is who benefits from upside potential? In other words, if you produce more work RV use than anticipated, if you come in and you say, I want to take over the world, I want to run the most efficient practice and have the most happy patients and complete the most. I just want, you know, I want to work all the time, I want to make as much money as possible. What does that look like? And are you as a physician going to capture the upside or is your employer going to benefit from your upside? The second question is who absorbs the downside risk? So if you produce less work are overused than anticipated. If you sign an employment agreement today and then in October our country shuts down again elective procedures because of coven 2.0 and you’re not able to do any productivity type work.
Who is paying for that? Is your employer on the hook for a guaranteed salary or are you on strictly production and you’re not making any money? This is an important thing to understand. And the third and final thing that we want to look at in the context of RVU compensation is how does compensation compare to benchmarks at different levels of productivity. Basically what we want to do is make sure that we’re running the math to understand potential outcomes. We want to do the math problem embedded in your employment agreement where your compensation is outlined. There’s a math problem, you want to plug in the variables and say, if I do this many RV use, what is the resultant compensation if I do that times 1.5 what is the resultant compensation, et cetera. So benchmarking is an important part of this and there’s a lot of ways to put together a peer group and I recommend triangulating your sources, getting as much information as you possibly can.
So MGMA, the medical group management association is, I would say like the gold standard and one of the big ones, but there’s a bunch of others. AMDA, Sullivan, Cotter, Beckers and others. And not to be spurned on this list as anecdotal input. So things you hear from friends, things you read in forums online or input from mentors or other associates. That can be really valuable. Especially if you’re talking about a hyper local offer. I want to join practice ABC and my buddy signed with practice ABC last year. Maybe that associate can give me a sense of what I can expect, what I should look out for and if I have any room to negotiate. We’re going to look most closely at MGMA format data today. Not, we’re not actually looking at real MGMA data, but we’re going to look at some hypothetical data and I’m going to show you how to benchmark against it so that you can understand how your offer stacks up against an applicable peer group.
So what does MGMA tell us? MGMA gives specialty specific insights. So you know, pain management for an anesthesia, anesthesia boarded physician, broken down by region, so the East, the South, the West and the Midwest. It’s a pretty blunt, I’m pretty blunt breakdown. It’s not super detailed but it does break down by area of the country and it gives percentile breakdowns in the following categories. Number one is total compensation. For example, an anesthesia boarded pain physician in the Midwest made on average $455,000 in total compensation in 2018 that’s something that MGMA could give us. That’s a data point that it would include number two that it might tell us his total work RVU productivity broken down by region. For example, an anesthesia boarded pain physician in the Midwest generated on average 7,150 work over use in 2018 and I’m making these numbers up by the way there.
They’re in the ballpark, but none of these are actual MGMA data points. And then finally number three, the data. One of the important data points you want to extract is dollars per work. RVU compensation meaning an anesthesia boarded pain doc in the Midwest was paid on average how many dollars per work RVU, $63 and 60 cents per work RVU on average or at the 50th percentile or the 75th percentile in 2018 these data points are going to be really helpful for us in evaluating our peer group and benchmarking a prospective job offer. At certain levels of productivity. Now there are some limitations to using MGMA and this is one of the reasons I recommend the triangulation method of taking those seven potential sources of data and using as many as you can get your hands on including what your friends tell you about local practices. Here’s some of the reasons.
Number one is it’s expensive, it’s expensive to get MGMA data. It’s hard to get your hands on. Sometimes an employer with whom you applying will have access to this and they may share it with you if they rely on that benchmarking data to come up with your offer, but sometimes they don’t and sometimes you’re looking at having to license data in order to get your hands on it. Number two, in some cases, MGMA has a pretty small sample size in order to come up with these averages. They give numbers that are very definite, but if you look at the sample size, some of them are as small as a five to 10 provider group when they’re deriving an average income for a certain region. As I mean, I don’t know how many pain physicians are in the Midwest, but I’m sure that five to 10 is probably not a statistically significant number, so something to be aware of is it may or may not be representative of actuality.
