(EMAILWIRE.COM, September 16, 2008 ) Ann Arbor, MI - If you’re planning to create a new incentive-based compensation plan or want to make changes to your existing plan, how do you choose the right incentives to work for you? With countless combinations of incentive-based payments possible, the plan you implement must custom-fit your requirements.

Do incentives work? Yes, they do, but there is no magic one-incentive-plan-fits-all. An incentive needs to address an achievable goal at a specific site and sometimes even for a specific provider. An effective incentive satisfies these 4 fundamental requirements:
• It’s got buy-in. The providers must agree, by consensus, to implement the incentive
• It must be clearly defined and easy to understand
• The outcome of the incentive must be measurable
• To influence behavior, the incentive payment must be timely

An increasingly popular method used in compensation plans is to pay providers based on the Relative Value Unit (RVU). There are many possible payment methods for RVU-based pay but this article discusses just two: RVU base pay and guaranteed hourly plus an RVU bonus.

RVU Base Pay
RVU base pay, or straight fee-for-service, creates a direct relationship between the payment to the provider and the clinical service. The payment to the provider is calculated by deducting operating expenses from the gross revenue on a per RVU basis. The benefit of this type of pay is that revenue and expenses are baked into the RVU pie: everyone gets a piece. A potential problem with this type of pay is that a provider’s pay will fluctuate based on the CMS conversion factor and patient volume and treatment. Some providers may feel that they are assuming too much risk and look elsewhere for a job. Another problem inherent with pay based on RVU’s is the concept of “cherry-picking”, where a provider selects the cases with the biggest RVU payment, leaving the cases with lower RVU’s to somebody else.

Guaranteed Hourly plus RVU Bonus
A guaranteed hourly rate plus an RVU bonus provides a level of comfort and creates a financial incentive based on clinical productivity. The benefit of this type of pay is that providers can rely on their guaranteed hourly amount and work to earn the RVU bonus. The fluctuations in RVU payment have less negative impact and the incentive for the bonus can motivate a provider to work harder or more efficiently or to see more patients. The bonus amount must be significant and paid monthly to have the biggest impact on behavior.

Scorecard
When designing a compensation plan using incentives, it’s important to evaluate them based on the 4 fundamental requirements of an effective incentive. If you adopt one of these payment methods, be prepared to evaluate its effectiveness and be willing to make a change if the measured outcome does not meet your projections. Given the endless combinations of incentive-based payment methods, it’s worth your time to experiment to achieve the best compensation plan possible, to align your providers’ financial objectives with your revenue goals while still delivering quality professional services to the patients that need them.

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Contact Information:
Suncoast Systems LLC
Sheila Conant
Tel: 734-418-2310
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