Incentive compensation based on Relative Value Unit generation by physicians

Physician employers may want to use Relative Value Unites (RVU) to measure productivity and incentivize employed physicians. Relative value scales are used by Medicare to determine the fee for a particular medical procedure by factoring together certain components of work, expense and risk. The employment agreement should include an exhibit with the RVU values for the anticipated CPT codes utilized in the physician’s practice. The example below may be used when a physician is to receive both a base salary based upon a standard amount for each RVU generated, plus incentive compensation based on a bonus rate for any RVUs generated over a stated, threshold amount.

Here is sample language:

1.         Base Salary. Employer shall pay Physician a base salary equal to $_____ (the “Normal Compensation Rate“) times the number of professional RVUs generated by Physician; plus. 

2.       Incentive Compensation. Physician shall be entitled to receive incentive compensation equal to $________________ (the “Bonus Rate’) times the number of professional RVUs generated by Physician in excess of the R VU Incentive Threshold 

3.       Definition: RVUs shall mean the Relative Value Units factors utilized by Medicare associated with professional medical services personally provided by Physician as defined in accordance with the Physician ‘s Current Procedural Terminology Codes using solely the “Work RVU” factors published by the Health Care Financing Administration. 

4.       The RVU Incentive Threshold amount shall be $______

5.       Cap. In no event shall the total compensation payable to Physician, including base salary and Incentive Compensation, be greater than $_______ per year (this provision is mainly used by hospitals who employ physicians)

About the Author

Reed Tinsley CPA

This article is written by Reed Tinsley, a Houston, TX-based CPA with over 30 years of experience advising physicians and medical practices across Texas and the United States. Reed holds certifications as a Certified Valuation Analyst (CVA), Certified Healthcare Business Consultant (CHBC), and Certified Financial Planner (CFP), specializing exclusively in the healthcare sector. He is a published author, nationally recognized speaker, and trusted advisor to physicians on accounting & tax, practice management, and financial planning. Schedule a Free Consultation.