Get a clue: Associate compensation

Dr. Green's in the exam room with the otoscope. So what's he earning? Mrs. Peacock's in the reception area purchasing heartworm preventive. So which associate gets the production? Misconceptions and partial truths abound when it comes to compensation. Now, owners and associates, I know you're not intentionally trying to deceive each other. But sometimes your interpretations of something you heard or read about compensation are unclear, leading to misunderstandings, hurt feelings, and conflict. So what's fact and what's fiction? Here are the top five mysteries about compensation exposed and solved—case closed.

Illustrations by Rob Johnson

Mystery No. 1

Are doctors supposed to be paid 25 percent of their individual production?

SOLVED! It'd be a crime to make production a one-size-fits-all number. A variety of percentages can be used, depending on several factors.

It can be tough for owners and associates to determine a fair and profitable production percentage. During the process, they should consider:

Practice type. Production pay will vary depending on the practice—small animal, equine, or food animal—and whether it's a general, referral, or emergency hospital. If it's a referral practice, the type of specialty will also impact the production percentage.

Blended or split-rate percentages. The numbers will also vary if you use a compensation formula with a blended percentage that applies to all medical service and product production. A split-rate formula with two percentages, one that applies to medical services and one that applies to medical products, will also impact the production percentage.

Well-managed companion animal practices that use a blended rate usually pay between 16 percent and 21 percent of a doctor's individual production. Where an associate falls in that range depends on the practice's staff-to-doctor ratio. The more staff members who assist the doctors, the lower the percentage paid.

The dollars even out because additional staff members allow doctors to produce at a higher level, increasing compensation through volume. And the practice with additional staff members pays an added layer of overhead, which the doctors must help support, thus the lower percentage.

Here's an example. With a ratio of 3.5 to 4.5 full-time-equivalent team members per doctor, an appropriate rate is 20 percent to 21 percent. With a 4.6 to 5.5 staff ratio, it's 18 percent to 19 percent. Practices with a low staff ratio need to pay a higher percentage because the doctors likely shoulder responsibilities that could otherwise be delegated to a technician or assistant, impacting their ability to produce. With a 2.5 to 3.4 staff ratio, a fair rate is 22 percent to 23 percent.

The split-rate formula comes into play a bit differently. Well-managed practices that use a split-rate formula pay 22 percent to 26 percent on services and 4 percent to 10 percent on products. Where the range falls depends again on the staff-to-doctor ratio and the service and product mix—how much of medical revenue comes from services and how much from product sales (ideally 85 percent and 15 percent).

Mystery No. 2

What do doctors actually get credit for? Medical services? Medical products? Retail items? Prescription refills?

SOLVED! Doctors receive production pay for services and products they directly provide, supervise, or sell. And every team member needs to understand what gets credited, otherwise the system won't work.

Medical service revenue includes all medical care that a doctor provides as part of an outpatient appointment, in-hospital treatment, or surgical procedure. This also includes services that he or she supervises, such as radiography or dentistry (all care except the prophylaxis, which the technician handles). Veterinarians also receive credit for medications and therapeutic diets they dispense during an outpatient appointment, during in-hospital treatment, or at the end of a pet's hospital stay.

Prescription refills and additional food or product purchases that don't involve a doctor are credited to a hospital provider—anyone in a hospital who's providing a service. The doctor receives credit for a refill only if it requires his or her time to review the record, assess the patient's medication or dosage needs, and provide direction to the staff member who'll fill the prescription. Doctors are never credited with boarding, grooming, or retail purchases because they typically aren't involved in generating this revenue. (For more on this topic, download the PDF worksheet "Crediting Doctor Production" from the July 2005 issue.)

When multiple doctors collaborate to treat a patient, the doctor who provides each point of care gets credit. For example, if Dr. Green examines and admits a patient to the hospital on Monday, and Dr. White provides or supervises the hospital treatment on Tuesday, Dr. Green gets credit for everything on Monday, and Dr. White gets credit for Tuesday.

