Should hospitalists, or doctors in general, be compensated based on their production? This question has received increased attention in the last few years. A major criticism of production-based compensation is that it is essentially a system that pays doctors for doing more, not for doing better. There is a growing interest in shifting at least some of physician (and hospital) compensation to a system based on the quality of care delivered.
At this point it isn’t entirely clear how all of this will play out in the coming years. What is clear is that for the time being the financial health of our practices is very dependent on our production (as well as other factors such as financial support from a hospital). So until Medicare and other payers change their system of physician reimbursement, I think it can be a good idea in many practices for at least some of a hospitalist’s income to be based on production because that helps connect him/her to the economic health of the practice.
In my May 2006 column (p. 50) I suggested that you consider production-based compensation because it can allow you and your partners to take more control of decisions about how hard you want to work and when you want to add additional doctors to your group. Most production-based compensation formulas allow doctors in the same group to work different amounts, such as working a different number of days on the schedule, and carrying different patient loads. In contrast, groups in which the hospitalists have a fixed salary (or one with a very small production-based component) usually require the doctors to work the same number of days on the schedule, and try to ensure all doctors have similar daily patient load.
When I discuss this idea with hospitalists around the country they often express concern that it would be too risky to go on a production-based salary system. They say things like, “I can’t go on production because I can’t control how many patients are referred to our practice.”
While it’s true that we have little control over patient volume from one day to the next, we have significant control over volume for any lengthy interval such as a year. If you provide good service to referring doctors and usually accept referrals graciously you will have a much higher volume than if you regularly resist referrals.
And I’ll bet that the majority of the other doctors at your hospital can’t precisely control their patient volume, but their compensation is based entirely on individual production. This is true of many emergency department and radiology practices, and some medical subspecialty groups. Why should hospitalist practice be different?
Another misconception about production-based compensation is that it is synonymous with foregoing any financial support from your hospital or other sponsoring institution. It isn’t. You can still pay individual doctors on productivity and include financial support from the hospital. For example, if the doctors are paid $55 for every wRVU generated, then $40 of that might come from professional fee collections, and $15 from the hospital (employer).
Others fear that a salary based on production will cause doctors to work at unreasonably high workloads, leading to poor patient care or patient satisfaction, or less efficient use of hospital resources (e.g., keep patients in the hospital longer). This is a potential risk, but not a common problem in my experience. There can also be concern that compensation based on productivity will cause the doctors within a group to compete with one another for patients (and income), leading to stress within the group. This is an uncommon problem, and—if it occurs within your group—it probably means that there are too many doctors in your practice (or that you should market the practice to attract more patients) rather than proving that productivity-based compensation is a bad idea.