Physician compensation myth debunked

BVWireIssue #162-1
March 2, 2016

In a recent article in AIS Health Business Daily, Mark O. Dietrich (Mark O. Dietrich, CPA, PC) and Timothy Smith (Ankura Consulting Group LLC) refute conventional wisdom that says that if hospitals don’t pay their physicians at least the median compensation for their specialty, they will relocate to earn more money. Dietrich and Smith say that median pay, as determined by national compensation surveys, is perceived as the magic number for hospitals to employ physicians—even though there are better ways to pay physicians that pose less risk of fraud and abuse, they say.

“Established physicians relocating to earn the median flies in the face of common sense,” says Dietrich, editor of the upcoming fourth edition of the BVR/AHLA Guide to Healthcare Industry Finance and Valuation. Yet “it’s the mantra everyone believes,” adds Smith, co-editor of the BVR/AHLA Guide to Healthcare Industry Compensation and Valuation.

Better way: Instead of paying physicians the median compensation (i.e., the 50th percentile based on their work relative value units (wRVUs), a percentage of their collections, or a salary), hospitals could set fair market value compensation based on the resource-based relative value scale (RBRVS), they say. This could reduce or eliminate losses on physician practices, which put hospitals in the crosshairs of False Claims Act (FCA) lawsuits, according to Smith and Dietrich. The government has been winning these cases and reaping hundreds of millions of dollars in fines against hospitals.However, this new way to compensate physicians will require a different mindset and a willingness to rethink compensation surveys, they say.

Dietrich will present a session at the AICPA/AAML National Conference on Divorce on May 19-20 in New Orleans. For more information, click here.

Please let us know if you have any comments about this article or enhancements you would like to see.