Medical Practice Management, Physician Compensation Models
Oct 03

FMV compensationand work RVUs

Suppose a hospital is proposing a new method compensating its physicians based upon a WRVU (work relative value unit) model. The physicians will be paid a base salary based upon an MGMA survey.  Each physician will be expected to meet the WRVU's associated with that Base Salary and may also bonus by generating WRVU's in excess of the threshold.  Hospital will monitor the physician's production and if at the end of the year it is determined the a physician did not generate the threshold WRVU's to attain the base salary, then he or she will have to repay the excess.

An argument could be made fair market value compensation is determined at the beginning of the contract and therefore if the method of determining compensation is based upon reasonable data from the physician's past production, there should be no pay back if the physician does not meet his/her WRVU threshold.  Does Stark require ongoing monitoring of FMV, just a FMV at the begging of the contract year?

To me, the most important question given these facts below is:  Is the base salary at FMV to begin with?  If so, I do not see the need to have the physician pay back the "excess" should they fail to produce threshold WRVUs.  Yes, there is an economic consequence to allowing the physician's production to fall below the threshold without any impact on the base salary.

It is also extremely impractical to think that the doctors will pay back the “excess” without a fight that will certainly damage the relationship between the hospital and the physicians, as well as other physicians on the medical staff. The best solution is to have a clause in the contract reviewing and re-adjusting the base salary as necessary each year to reflect the FMV for WRVUs produced the prior year.

In other words, any compensation adjustment should be on a prospective basis, not retroactive.

About Reed Tinsley, CPA

As a top advisor to physicians, I help increase practice profits by delivering hands-on, expert medical accounting/tax support, practice counsel, and revenue-building strategies. Read more →