Many physicians do not seem to grasp the risks inherent in physician employment agreements that impose a minimum threshold of wRVU production. However, there can be many pitfalls in these agreements.
What is the effect of the threshold?
The first pitfall is determining the effect of a threshold. Some agreements provide a salary “assuming a minimum threshold of” some number of wRVUs. I have reviewed many agreements with a provision like that which did not have any teeth. In other words, the salary is guaranteed if the physician meets the threshold or not.
However, many agreements provide a salary and a minimum threshold of wRVU production and specifically provide that if this threshold is not met the salary may be reduced. The effect of this provision is that the physician does not really have a salary at all, the physician is receiving a draw against expected future earnings, and may be required to repay some of the salary if the wRVU threshold is not met.
Some of the concerns with a provision requiring repayment are obvious. For example, the physician in effect has no guaranteed income whatsoever; the physician’s income is completely dependent upon wRVU production. Many physicians accept a provision like this because they are very willing to work hard. That is admirable, except that the physicians can only treat patients that present to them. If the employer is not properly marketing the practice, the physician will pay the price through reduced productivity leading to a reduced salary.
I have recently reviewed an agreement where a physician was willing and able to grow the practice. However, the employer continually set thresholds well beyond historical production. Although in this case the thresholds had no teeth, the employer, at each year’s renewal negotiations, attempted to insert clawback provisions allowing it to penalize the physician for not meeting a threshold that was clearly not obtainable.
This negotiation was particularly egregious since the physician in question had volunteered to travel to another location with a significant commute to fill in for a retiring colleague. The physician had also been assigned to another location that had a significant client base. However, the employer kept returning the physician to the original location, which clearly did not have an adequate patient base (or, more likely, did not have adequate marketing).
Ultimately, the physician ended up looking for other positions. We are not done yet, but, with an offer in hand, I am moderately confident we will be able to obtain removal of the threshold. Of course, the physician has endured months of uncertainty in the interim, so the “best case” scenario is not that great an outcome.
Is the threshold reasonable?
It is quite common to see wRVU thresholds far more than median productivity. This would be completely reasonable if the physician’s salary were equally above median. As you might expect, however, often the high threshold is linked to a median or below median salary. Medical Group Management Association (MGMA) benchmarks are useful in analyzing the threshold. MGMA has benchmarks for salary, wRVU production, and compensation to wRVU ratios. If a physician is receiving the median base salary, it seems obvious that any wRVU production threshold should be no more than median. Not surprisingly, the obviousness of this proposition is not always evident to hospital administrators.
In addition to comparing the threshold to MGMA benchmarks, it is also helpful to compare the thresholds to historical production. If a physician has worked at the same location for several years, the production of that physician can be analyzed. It makes no sense to impose a threshold far above historical productivity.
Finally, no physician should be held to a wRVU threshold in the first year or two of that physician’s practice. An employer should not hire a physician and put the risk of loss on that physician. At least for the first year or two of a physician’s employment, the physician should have a guaranteed salary. Of course, a productivity bonus is not objectionable (so long as there is a reasonable productivity threshold).
Can the physician confirm productivity calculations?
Although you rarely see the term “trust us” in a contract, many agreements have provisions that effectively require the physician to trust the employer on all calculations of productivity. In any situation in which wRVU production is a factor in the physician’s compensation, the physician should have the right to confirm the calculations of the employer.
When are the wRVUs “earned”
This seems like such a ridiculous question that a physician might be excused for choosing to skip this section. Unfortunately, many first drafts of physician employment agreements have a provision that wRVUs are credited to the physician when they are posted in the employer’s billing system. You would think that the employer would aggressively bill production as quickly as possible. In general, they do. However, I have encountered situations where a physician’s productivity bonus was severely impacted because of mistakes or shortages in the billing staff.
You can hardly blame the hospital for prioritizing bills for six-figure stays in the ICU, or for lengthy hospitalizations. Although this may be a reasonable business decision for the hospital, a physician whose production is not being billed should not be denied a productivity bonus (or, worse, be penalized) for not meeting a wRVU threshold.
To protect against billing issues, the agreement should provide that a wRVU is credited to the physician on the date of service.
With these pitfalls in mind, a physician should be able to obtain a reasonable contract, even if a wRVU threshold is involved.
Dennis Hursh is a veteran attorney with over 40 years of experience in health law. He is founder, Physician Agreements Health Law, which offers a fixed fee review of physician employment agreements to protect physicians in one of the biggest transactions of their careers. He can also be found on YouTube and LinkedIn.
Dennis is a frequent lecturer on physician contracts to residency and fellowship programs and has spoken at events sponsored by numerous health systems and physician organizations, including the American Osteopathic Association, the White Coat Investor, the American College of Rheumatology, the American Health Law Association, and the American Podiatry Association.
Dennis has authored several published articles on physician contractual matters on forums such as KevinMD and Medscape. He is also the author of The Final Hurdle – A Physician’s Guide to Negotiating a Fair Employment Agreement, which is considered the go-to resource on physician contract negotiation.