Number three, another challenge with MGMA data, it’s an oversimplification from a region standpoint. Like I said, there’s four regions, meaning in the West region, Juno, Alaska, and Los Angeles are in the same region and would be comparing to the same benchmarks. Same with Charleston, West Virginia and Manhattan. As we know, the compensation in those areas is going to be significantly different because of cost of living differential, but there’s no ability in MGMA to be able to parse that out. Number four, MGMA is ineffective to break down the urban versus suburban versus rural differential, meaning someone who’s looking at a practice in Chicago and someone who is looking at a practice in the, you know, the middle of Ohio are both going to be looking in the Midwest, but there’s no ability in the MGMA data to be able to parse out the difference between urban versus rural.
Even though we do see a significant earnings gap and pay gap and that type of situation. And then the fifth challenge is that it’s physician compensation is complicated in many times. It can’t be boiled down to just a number or a series of numbers and that’s what MGMA seeks to do in an apples to apples way. So that can be really difficult and it creates certain inherent challenges, but in some cases it’s the best we have. And I would say that it’s the gold standard that most practices or institutions rely on, or at least will take into account when they’re coming up with peer groups for physician comp. So how do you get a fair deal? If you’re looking at MGMA, you’re thinking about peer groups and you’re thinking about RVU production model in pain medicine, how do you get a fair deal? There’s three important things to think about.
Number one is establish the base compensation number and the work RVU target and tied the percentiles together. In other words, if you’re getting a base comp number of the 50th percentile, you also want to have an RVU target in the 50th percentile to be able to have a fair dollars per RVU payout and I’m going to give you some examples of that in a minute. Number two is after you tie the percentiles for the base, you want to determine how much am I going to get paid over the base? What is the marginal gain once I hit my RVU target, say it’s 6,000 or use for every RVU I do above that and in this context, when I say RVU I mean exclusively work RB use because that’s the number that is used in calculating these compensation numbers. And if you want to go back to episode 49 anesthesia success.com/ 49 and talking about the different types of overuse and the calculation and how it all works but exclusively work our views.
Now we want to determine for each work RVU, how much are you making for that incremental marginal work RVU and is that a number you can live with? Does it incentivize you to work more or does it incentivize you to stop once you hit your target? That’s important to understand. And then finally we want to be able to run the numbers to do the actual math problem, to ensure that the compensation you’re going to receive is in line with benchmarks or is better than benchmarks so that you can know that you’re being fairly valued as a professional and as a physician. And so a lot of the content today, I had this experience at the fall as we’re meeting in 2018 at the problem based learning discussion luncheon with dr Jay Greider. His insights have been instrumental in helping me to understand how our views work, how productivity compensation works, how these ideas interact with what physicians actually get paid.
So all of the good stuff that we’re about to dig into is solely due to, or largely due to his influence and insight. If there’s any mistakes or problems or anything, it’s probably a misinterpretation of mine. Yeah, and I do want to take this moment to make a disclaimer here. Again, I said this last week, I’m not a practice consultant or an expert in these things. I spend a lot of time trying to get my brain wrapped around it and helping physicians sort of unravel what their contract actually says. But if I, this is no substitute for having a qualified healthcare attorney look at your contract and help you with this. Although I find in many cases, sometimes healthcare attorneys, there’s even this level of detail is a little bit beyond what they’re willing to provide. Having said that, I want to equip you with the following details.
So here’s a starting point for benchmarking. If you’re saying how much should I expect to make, we need to first choose the region. So if you’re looking at the Midwest, you want to find a Midwest, a region specific peer group analysis. So this is just a hypothetical a group of data here. What you might find with any one of these major consulting companies. And this is basically how it’s broken down in the percentiles in terms of total comp, in terms of the work, RVU productivity, and then the pay per RVU. And then what we have here is the, I call it the implied compensation per work RVU. Meaning if you’re doing, if you’re getting this level of total comp and doing this level of productivity, this is how much you’re getting paid per RVU. So this data is helpful and if you can get your hands on it, that’s a good first step but it’s not sufficient.