Mystery No. 3

Does production cover all of a doctor's total compensation, including benefits and payroll taxes?

SOLVED! Skillful private eyes will uncover differing opinions on this subject, but I recommend that doctor production cover wages and retirement contributions.

Because different people use the term "compensation" to refer to different figures—wages only, the total compensation package paid to the doctor, the total hospital cost of employing the doctor, and so on—this topic is ripe for misunderstanding and confusion. In the percentage ranges discussed earlier in this article, I include wages and retirement contributions paid on behalf of the doctor (deferred compensation). Other benefits—which typically include CE, health insurance, liability insurance, and professional dues and licenses—are paid in addition to the production percentage. They often total another $8,000 to $12,000 worth of compensation.

For example, say Dr. Scarlet generates $510,000 of medical services and products and is paid a blended rate of 20 percent. The 20 percent paid to her covers the wages she receives in her regular paycheck and any retirement contributions made on her behalf by her employer. So Dr. Scarlet receives $99,000 of compensation, plus $3,000 in retirement contributions, for a total of $102,000.

The value of her other benefits is $10,000, so her total compensation package is $112,000, which represents 22 percent of her production. Her employer is responsible for payroll taxes on the $99,000 of compensation, which is approximately $9,000 of additional expense related to employing her. So, from a management and budgetary perspective, the total cost to the practice to employ this doctor is $121,000, or about 24 percent of her production. This number is different from the percentage paid directly to the doctor. (See "Compensation: Case Closed" below in Related Links.)

Mystery No. 4

Is it the practice owner's responsibility to make sure the associate's production grows?

SOLVED! Getting to the bottom of this practice whodunit is a shared responsibility. Management needs to take the appropriate steps to increase hospital revenue, but associates are just as responsible for increasing their own production numbers.

When it comes to revenue growth, the practice owner needs to:

• Lead by example.

• Verbally communicate expectations regarding standards of care and charging for the treatments.

• Create written employment agreements and position descriptions that outline the details of how the practice bills for care.

• Provide the appropriate number of well-trained staff members to support the doctors' efforts.

• Explain the practice's fee schedule to associates; update fees at least twice yearly.

• Train associates to develop accurate treatment plan estimates.

• Add new services and technology as appropriate.

Associates' responsibilities for revenue growth are to:

• Meet the hospital's standards of care with appropriate case workups.

• Offer the best care, educate and inform clients, and let them make decisions.

• Leverage team member skills effectively.

• Charge for all care provided.

• Work a reasonable number of hours.

• Continue to expand skills and knowledge.

Mystery No. 5

Does production-based compensation lead to competition for cases or recommending services based on the financial result?

SOLVED! With adequate client demand, appropriate doctor staffing, and medically driven care, these usual suspects shouldn't be a problem.

I don't recommend incentive-based formulas when the caseload isn't large enough to keep all the doctors in a practice busy. But in practices with a sufficient caseload, I've seen only a few situations where competition—or service selection based on the dollars—occurred. Usually doctors don't have time to "turf" cases, and a bigger problem than doctors who drive up the costs is doctors who look for ways to save the client money.

You must never lose sight of why you do what you do—your patients' health and well-being. The medicine must drive the finances, not the reverse. If a doctor focuses on what's best for the patient, the dollars will follow. And if you do employ a doctor who treats patients based on the financial result versus the medical result, that doctor definitely doesn't belong in your practice.

Sleuths—er, doctors—listen up. Don't let these falsities create confusion or disagreements that sour relationships in your practice. If you follow the clues, you'll demystify compensation and ensure compensation packages that are fair to both associates and the practice. This way all players will continue to enjoy a healthy, respectful working relationship that lasts.

Denise Tumblin, CPA

Veterinary Economics Editorial Advisory Board member Denise L. Tumblin, CPA, is owner of Wutchiett Tumblin and Associates in Columbus, Ohio. Catch her in action at the Veterinary Economics Progress in Practice Seminars, Aug. 21 to 22 in Kansas City, MO., one of the CVC Central preconference seminars.