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Employed/Academic with a "Private Practice Model" .... Close but not quite.

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  • Employed/Academic with a "Private Practice Model" .... Close but not quite.

    I was having a conversation with employed/academic colleagues who stated their compensation functions like a "private practice model." They explained how their income is calculated as "collections minus expenses" and thus they are incentivized to work hard and rewarded for their effort. That's great - but in my opinion that is not a private practice model.

    My observation is that unless you are the practice owner, you don't really know what the collections and expenses are (or what they should be) and you have zero control and influence over them. For example, in academic/employed settings, watch out for:

    COLLECTIONS not being accurate because: You are paid on RVUs, which is not actually dollars collected and can be easily manipulated. Your RVU rates don't go up over time despite insurance contracts often increasing with renegotiations. You never see bonuses or incentive payments from insurance companies for good work (these happen). You likely receive no ancillary income from: labs, radiology, real estate, surgery centers, physical therapy, mid-level providers. Thus, your COLLECTIONS (or at least the part that you see) are probably much lower than they should be.

    EXPENSES are almost certainly not accurate because: Fixed expenses are often a "black box" that accounts for billing, staffing, rent, utilities that you never really see. It's easy to throw in various "fees" and "taxes" on behalf of the corporation that go towards paying for research, training, admin, EMR upgrades, etc. Often for simplicity expenses are calculated as percentage, which is very manipulative because rent and utilities don't increase when you have a busy month (my "overhead rate" varies anywhere from 28-60% depending on the month, hovering around 33% pre-COVID). Thus, EXPENSES are typically much higher than they would be in private practice.

    Most importantly, I talk about the "15 is 30" concept when I give lectures on this topic to residents and fellows. This is how 15% of extra work translates to 30% of extra income when your overhead is fixed. Example in real numbers: If my average monthly collections is $60k, and my average monthly overhead expense is $30k, then I take home $30k each month (50% overhead). If I start getting more popular and my practice is 15% busier, then I would start collecting closer to $69k monthly (60 x 1.15) but my overhead remains constant (because a 15% increase in patients does not require more staffing, utilities, etc). So now I take home $39k each month... which is 30% more income for only 15% more effort. In my opinion, that is the *MAGIC* of being a business owner.

    I wanted to share this, especially for residents/fellows who rarely get this type of education. In my experience, this concept is never highlighted.

    What do you think? Is your experience the same? Are many employed physicians sold on this "private practice model" line?
    Last edited by EastBayHand; 03-01-2021, 10:42 AM.

  • #2
    I think by "private practice model" your friend really meant "hospital-owned clinic with RVU compensation model."

    You are referring to private practice as a business owner - in which you take on both the upside reward but also the downside risk.

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    • #3
      Just another way people in academics try to justify their decision

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      • #4
        Hard to generaliz. Academic places vary widely in how much they disclose to employed physicians. At some institutions the docs know all there is about the finances and they run the practice. At others, they know nothing.and just get a paycheck.

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        • #5
          If you are payed by an RVU model , you should not be responsible for collections or percentage because you have no control over that. You also have no control over office expenses and overhead. If you are paid by income = collections - expenses and have no control over these two variables, I could only imagine how this would work out.

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          • #6
            I would run from such a system. Large systems have large support apparatus (high fixed expenses) much is unseen and can easily moved into ones expense margin with minimal control by the physician themselves.

            That is why a more.simplified rvu system is used as that directly tracks the physician production and not dependent on contracting, unions, admin actions.

            ​​​​​not that I support rvu system either as it's a poor measure of true production but it's a standard set and easy to track for the bean counters..


            I use black friday as a reference for fixed costs threshold and reason to explain especially for part time folk trying to understand the reluctance of admin to reduce fte

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            • #7
              Yeah, its laughable in its marketing but I think they somewhat believe it because they dont understand any of those shortcomings and have no private experience either.

              They dont get that the wRVU is the smaller portion of the whole pie and the downstream revenue and services that are created from that wRVU. They dont know those other incentives exist.

              Worse, they dont understand that systems will throw all kinds of costs (which you dont control) under your department and say, "you're not making a profit", lol. Its a bit of a racket.

              Being paid for production is simply fair, but it isnt a private practice model.

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              • #8
                There are employed positions which truly are expenses minus collections, but what OP describes is clearly not that.

                Anything that involves RVUs, pretty much can't be.

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                • #9
                  I'm sure you're right. But I'm paid 100% on RVU (for my clinical work) and perfectly happy with it.

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                  • #10
                    RVU seems safer than collections when working for a hospital. Your pay will be payer agnostic and you will not depend on the hospital’s ability to bill and collect.

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                    • #11
                      Employed With production based compensation is obviously not the same as private and obviously not the same as a salaried physician with low bonus potential. I’m not sure what the original debate is about.

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                      • #12
                        Originally posted by Notsobad View Post
                        RVU seems safer than collections when working for a hospital. Your pay will be payer agnostic and you will not depend on the hospital’s ability to bill and collect.
                        There is actually nothing inherently good or bad about an RVU based system. It almost completely hinges on your conversion factor. It can be high enough that you can actually make more money than any realistic collections based scenario, or so low that no one in their right mind would accept it. I have seen both of these extremes. But they are exactly that -- extremes.

                        The big problem I see is that people think their satisfaction with their salary can inform them on whether RVU-based compensation schemes are a good idea or not. Those who satisfied, think they're great. Those who aren't satisifed, think RVUs are evil. The truth is that one can construct a good, bad, or just OK RVU-based compensation structure just by changing a single factor. And often not by much.

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                        • #13
                          Originally posted by AR View Post

                          There is actually nothing inherently good or bad about an RVU based system. It almost completely hinges on your conversion factor. It can be high enough that you can actually make more money than any realistic collections based scenario, or so low that no one in their right mind would accept it. I have seen both of these extremes. But they are exactly that -- extremes.

                          The big problem I see is that people think their satisfaction with their salary can inform them on whether RVU-based compensation schemes are a good idea or not. Those who satisfied, think they're great. Those who aren't satisifed, think RVUs are evil. The truth is that one can construct a good, bad, or just OK RVU-based compensation structure just by changing a single factor. And often not by much.
                          Collectibility, mix and the revenue (referral stream) are big factors. Some large PP groups are similar to some of the large academic groups. Some “academic” affiliations are mixed with “Hospital” affiliations. There is a clear trend that “group” is ran as a hybrid. Academic in name primarily.

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                          • #14
                            Originally posted by Tim View Post

                            Collectibility, mix and the revenue (referral stream) are big factors. Some large PP groups are similar to some of the large academic groups. Some “academic” affiliations are mixed with “Hospital” affiliations. There is a clear trend that “group” is ran as a hybrid. Academic in name primarily.
                            I have no idea what you are attempting to say.

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                            • #15
                              Originally posted by AR View Post

                              I have no idea what you are attempting to say.
                              It’s not just academic vs PP anymore.

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