We need to know how to interpret it with actual job offers and actual numbers. So here’s what I was saying before, which is you want to, the first step is to match the percentile of your base with the percentile of your productivity target and you want to get reasonable per work RVU bonus, which is you know, we’ll say starting near the median. So what I mean by that is if your base compensation, your target comp is in this case, say it’s 350 K they want to start you out at if 350 K is your target, your base salary and you need to achieve a certain work RVU threshold to get paid that three 50 K then the threshold defined should be either equal to or less than the the the percentile for the compensation. So 350 K is the 25th percentile, 4,750 work RV use per year is also the 25th percentile.
What this means is you’ll make three 50 after completing 4,750 work RV use and that then will free you up to earn additional work RVU bonus above and beyond that 47 50 if your productivity exceeds that number and will allow you to continue to earn more. What you don’t want is to have something like a 25th percentile comp as your base and have a median work RVU target. Something like 5,700 worker uses the median somewhere thereabouts. And if you have a 25th percentile base and a 50th percentile productivity target, that means your work RV use in this case are going to be valued at like, you know, you’re probably getting paid like 61 62 bucks per work RVU, which we can see that the median value of a work RVU, which we’re going to have as a proxy for for fair value, the median value is 72 bucks.
So if we’re getting paid 62 bucks because we have Mitch mismatched percentiles between the compensation and the productivity target, that is where you’re going to get shortchanged. So you want to make sure these percentiles match. This is one of these groundbreaking realizations that when I learned this from dr Greider, it really gave helpful context for everything. So this is always one of the first things I look at. Here’s my disclaimer. All these numbers are fabricated, that they’re the right ballpark for pain management. None of these have been taken strictly from MGMA or any other data. And so I want to just note that you should not rely on any of these numbers to do your actual analysis. If you’re looking at your own contracts, the relationships between these numbers are comparable and relevant, but these numbers themselves should not be relied upon. Having said that, we’re going to look at a couple hypothetical job offers to unpack principles.
So number one, practice ABC in the Midwest. This is something that you might see a year, one based compensation. It’s a guaranteed amount of base. There’s no production you’re getting in, you’re getting up to speed. You don’t have really any patient head count yet. The practice acknowledges that they’re going to give you a safety net. They’re paying you a hundred thousand dollars per quarter, that’s year one comp. And then starting in year two they move you over to a base comp of three 50 and this is payable to the production target, meaning you make three 50 if you hit your target and then beyond that you may have access to a bonus. So the quarterly RVU target is 1300 per quarter or 5,700 per year. And then the bonus above and beyond this quarterly threshold is $60 per work RVU. Meaning if you do 1,301 then you’re going to get $60 for that one extra work RVU and so on.
And then finally we’re going to have a year one relocation bonus that that you might see tacked on top of 15 grand. So what I want to do is do a sensitivity analysis and say at different levels of production, how is this compensation structure going to play out? And is this a fair deal for a physician based on the benchmarking data that we looked at before? So the data is here. So remember the, we’re starting off at 400 415 actually guaranteed. And then we go down to three 54 our base comp with a target, a productivity target of 5,700 what was the number 5,700 work RV use per year. So now we have this problem, right? We’ve got a 25th percentile compensation and a median percentile productivity target. So I can see right away it looks like this is B. This is undervaluing the physician labor.
So here’s how this is going to play out in years one, two and three what we see is that year one we’re on salary plus we’ve got the relocation bonus. So no matter what we’re going to be earning 415 K come hell or high water whether you do zero RVU or 10,000 and this is going to change over time. When we move to the productivity model in year two where you can see in year two you’re making the base up until you hit a productivity target of 5,700 and then once you crack that number and you get to 57 50 then we start making that extra six $60 per work RVU and that just continues up till forever. And you can see at the 7,500 work RVU number, we’re making about 458 K and that’s the same between 2021 and 2022 now, one of the important things that we want to evaluate is in this context, what is the dollars per work RVU based on our different of production?
