Put It in Writing Trends in Non-physician Provider Employment and Compensation

According to the most recent survey by the Medical Group Management Assoc. (MGMA), non-physician provider (NPP) compensation for all categories reported increased 2.41{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} in 2008 over 2007 and 25.47{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} since 2004. These increases are significantly higher than those for physicians of all categories of primary care and all specialties reported.

This is not surprising, given that utilization and demand for NPPs is higher today than it has ever been. This demand is likely to intensify given the demographic changes in the patient population and the changing environment being brought about by health care reform.

The ability to recruit and retain these providers will require medical practices to revisit the terms of employment, benefits, and compensation arrangements in order to appropriately recognize and reward performance. The object of this article is to give you guidance in structuring a compensation arrangement and to familiarize you with the key elements of NPP employment agreements.

What Should I Pay Non-physician Providers?

Compensation levels and methodology are diverse and depend on what the role of the NPP is intended to be. For example, if the role of the NPP is to enable a physician to leverage himself or herself and become more productive, with tasks such as reviewing lab or test results, prescription refill requests, patient follow-up visits and managing patient schedules, their compensation might be salary-based with discretionary bonus pay tied to the physician’s overall productivity and compensation.

If the NPP role is to be a more direct provider, with his or her own assigned patients, billing either directly or incident to the physician responsible for the patient plan of care, the compensation may more appropriately be tied to volume and a targeted production level, with incentive compensation for exceeding specified benchmarks.

Practices that simply pay a base salary and discretionary bonus run the risk of annual wage increases outpacing revenue generated, discouraging more productive employees and rewarding undesired practice habits. Incentivizing NPPs with productivity-based compensation can accomplish the following:

• Reward those who work harder, i.e., are willing to work additional hours or outside the normal daily office hours;
• Reward those who work smarter, i.e., develop proficiency, efficiency, and correct coding/chart documentation; and
• Provide more individual flexibility and choice between quality of life and career goals.

Since it is tied to revenue collected or profitability, it is resistant to inflationary deviations.

An example of a productivity-based compensation package for a primary care-based nurse practitioner (NP) is as follows:

The NP starts with a base salary of $72,800 ($35/hour) for a 40-hour work week. The employment agreement specifies that this salary is based on an expectation that the NP will generate 2.5 to three times the base salary in annual collected revenue. If the NP generates in excess of three times the base salary, additional income of 25{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of the excess collected revenue will be paid.

Therefore, if the targeted revenue figure is $218,400 and the collected revenue is $275,000, with a difference of $56,600, the incentive compensation is one-quarter of that, or $14,150, making the NP’s total compensation $86,950.

An NP that works less than full-time may also be offered an incentive bonus, but the percentage remuneration should be less because of fixed costs of practice. It is more expensive to practice medicine with part-time health care providers.

The factor of 2.5 to three times base pay is generally considered the minimum income required to cover direct costs of employment with excess revenue going to reduce overhead.

Some methodologies are based on actual revenue generated less actual direct expenses with a percentage of overhead deducted. The remaining excess is then split between the NPP and the physician owners.

One final note on direct compensation paid: it should always be determined with consideration of the value of employee benefits, the nature and extent of on-call required, and other clinical or administrative responsibilities.

The MGMA publishes an annual physician compensation and production survey which also includes compensation and productivity information for NPPs on a national and regional basis. Compensation variables include the category of NPP (i.e., nurse practitioner, physician assistant, certified nurse midwife), the geographic location, specialty (i.e., pediatric, family, ob/gyn, surgical), years of experience, work schedule, and income generation, to name a few.

Do I Need to Have a Written Employment Contract?

Yes, as with any physician-employment arrangement, you should put it in writing. We recommend drafting the key financial and operational issues and then having a health care attorney review and prepare the final document for execution.

Conditions of Employment: The agreement should spell out that the NPP is employed in the capacity for which they are licensed, i.e., nurse practitioner, certified nurse midwife, etc. It should also specify work schedule, minimum hours per week, and that the employee works exclusively for the employer, except as otherwise permitted. Call scheduling and rounding rotation should be included, as well as required professional credentials, licensing, certification, and hospital privileges.

Term of Employment: The initial term of employment for a new health care provider is usually one year to provide each party with an ‘out’ in the event the arrangement does not work for any reason. Subsequent renewal or extension from year to year may be automatic or at the mutual agreement of both parties.

Compensation: This section usually specifies the initial base salary and the frequency of payments. It also may specify the nature of raises, additional compensation or bonuses, and the circumstances under which these may be paid. If there is an incentive compensation arrangement, there may be a reference to an appended schedule that goes into more detail.

Benefits: This is where the extent and terms of coverage for health, disability, life and dental insurance, retirement plan participation, and other typical employee benefits are enumerated.

Medical Malpractice Insurance: The employer normally provides coverage for medical malpractice claims. This coverage should be specified with some provision relating to who is responsible for ‘tail’ coverage on claims made policies.

Employment Expenses: Most agreements state that the employer will pay all reasonable and necessary business expenses to enable the NPP to perform his or her duties. This section may also be used to specifically identify certain expenses such as continuing medical education (CME), licenses, cell phone/pager, and annual dollar limitations on such expenses.

Paid Leave of Absence: Vacation, holidays, CME, personal, and sick leave allowances are spelled out. These are generally proportionate to the normal work week as defined by the employer. That is, if an NPP is on a 32-hour (versus 40-hour) work schedule, a week of vacation may be limited to four paid days instead of five, or 32 hours instead of 40. It is not uncommon for health care employers to combine all the above into one paid leave-of-absence category and to restrict carryover of unused time to subsequent years.

Nondisclosure and Property Rights: Attorneys will include provisions to protect the employer’s confidentiality of information and ownership of trade names, patents, copyrights, and other intellectual property.

Restrictive Covenants: Most attorneys and health care consultants will advise having some provision in the employment agreement to restrict the NPP, upon termination, from soliciting patients of the practice or setting up practice in close proximity and soliciting employees of the practice. This may extend from one to several years after termination of employment. State laws and court case law may affect the ability to enforce these as written, or to even include these as a condition of employment, so it is particularly important to have a health care attorney advise you on this, as well as the remedies available to you.

Termination: This provision is very important and needs to be very carefully written. At a minimum, it should contain (a) those acts or conditions that would trigger termination of employment; (b) the definitions of termination ‘with cause’ and ‘without cause’; (c) any provisions to cure or remedy conditions resulting in termination; (d) minimum advanced notice required; and, (e) any compensation or other consideration due. Here, again, state or federal laws or court decisions may limit what may be included.

Disability: This may be included under the termination clause and usually specifies the definition and allowed duration of disability before termination of employment is triggered.

Other Provisions: The above provisions are the most common dealing with financial and operational issues. Attorneys will add other provisions addressing governing law, dispute resolution, severability, communications and notices, amendments, and issues of other legal importance.

Although an oral agreement may be enforceable, a well-written and well-executed employment agreement documents both employee and employer expectations for future reference.

For more information and sample NPP employment contracts and compensation plans, you may purchase MGMA Information Exchange Publication Nonphysician Provider Employment Contracts and Compensation Plans, Item 5051, January 2005.

For those wanting to learn more and stay current with billing and practice issues relative to non-physician practitioners, Part B News, a weekly publication by DecisionHealth, has a monthly supplement, “Non-Physician Practitioner Report,” which is dedicated to billing and management of NPP services. To access it, log onto www.decisionhealth.com.

James B. Calnan, CPA, is partner-in-charge of the Health Care Services Division of Meyers Brothers Kalicka, P.C., in Holyoke.