"How to Secure a Top-Notch Employment Agreement"

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"How to Secure a Top-Notch Employment Agreement"

The best employment agreement is much more than a conglomeration of wage and benefit information.

Gil Weber, MBA
Terry Arnold. P.A.-C.

Reprinted with permission of the publisher.
DermPA, HMP Communications
Summer 2004


Searching for that elusive, ideal employment opportunity presents every physician assistant with a series of complex situations and decisions. In all likelihood, many years of clinically focused training did not adequately prepare you for the business-related aspects of medicine.

You'll need to negotiate numerous issues with a potential employer. Many of the most critical will be in areas other than compensation yet, quite naturally, compensation always seems to be at the top of every PA's priority list.

In this article we'll look at some basics of compensation systems and we'll give you an understanding of collections and performance targets. In addition, we'll also give you insight into practice costs.

Understanding Who You Are and Where PAs Fit Into the System

Before anything else, it's essential to understand what the PA represents to a dermatology practice. PAs are low-cost, health care professionals who work in a specialty with high demand, excellent reimbursement, and relatively low malpractice premiums. One could not ask for a better cost-benefit situation in all of medicine.

PAs are busy -- an experienced dermatology PA will see from 30 to 40 patients per day and generate gross charges in the range of $500,000 to $700,000 per year. You can contribute significant, added value and capacity to any dermatology practice and that should be figured into a compensation package.

Compensation Systems

Straight salary is rapidly going out of style, even in academic settings and in most staff or group-model HMOs. A guaranteed salary simply provides no incentive for the PA to work harder and see more patients. And every employer has the reasonable expectation that each employee will do everything possible to grow the practice. So, there needs to be a financial "carrot" in the equation.

Today, most practices pay established PAs based, at least in part, on their financial productivity. With production-based (incentive) pay, the more patients seen, the more services delivered, the more charges billed, the greater a PA's reward. And there's simply no question that larger paychecks motivate practitioners to work harder and become more efficient. Typical salaries for PAs run from $50,000 to $100,000 per year, and bonuses based on practice growth can add considerably to that.

But for PAs, particularly young ones in their first practices, it's probably not reasonable to start out compensation based mostly on production -- certainly not until the PA has been with the practice for a while and gained some experience delivering patient care in the real world of managed care. And so today most practices compensate PAs on hybrid systems that combine base salary and a percentage of collections.

Typically during the beginning, the PA will receive a guaranteed salary. This helps PAs through an early-stage "learning curve" when their schedules will be lighter than more experienced PAs.

The first transition step might shift compensation from straight salary to salary plus an incremental percentage of collections. The practice closely monitors the PA's productivity, and if collections in the period exceed the threshold point, then an incremental difference is added to the base salary. This is the PA's first "taste" of the fruits of working harder.

For any compensation system to work (i.e., for the system to properly motivate the PA) there must be timely analysis and regular feedback with appropriate rewards. Quarterly or semi-annual reviews and adjustments work best. Annual review and reconciliation is not often enough -- the "carrot" must be held out so that the reward is a constant, motivating factor.

Clearly, target threshold(s) must be obvious and achievable. It does no good to hold a big financial carrot in front of a PA if such target is unachievable. So in any situation where compensation will be based in full or in part on production, it's important to get a sense of how the practice set performance targets, and to evaluate if they're realistic.

For example, if other PAs have joined that practice before you, ask how they've done. How much have they billed, and what was collected? How were their bonuses calculated, and how quickly were bonuses paid? Were bonuses based on collections as of a certain date, or did they also include accounts receivable for charges established during the bonus cycle?

Also, try to find out how often other PAs achieved target numbers. If they didn't, ask why.