And it’s no surprise to say that well in the in year one because it’s all guaranteed. The less work we do, the better our dollars per work RVU ratio is. Now this is great for the physician because if you literally do zero, then you have an infinite number of dollars here. And then the more you do, the less your dollars per work RVU equals out to. Then in year two when you moved to a productivity model, as you can see, whenever you approach the target here, you get to this place where your, your dollars per work RVU is, is decreasing. And so the reason that this is is because you’re going to make three 50 up until you get to 5,700 worker views no matter what. So if you do 4,000 or if you do 5,700 your compensation is the same and then as you grow beyond that, then you continue to get paid at that $60 per marginal work RVU number and that is the same into 2022 so again, we can see here, let’s look at a few of the key considerations.
If we’re talking about tying the percentiles together, we see in year two when we go to the productivity model, the productivity target, the work RVU target is at the 50th percentile at the median and year two the income paid for that 50th percentile productivity is that the 25th percentile. What this means is it’s a bad value for the physician. The second thing we want to look at is the dollars per RVU in terms of that bonus. When you earn above the target, what we see is that the dollars per RVU is, in this case, it’s too low at $60 per RVU and this is going to disincentivize out-performance. Once you hit your target, you have no more incentive to work harder. Frankly, you don’t have any incentive to do anything because you have a guaranteed 350 K salary. So if we run the numbers here like we did, we’re seeing that this income is not competitive.
And with regards to number two here, just to be very clear, the reason I’m saying that the dollars per RVU is too low, the other number that I’m looking at to compare that to is this number, the median compensation per RVU. This is the 50th percentile that says, you know, on like in the middle of the pack, I should expect to get $72 per marginal RVU. So when I look at this offer and I see that it’s it’s $60, I know that I’m disincentivized compared to my peer group to be working harder to produce more RV use as far as evaluating the upside and the downside of this offer, who benefits from the upside potential? Meaning if I work really, really, really hard, who gets the benefit? What we see is that it’s the practice that’s going to get the better deal because they’re paying a very S less than the median in terms of dollars per RVU, at 60 bucks per RVU who absorbs the downside risk because there’s a guaranteed base.
In this case, the practice absorbs the downside risks. So that is one of the nice things. And if you are a physician who is really worried about productivity, really worried about being able to build your own patients, then this might appeal to you. And then finally, if we’re looking at compensation, comparing it to benchmarks at different levels of productivity at a high level, I look at this and I think this is kind of a lackluster offer versus peer groups and it’s, it’s just not enough pay for high productivity required. So that’s one example. Job offer number one, let’s look at another similar offer with a little bit of a different structure. We’re going to have a base comp of 357 five that’s paid as a draw and reconciled quarterly. Meaning they’re going to start off basically letting you borrow money and then you’re going to have to pay it back if you don’t hit productivity targets.
So there’s no, in this case, notably there’s no guaranteed base. There’s going to be a work RVU what’s called a conversion factor, basically saying until you get to your target, every work RVU is worth $65 and then that target annual work RVU threshold is 5,500 work RV use. Once you hit this 5,500 target, they’re going to give you a bonus for hitting your goal as an incentive to get to the target of an extra 42 grand at that point, once you hit your target any comp from your target up to 8,000 work RV use is going to be paid at 75 $75 per work RVU until 8,000 with an annual reconciliation. And then with the work RV use from 8,001 and up, it’s going to be $50 per work RVU. So you can kind of see what the practice is doing here. They’re trying to incentivize you to a point up to that 8,000 work RVU number and then they’re kind of brewing water on the fire and they want you to sort of cool your jets at that point.
So let’s see how this works out with practice Def and there, because every year it’s going to be on the same productivity model. We’re just gonna look at one year and what we see here is that at the different levels of productivity, up until we hit that target of 5,500 work our views, you can see that you know, the salary is growing here at $65 per work RVU. And then once we hit that 5,500 target, we get that big bonus, that 40 42 grand bonus, and that kicks our average dollars per work RVU up from 65 to 73 as you see at the $5,500 threshold. And then from 5,500 all the way up until 8,000 we’re earning at that higher dollars per work RVU number. And then after 8,000 were earning at the lower $50 per additional RVU number and that brings our total dollars per worker, you back down on average.
