Production Based (wRVU) Physician Employment Contracts

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*If you need a RVU based employment contract reviewed contact Attorney Robert Chelle*

This will be the first part of a series discussing what a physician should look for in a production based physician employment agreement. Many physicians believe an RVU based contract will generally decrease their compensation; however, many physicians can increase their overall compensation under an RVU based contract. This first part will introduce the concept of work relative value units (wRVU).

It seems every five to ten years hospitals vacillate on whether to employ physicians because the costs associated with employing a physician are considerable. Those costs include office space, staff, supplies, equipment, malpractice insurance, CME reimbursement, in addition to the physician’s salary. The hospital’s motive behind employing physicians is to capture the downstream revenue generated by the physician’s practice. For instance, an employed physician is expected to use hospital services (labs, imaging, rehab, etc.) and other employed specialists when referring patients in need of continued care. The revenue collected from these “in-house” referrals is expected to more than cover the cost associated with employing the physician.

However, when a hospital employs a physician who doesn’t see enough patients or generate enough downstream revenue to cover the costs of their practice the hospital can lose an enormous amount of money. Therefore, hospitals have begun to use productivity based employment agreements with employed physicians to ensure that the physician is financially incented to see more patients. A physician who sees more patients not only bills more from an increase in patient encounters, but also creates more downstream revenue.

What is a wRVU?

In my opinion, the most effective productivity based employment model uses the wRVU to determine the compensation of the physician. The wRVU combines the relative level of time, skill, training and intensity to provide a given service (determined through a CPT code) and it places a numeric value for each CPT code billed by the physician. For example, a family practice physician sees a new patient and codes a 99202 for the encounter. Let’s say the wRVU for a 99202 is 1.70 and a family practitioner receives $36.00 per wRVU. Thus, the doctor would generate $61.20 per 99202. Hospitals that use wRVU based employment contracts use a physician’s total wRVU’s generated for a specific period of time to determine how much the physician is compensated.

I advise hospitals to use a combination of base salary and incentives (bonuses) based on wRVU. However, it is ultimately all based on wRVU’s generated because the base compensation is determined from the physician’s wRVU total from the previous year.

If you are a physician entering into an RVU based contract it is imperative that you understand the intricacies of the contract structure in order to maximize your compensation. My next post will review how a RVU based contract can ultimately be more lucrative for a physician than the traditional models.

If you have a question about RVU based employment contracts contact Attorney Robert Chelle.