Over the years, I've produced a number of talks relating to pediatric compensation models leveraging a series of surveys PCC has done over the years. Although certain attitudes and favor have evolved over time, I find myself returning to the same napkin math over and over again ("Ok...how many patients a day? How much per visit? What do you think is a fair margin?").
Paul Vanchiere asked me to present something for him as part of the CPOE program and it inspired me to sit down and finally create a spreadsheet tool to help this analysis. Don't get me wrong - Paul's online calculators for this purpose are really good. You can find them here:
- Physician Compensation Margin
- How Much Can You Afford To Pay A Provider?
- Determining A Provider's Bonus Based On Revenue Generated
...however, I needed a tool I could manipulate differently in order to show some different perspectives. Although designed originally for employed clinicians, the concepts here are perfectly valid for partnership compensation analysis, too.
How To Use The Compensation Tool
- Download the spreadsheet.
- Determine whether you want to consider a fully salaried position, one of two different production formulas, or a "mixed" model that includes both a salary and a productivity payment. In the spreadsheet, you will see a tab for each one of the different models.
- In the tab you're examining, you need only complete the six fields highlighted in light blue:
- Overhead - Overhead, for this purpose is the percentage of the expenses required to run the practice without the costs directly related to any clinicians. For example, you'd count rent, vaccines, non-clinical staff, your EHR, etc. Although it varies widely, most pediatric practices run somewhere between 55-65% overhead.
- Desired Margin - What is the desired profitability you expect from your employed clinician? Note that this value covers all unexpected expenses and serves as a buffer for when your Overhead fluctuates. I recommend a minimum margin of 10% - that's what you get "paid" for your risk.
- Benefits, Taxes, etc. - Most people focus on the 'salary' of a clinician and fail to account for all of the other expenses associated with an employee - from benefits (including malpractice insurance and healthcare) to employer taxes (Medicare, Social Security). Making sure to pad your analysis with money to cover these additional expenses will save you from being surprised later.
- Salary - If there is a desired initial salary for the clinician, indicate it here.
- Productivity 1 - if the clinician should receive a portion of the revenue he or she generates, indicate so here.
- Productivity 2 - In a more sophisticated example, a practice may have additional layers of productivity. In our example, we're going to calculate a bonus of 25% of all revenue up to $400K and then increase the bonus to 30% of everything over $400K.
- Bonus Line – If we use the second layer of productivity, this is the dollar level that someone will need to cross to get the higher level bonus.
- Once you've entered the data, the spreadsheet will then calculate a variety of important data points for you based on potential revenue levels from $200K through $800K. The key lines are:
- Total Income - this shows the "income" of the clinician in question without benefits.
- Difference - Tells you whether or not you can afford this payment model. If the number is negative (in red) then you are paying the clinician more than their revenue can cover.
- No Margin - Although this is bad business practice, you can remove your margin to determine if you are completely in the hole or if it's primarily eating into your margin. [That's a discussion for later.] A good example of where this might come into play is at the $400K revenue section of the Salary tab...you'll notice that with the expected 10% margin, the owners lose $18,000 (E24). However, if you drop the $40K expected margin, the practice ends up with $22K to spare...which may or may not be acceptable.
Feel free to adjust the formulas, or course, especially for the "Productivity 2" tab where there are 2 layers of production being measured. Feel free to change the formulas to reflect your circumstance and feel free to reach out here for guidance.
Play around with the fields in blue at the top and you'll quickly see the effect. With a little spreadsheet knowledge, you can see how things impact your profitability.