But this is a much more competitive package compared to what we’re looking at before. So if we’re evaluating this package, here’s what we see, the productivity target is near the median. If that 5,500 number, the median is 5,700 so we’re in the ballpark and then the compensation was slightly shy. So what we saw was three 57 five is the base. But what we know that once we get the target bonus here, we’re going to be up at 400 K so 400 K for a 5,500 RVU performance target. If we go back to our numbers here, you know we’re looking at four 50 is the median comp for 5,700 so 400 for 55 we’re, we’re in the right ballpark. I would say if I was looking at this contract, I would say let’s negotiate this up. Use this as an opportunity to say, Hey, we need to either reduce the productivity target and we need to get to that 400 at say 5,000 RV use or we need to increase the bonus or increase the total comp that will be realized once we get to the 5,500 number.
As far as the compensation over the base, the dollars per RVU is pretty strong, up to 8,000 at that $70 per incremental RVU and then you’re disincentivized to go beyond that 8,000 and then finally when we run the numbers on everything and look at this all across the spectrum of productivity outcomes, this strikes me as a pretty competitive offer. It’s near the median. Now, whether or not that’s competitive for you based on what you’re looking for is obviously up to your discretion. But this certainly passes the test as I’m looking at it to be a fair deal for a physician who’s looking for an opportunity to succeed based on productivity. And then as far as the questions about upside, downside and competitiveness in this case, the upside is pretty good for the physician up to the 8,000 RVU Mark. So if I’m a doctor who’s coming in and I want to work hard and I want to be well paid for that, this checks the box for that.
Now it doesn’t pay me well up to 10 or 12,000 or overuse, but I can do really well up to the 8,000 RVU point. And then as far as downside risk, you know, this is another thing you want to think about. Again, especially in this day and age with coronavirus, if it comes roaring back and you’re not able to earn work our views for a period of time, you want to know who absorbs the downside. In this case, it’s the physician cause there’s no guaranteed salary. It’s a draw with a quarterly reconciliation. So if you don’t hit your performance targets, you’re going to be writing a check back to the practice at the end of every three month period. No guaranteed minimum. So that’s important to note. And then finally, how does this compare to benchmarks? If you hit the targets, it’s competitive, so that’s really all you can ask for I think, and I would have no qualms about somebody who’s interested in signing up this practice doing so.
So key takeaways as far as what are the important things to think about in benchmarking, competitiveness of RVU offers, triangulate income targets, using as many sources as you can get your hands on as far as total compensation, dollars per RVU and work RVU numbers being the sort of the big three that we want to look at. If the dollars per work RVU is low, you want to push it up towards the median. You want to understand who bears the downside risk and who has the upside incentive in this type of contract. Is there a guaranteed salary if I’m not able to produce, is there a capped income on the upside or a sharply reduced compensation per work RVU? That’s going to make me chill out in like October. By the time I’m getting really close to whatever that ceiling is. And then finally just run the math to see at various levels of productivity how this is going to play out.
And this is, you know, number five here. This is the biggest thing. I just want to hit this again, tie the percentage, the percentile of your compensation to the percentile of productivity as your starting point, and then add the variable component on top of that at the median dollars per RVU to get a good deal. So here’s this chart one more time. You know, if you’re, if you have a 450 K comp that you’re going to achieve around the median work RVU target of, in this case, hypothetically, 5,700 work RV used, and that’s a fair deal. Same as if you can target three 50 at a 4,700 work RVU number and then have the ability to earn additional on top of that at the median dollars per RVU threshold. So this is the way you want to look at this. If you’re asking these questions and you’re able to match these percentiles, then you’ll always be in a place where you’re never going to get a bad deal. The most important thing is to just understand in the various potential outcomes, the various potential levels of productivity, potential levels of work, RV use, how is compensation going to change in those outcomes and then prepare accordingly. So hopefully this is helpful. I would love to tackle maybe percentage of production or some other compensation mechanisms in the future. If you’re interested in that, send me an email if this has been helpful, we’d love to hear your thoughts. Thanks as always for tuning into the anesthesia success podcast. It’s been a pleasure speaking with you today.
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