Page 56 - Healthcare News Sept.-Oct. 2020

HEALTHY OUTLOOK
Compensation and COVID-19
Needless to Say, the Pandemic Has Changed the Landscape
By James T. Krupienski, CPA
When your medical practice was formed, many agreements were voted on, and have governed the operations of your practice since that time. One of these agreements was most likely the physician-compensation formula. With the passing years and changing faces within the practice, it is likely that this agreement has remained one of the rocks — guiding the practice throughout the ever-changing medi- cal environment.
While there may have been some tempo- rary inquiries or internal disagreements, the provider and the practice always had the agreement to fall back on. Then came the spring of 2020 and COVID-19. This article will look at the current landscape under CO- VID-19, as well as some of the more common compensation formulas that are available — and whether they may be appropriate or due for a change.
Standard Formulas
It is clear in today’s marketplace there is
no one-size-fits-all approach to physician compensation. There are myriad formula structures to choose from, which are then typically tailored even further for use in a particular practice. The most basic of all these formulas is a straight salary formula. This ap- proach is typically used in a hospital setting, or as a guaranteed salary when recruiting a new physician.
Another approach is an equal-allocation formula, whereby all profits of the practice are shared equally by all owners. What makes this formula difficult in execution is that all physicians really need to be on the same page with how much they work and are able to contribute. It does not take long for one phy- sician, who may be producing more for the practice, to feel they are not being adequately compensated. Because of this, the whole ap- proach can fall apart. Where this formula can be beneficial is in a practice where all owners see a similar number of patients but are reim- bursed by a broad range of payers.
A third approach gaining some traction across the country is a relative-value-unit (RVU) approach. This is a formula derived from the premise that compensation is non- monetary-based, being driven by consump- tion as opposed to production. The physi- cian’s compensation is driven by the time and complexity of a visit or procedure, as opposed to how much money was collected for the visit.
The final and generally most widely used approach, is a production/incentive-based
model. While there are different ways these can be structured, the ultimate makeup is the same. Once the compensation pool has been established, some factor of an individual phy- sician’s produc-
lief funds issued by the Department of Health and Human Services. These grants have been issued to practices in waves, with the first being in mid-April, received unexpectedly by
tion is applied to
determine how
much is to be al-
located to them.
Certain other
factors that are
often considered
in these formulas
include the al-
location of direct
and indirect
costs, ancillary
revenues, and administrative duties.
How COVID-19 Has Changed the Landscape
While there is no one-size-fits-all approach to physician compensation, each agreement has its place within a practice. Whether the arrangement calls for production splitting, profit sharing, or an equal split, all gener- ally contain a form of base compensation, followed by some sharing of the remainder available at established time periods. With COVID-19, much of this was thrown out the window for several reasons.
The first, and primary driver, was cash flow. Every practice’s goal is long- term sustainabil- ity. With the pandemic and the various man- dated shutdowns and quarantines throughout the country, this sustainability was threat- ened. Within three to four weeks’ time, with- out the ability to see patients, many practices were going to see a shortfall of cash. What was seen in many instances was a tightening of the belt relative to expenses, staffing-level reviews, and, often, a reduction or temporary stoppage of owner compensation.
In late March 2020, the CARES Act was signed, providing for a new SBA-based loan program, commonly referred to as PPP (Paycheck Protection Program). This allowed many businesses the opportunity to apply
for a loan to cover predominantly payroll costs, with the understanding that it may
be forgiven at a later date. While there were limits built in as to how much payroll could be covered, the PPP allowed many practices the ability to correct staffing levels and cover their ongoing payroll costs. In many instanc- es, owners recovered their levels of compensa- tion to those levels allowed for under the PPP.
Following on the heels of the PPP loans, within the CARES Act, were the provider-re-
“The provider and the practice always had the agreement to fall back on. Then came the spring of 2020 and COVID-19.”
many. The second and third waves, between May and today, were applied for directly by a practice, with the most recent round being open to those practices that bill Medicaid, and not just Medicare.
These grants outline several terms and restrictions that must be adhered to, with
one being in the area of compensation limits, but they allow practices to supplement lost revenues, cover added expenses, and, to an extent, cover certain payroll costs not covered by the PPP loan program.
So, Now What?
So, what does this mean for your compen- sation formula? Many practices will need
to take a view for the short term and then again for the long term. In general, compen- sation agreements took many variables into consideration. I am not aware of any that referenced or considered the impact from a long-term global pandemic.
That being said, it is recommended that the practice sit down and review their agreement and whether it makes sense under the cur- rent circumstances. There may be a need for a short-term fix until the economy recovers. This might also be the time to reconsider the full document with an eye toward the future.
Overall, what you are experiencing is not something unique to your practice. What is important is the ability to come together and make the best decision for yourself and the ultimate goal — the long-term sustainability of the practice. v
James T. Krupienski, CPA, MSA is a partner in the Healthcare Services niche for Holyoke-based Meyers Brothers Kalicka, certified public accoun- tants and business strategists; (413) 536-8510; www.mbkcpa.com
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