Here are just a few key factors that could significantly impact your ability to grow (increase productivity) in any practice:

  • Will the physician(s) be willing to handover all types of patients to you? (That is, will your appointment slots be treated the same as those of the physicians, and will you have enough patients to keep you busy, or will you have to beg for patients?)
  • Will you be excluded from seeing patients with commercial insurance, and limited to poorly-reimbursed patient groups (Medicare/Medicaid)?
  • Will you be allowed to provide cosmetic services, perform minor surgeries and see physician referrals?
  • Will the practice market your services to its patients in the same fashion as the other care providers?
Percentage of Collections

If any part of your compensation is to be based on a percentage of collections, then it's essential to understand this. Collections refers to money in the practice's bank account. It does not mean money the practice hopes to collect for third-party claims submitted but not yet paid. It does not mean money that the practice must return to payers for any reason. It does not mean money owed by private-pay patients.

If you've seen a patient but there was a failure verifying eligibility, and payment was denied after the fact, you've worked for free. If you saw a patient without the required referral or authorization and payment was denied, you've worked for free, and so on.

None of these are happy prospects, but that's the reality of managed care. If the practice can't collect for your services, then you can't expect to be paid. (Remember, also, that claims payment lag-time can significantly impact collections and, thereby, the timing of your compensation.)

Your compensation is tied to the business office staff's efficiency and good work. So you'll want to ask what percentage of charges is typically collected. How are bad debts handled? How aggressively does the business office appeal denied charges? What is the practice's average day-in-accounts- receivable? How frequently can the business office provide you with financial data on charges and collections?

Performance Targets

When you meet/exceed the threshold target(s), and when incremental payments show up in your paycheck, it's wonderful for both PA and practice. Let's look at an example to understand the workings of production-based compensation. (Note: these numbers are only for demonstration purposes to show one possible scenario.)

  • Assume base salary = $75,000 per year
  • Assume collection target threshold = 3 X base salary ($225,000)
  • Assume bonus = 25% of collections exceeding target threshold,

So if your collections were $400,000 for the year, you would receive a $43,750 bonus ($400,000 - $225,000 X .25). That added to the base salary would result in annual earnings of $118,500.

Bonus systems can be as simple or complex as the practice and PA are willing to negotiate. Some PAs have multi-tiered productivity bonuses worked into their compensation packages.

For example, annual collections between $350,000 and $450,000 might reward the PA with a bonus of 22% of those collections; annual collections between $450,001 and $500,000 might reward with an additional and slightly higher 30% of the second tier of collections; and annual collections exceeding $500,001 might reward yet another and still higher bonus of 38% of the third tier of collections. In total, such tiered incentive programs can significantly raise the earnings of a PA.

Peeling the Layers of an Onion

Negotiating an employment agreement is like peeling an onion. You have to get down through layer after layer to get to the heart of the matter. Do' t allow yourself to be distracted or overwhelmed by any one issue. In the end, both sides must be comfortable with the deal even if they re not entirely happy with some of it.


What About Practice Costs?

When we mentioned performance targets, we assumed that no practice expenses were allocated to the PA. And that's typical.

Clearly, if you're paid X% of gross collections without any consideration for practice expenses, then to end up with the same number of dollars in your paycheck after expenses are subtracted your compensation would need to be calculated based on a number larger than X% of collections. At the root of the problem is determining just which expenses are and are not appropriately allocated to the PA. Those can be a great bone of contention since an employer could manipulate the figures easily.

Typically, those expenses directly related of the PA's practice will be allocated and subtracted from collections when calculating the bonus. There's nothing inherently wrong with doing this, but the details should be well planned to avoid problems.

A simple question to ask your future employer is: Would the practice incur these expenses if I weren't here?

Bottom line: If you can agree on a compensation/bonus system that does not consider practice expenses in the equation, you're certainly better off. Keep it simple


Gil Weber, Skin and Aging's Contributing Editor, is a nationally recognized author, lecturer and practice management consultant to physicians and the managed care industry, and has served as Director of Managed Care for the American Academy of Ophthalmology. Terry Arnold is employed by Dermatologic Surgery Specialists in Macon, GA.

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