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There has been a significant uptick in employment of physicians by large physician groups, hospitals, and health care systems since the changes in health care reform that occurred during the Obama Administration.  As a result, more and more physicians are entering into employment agreements that provide for compensation based on a physician’s productivity.

In many cases, relative value units related to a physician’s work, or work RVUs (“wRVUs“) are being used to calculate this productivity-based compensation.  wRVUs are values assigned to each CPT code by the Centers for Medicare and Medicaid Services (CMS), which take into account the expected time a physician is required to perform the procedure.  These “CMS wRVU values” are also adjusted by “multipliers” that account for things such as whether the doctor performing the procedure is the lead physician or assisting another physician.

Physician compensation arrangements often set out their own definitions of wRVU that include a calculation that uses the CMS wRVU values as part of a calculation to determine productivity and compensation of the physician employee. The definition of “wRVU” used in the employment agreement can have a big impact on the amount of compensation a physician actually earns. One of the most important considerations is whether the calculation is based on billable procedures, billed procedures, or collected procedures.

Physicians have the most control over a wRVU based on billable procedures, making it the most favorable to employee physicians.  Billed or collected calculations can be negatively influenced by external factors of which physicians have no control, but that drastically reduce their compensation.  In the case of wRVUs based on billed procedures, a physician’s compensation would only be based on charges that successfully make it out the door and are billed to Medicare, Medicaid, or a third-party payor. The least physician-friendly wRVU definition bases its calculations on collected procedures, meaning  the actual amount collected from the payor or the patient is used to determined compensation. This is inherently risky for a physician because if the employer is never paid for the services rendered by the physician, the physician will not receive compensation.

Given that the Affordable Care Act resulted in the acquisition and consolidation of many health care entities, these productivity-based compensation models are likely to continue regardless of any actions that the Trump Administration takes regarding health care.