Carolyn Buppert, NP, JD

Disclosures

November 28, 2000

Question

My employer wants to implement a productivity-based salary. How can I make sure that I am fairly compensated?

Response from Carolyn Buppert, NP, JD

Productivity-based salaries are becoming popular and can be quite attractive to the nurse practitioner (NP) as well as to the employer. There are 2 precautions from a legal standpoint.

First, an arrangement must not reward a nurse practitioner for withholding necessary care, for ordering unnecessary services or for providing care of poor quality. For example, an arrangement whereby a NP receives a bonus in return for denying services to capitated patients would be illegal. Likewise, an agreement that provides a NP with incentives to make available unnecessary services under a fee-for-service (FFS) payment system would be illegal.

Second, the arrangement must be worded clearly. Otherwise, the NP may receive a salary different from what he or she expects.

Response from Carolyn Buppert, NP, JD

There are many ways to compensate productivity. For example, an NP may get a percentage of the FFS monies billed and received for the NP's services. I have seen NPs offered 25% to 50% of receipts. The variation in percentage is attributable to:

  1. the NP's years of experience with the practice,

  2. the expense of the NP's benefits,

  3. the expense of the NP's overhead,

  4. the past productivity of the NP, and

  5. the negotiation skills of the NP and employer.

Note that an NP who accepts a percentage of receipts (rather than a percentage of billings) is going to have a stake in the practice's effectiveness at collections. NPs who work for practices where collection is not a strong point may do better by negotiating a percentage of the NP's billings, rather than a percentage of receipts.

For example, compare Practice A, which collects only 50% of its billings, with Practice B, which collects 90% of its billings. Both Practice A's and Practice B's NPs agree to work for 37% of receipts. Both NPs bill $350,000 a year. Practice A's NP will make $64,750 per year, whereas Practice B's NP will make $116, 550.

If both NPs agree to work for 27% of billings (not receipts), both NPs would make $94,500.

Note that employers will want to give NPs a percentage of receipts, rather than a percentage of billings, because they want NPs to share the burden of increasing collections. NPs who are smart billers -- choose an appropriate billing code, choose compatible diagnoses codes and billing codes, include all rendered services in the bill, and so on--contribute to increased collections. On the other hand, NPs often have little control over the practice's effectiveness at responding to denials, at accounting, and at negotiating sound contracts and attractive payment schedules.

In another, simpler, productivity arrangement, the NP agrees to bill twice his or her salary, and agrees that the NP will receive some percentage of all billings over that number. For example, NP and employer agree to a salary for the NP of $70,000, agree that the NP will bill $140,000, and agree that the NP will receive 20% of billings in excess of $140,000. The numbers can be adjusted, depending upon the practice's collection rate. For example, if the collections rate is 90%, the NP making $70,000 might agree to bill $155,555.

Response from Carolyn Buppert, NP, JD

The above scenarios address fee-for-service billing. What about practices for which the reimbursement is capitated? One compensation formula for capitated patients is as follows:

Divide the total capitated fees received by the practice, per quarter or per year, by the total number of capitated patients seen by the practice. The result is the amount received per patient visit. Multiply the number of visits conducted by the NP by the amount received per patient visit to arrive at the NP's contribution to the capitated revenues. Multiply by a percentage to arrive at the NP's compensation.

For example: The practice conducts 10,000 visits per year with capitated patients. Receipts from capitation are $500,000 per year. Capitated visits brought $50 per visit to the practice. The NP conducted 4700 visits with  capitated patients. The NP's contribution to capitated receipts is $235,000. If the NP agrees to a rate of 33% of receipts from capitation, the NP would make $77,550 per year.

Response from Carolyn Buppert, NP, JD

Most practices see both fee-for-service and capitated patients. A system for compensating the NP who works at such a practice might be as follows:

NP gets 37% of fee-for-service collections generated by the NP plus 33% of capitated collections generated by the NP, using the formula above.

Or, a practice might agree that the NP will generate twice the NP's salary and will receive a bonus of some percentage of collections, which will accrue after the total collections (FFS and capitated) equals 2 times base salary.

One size does not fit all when it comes to compensation arrangements. NPs should determine their productivity in the past year, under FFS and capitation, and base their negotiations on expected salary, past performance, potential for improving performance, the current rate of collections at the practice, the current fee schedules at the practice, and the potential for the practice improving its collection rate and fee schedules.

I do not recommend productivity-based compensation for newly graduated NPs.

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