Fam Pract Manag. 2000 Jan;7(1):58.

Rewarding a physician executive


Our practice would like to find a way to compensate our physician executive for his good work. We want to find a method that is fair and reproducible, but the number of variables in day-to-day practice makes this difficult. Do you have any suggestions?


The reality is that today's health care environment makes so many demands on a physician executive's time that he or she must reduce his or her clinical time by as much as 10 percent to 20 percent per week and work extra hours to make time for management responsibilities. The resulting loss of clinical revenues makes it difficult for some practices to afford extra compensation for the physician executive.

Smaller practices that can't afford extra monetary compensation might excuse the physician executive from weekday, but not weekend, call responsibility.

Larger practices might offer some form of incentive pay for the physician executive based on specific goals and measurable objectives. The pay can be in the form of a bonus (5 percent to 10 percent of the physician executive's base salary). This pay should be a budgeted expense, not something that's carved out of regular physician compensation or the existing bonus plan.

And some practices may simply choose to pay a monthly stipend of $1,000 to $3,000 above the normal income share to compensate the physician executive for his or her extra work.

Of course, the inherent danger in bonuses or rewards is that they can easily be viewed as an entitlement if they're not handled carefully; they should be earned each time that they're paid.

Compensation for collecting capitation payments


There is little effort required by billing companies to collect capitation payments since they don't need to follow up on unpaid claims. So what is an appropriate way to compensate a billing company for the capitation payments that they receive?


It is appropriate for the billing company to receive some compensation, because the company does produce and submit the standard HCFA-1500 form each time a service is performed.

We have always attempted to negotiate a reduced rate for this service. For instance, for a practice that pays its billing company 8 percent of the fee-for-service receipts the company collects on the practice's behalf, we try to negotiate a rate of 4 percent to 5 percent of capitation revenues for completing and submitting the HCFA-1500 forms.

If the billing company is unwilling to cooperate, we try to make it responsible for verifying that the capitation payment includes every patient listed on the practice's panel and that the payments are set at the appropriate contractual rate for each patient's age.

Faced with that option, most billing companies will elect to give the practice the reduced rate. Unfortunately, that also leaves the practice with the responsibility of verifying the accuracy of capitation payments.

Nonprofit family practice?


Can a small family practice become a nonprofit corporation?


A nonprofit corporation is a state-chartered entity, and the rights and obligations of such an entity are established by the legislature of the state in which the corporation resides. To learn the benefits of nonprofit status in your state, consult an attorney knowledgeable in corporate law.

To earn federal tax-exempt status, organizations must file form 1023, “Application for Recognition of Exemption [under Section 501 (c)(3) of the Internal Revenue Code],” with the Internal Revenue Service. The application requires a statement of charitable purpose, an explanation of how the entity intends to meet the purpose, and statements of nondiscrimination, among other things. The application is scrutinized closely and must be approved by the IRS before an entity may become tax-exempt. Avoidance of federal income tax is not an appropriate purpose for the establishment of such an entity.

The use of a tax consultant and attorney is necessary for this type of strategy. If an entity established for tax-exempt purposes is later found not to be in compliance with the law, it can put the organization in a difficult financial situation.

*Denotes member of FP Assist, the AAFP's online clearinghouse for consultants and attorneys.


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