Some Basics about Bonuses

Nurse practitioners (NPs) commonly are paid under one of three models— straight salary, hourly rate, or a percentage of billings or collections. In a good year or good quarter, some NPs will get a bonus in addition to their salary or hourly rate. A bonus is something given or paid in addition to what is expected. There is no “usual” when it comes to bonuses. Some medical practices offer NPs the opportunity for bonuses through language in employment contracts. Others do not. Some employers give bonuses spontaneously and occasionally; others never give bonuses.

Employers and NPs can work under any bonus formula they want, as long as the plan does not provide illegal kickbacks or incentives for keeping patients from receiving care. For example, if the employer is a health maintenance organization, a scheme that rewards NPs for keeping patients away from specialists would be inappropriate, unethical, and, in most cases, illegal.

If an employer includes a bonus opportunity as a term of an employment contract, the bonus may be offered on the basis of productivity, profit, or quality of care. Several types of formulas can be used to determine a bonus.

Productivity-based Bonus
In the first example of a productivity-based bonus, the NP must bill $240,000 a year to be eligible for a bonus. The NP receives $80,000 in base salary plus 20% of all billings in excess of $240,000 per year.

An employer will want the word “collections” to replace the word “billings” for two reasons: the lag time between billing and collection and the reality that not all bills are paid. Before an NP agrees to a percentage of collections, he/she should first ascertain that the practice is collecting at least 90% of its bills. The NP who bills $275,000 should not be prevented from receiving a promised bonus because the practice is not good at collecting monies owed. And, NPs should be aware that even though many practices have a set charge that they bill for a specific service, they may also have agreed with a payer to accept less than that charge. For example, a practice officially may charge $75 for a 99213 visit but may discount that rate for many insurers. Payer 1 may pay $62.50, while Payer 2 pays $60.00, and Payer 3 pays $55. Essentially, the practice gets approximately $59 for a 99213 visit even though the “billing charge” is $75. The “collection” would then be $55 (or whatever the payer and practice have agreed upon) or, in the case of Medicare and Medicaid, the payer’s standard payment for that service. The collections rate for that practice for the transaction described would be 73%, assuming the bill was paid.

The NP who is bargaining about bonus language in a contract will want to ask for the practice’s “collections rate” and also will need to know what that rate is based on. The NP should ask for a copy of the discounted fee schedule to determine what the practice is getting for each of the CPT codes he/she frequently bills. The practice may be terrible at making sure patients pay their bills and/or may be unwisely discounting its fees. If an NP agrees to a percentage of collections, his/her bonus may be affected by the practice’s deficiencies at collecting on its bills and negotiating fees.

In a second example, the NP has a guaranteed draw (salary). Each quarter, billings (or collections) are tallied, and the NP receives bonuses based on billings or collections over a specified amount. Again, the NP who agrees to a percentage of collections should get the employer to agree to maintain a high collections rate or have the bonus based on billings.

Employer agrees to take responsibility for maintaining a 95% rate of billings collected. In the event that the employer does not collect 95% of its billings during the term of the agreement, employer agrees to pay NP’s salary and bonus as if the employer had maintained a 95% collections rate.

Employer and NP agree to a fee schedule or schedules for the NP’s services. The fee schedules are attached to the NP’s contract. (A fee schedule specific to the NP is advisable when the NP performs some aspects of care reimbursed under a global fee.)

If an NP agrees to bill a stated minimum per year, billings must include self-paying patients, third-party payers, and internal billings, which account for visits performed for other providers in the practice. Internal billings might include visits with patients covered by capitated fees or visits that are included in the global fee for surgery.

The NP receives bonus payments to be determined as follows:

If the NP’s billings exceed $[state an amount] in any quarter, collected revenues exceeding $[state an amount] per quarter are shared equally by the NP and the employer, and the employer pays the NP’s share to the NP as a bonus within 30 days of the last day of the quarter.

If the NP bills less than $[state an amount] in any quarter, the NP receives no bonus for that quarter, and the difference between the amount billed by the NP in the deficient quarter and $[state an amount] is deducted from any bonus the NP receives in a future quarter.

Patient Satisfaction-based Bonus
A patient satisfaction-based bonus plan may be structured quite simply. For example, the contract might state: “For an average rating above 90% on a patient satisfaction survey, the practice shall pay the NP a $500 bonus.” There is no single generally accepted patient-satisfaction survey. A number of surveys are available on the Internet for download.

In any year where the NP has achieved the standard for any Medicare measure in the PQRI, the NP is paid a $500 bonus.

Profit-based Bonus
An NP may be offered 5% of practice profits. This method of rewarding productivity may be appropriate in situations where the practice works as a team.

Collections-based Bonus When Some Patients Are Capitated An NP might receive a percentage—such as 2.5%—of fee-for-service (FFS) collections plus 2.5% of capitated managed-care collections. The bonus might be structured to kick in after total collections (FFS + capitated) equal twice the NP’s base salary.

Note that since the downturn in the economy has led to a decline in practice income and increased job loss among NPs, bonuses are not being given as frequently as in past years. The third model of compensation, ie, percentage of collections, is growing in popularity because it allows the employer and employee to share the burden of economic downturns.