Is there a "fair" formula that reflects physician's hard work yet takes into account overhead expenditures? 

Putting direct reimbursements from insurance companies and medicare aside, the Work-RVU model seems like a fair model of compensation for physicians. After all, physicians are assigned a monetary value (work-RVU) for a certain amount of work done (RVU), and the more work they do, the more monetary value they receive. Sounds fair, right?

Well, in a lot of cases, it's NOT!

A physician's take home pay in the Work-RVU model, ignoring other forms of reimbursement, is based on how many RVUs that physician has worked minus overhead. (watch our video The FLAW in the RVU COMPENSATION MODEL for a full explanation!) In a standard work-RVU model, overhead expenses are taken out of a physicians pay per RVU as a percentage, so if a physician works 20 RVUs and 50% overhead, they only get to keep 50% of the monetary value of 20 RVUs, with the other 50% going to their medical group. 

That in itself is not unfair, because a medical group has certain overhead expenses (such as administration, executives, rent, and staff) which all must be taken care of. However, in this model laid out above, a person who worked 30 RVUs in a day has to pay more overhead than a person who worked just 20 RVUs in a day, because in that model, overhead is 50% of all RVUs worked. But in the real world, overhead would rarely fluctuate that much depending on RVUs worked, so there would really be no reason for a doctor working 30 RVUs to be paying more in overhead than a doctor working 20 RVUs.

This is the unfairness that plagues certain RVU models. Although the person working 30 RVUs still gets paid more than the person working just 20 RVUs, they get taken advantage of because they also have to pay more in overhead than they really should. This also might mean that the doctors working a lower amount of RVUs are actually NOT paying their fair share in overhead expenses. 

So are we doomed, or is there a better way to compensate doctors with a Work-RVU model? 

The answer is no and yes, in that order! 

The problem with the Work-RVU model as we have described above is not the RVU model itself, its the fact that overhead was a fixed percentage of RVUs worked. We can avoid all of the unfairness that model creates by making overhead a variable expense that depends on the amount of RVUs worked. 

This is called a tiered-RVU system, where a higher conversion factor is applied to the number of RVUs worked above a certain threshold, which is set by the medical group. In other words, a tiered RVU system means that doctors who work more get paid more while paying a lower amount of overhead per RVU worked, and reflects the fact that overhead in most cases does not scale proportionately with RVUs worked. 

So, for example, a tiered RVU system might be one where doctors working 10 to 20 RVUs per day get $40 pay per RVU worked, while doctors working 20 to 30 RVUs per day get $80 pay per RVU worked. So if the monetary value of an RVU was $100, the doctor working 10 RVUs would collect $400 and pay $600 in overhead. On the other hand, the doctor working harder doing 30 RVUs per day would collect $2400 and but would only have to pay the same $600 in overhead. Of course, these actual numbers depend on a lot of complicated variables, but the point remains that with the tiered RVU system, there is a possibility of achieving fairness in paying overhead costs without penalizing docs who work hard. 

So to sum up, a tiered-RVU system is much more fair than a more basic RVU system, but although the tiered RVU system is fair in theory, there are still ways that medical groups can take advantage of doctors, so it's up to all doctors to not be afraid to discuss RVUs with their medical groups' administrators and to find out what RVU model they are using and understand where their overhead expenses come from and how much they are paying for that overhead.

Fairness in medical compensation is a very complicated topic, but by informing themselves and taking action, doctors can certainly get fair compensation for themselves! 

We hope you liked this article. Leave a comment down below or continue to browse through our videos and blogs!

To learn more on the business of medicine, SCROLL DOWN to sign up for our email newsletter or LIKE US on Facebook!

Is this article worth sharing? If so, just select your preferred social network below. Thank you!