Making “cents” of the business side of nurse practitioner practice Abstract: Nurse practitioners produce excellent patient outcomes and should be allowed to practice to the full extent of their education and training. In addition to clinical skills, nurse practitioners need to understand the business side of practice in order to ensure fair and equitable compensation. By AtNena Luster-Tucker, DNP, MBA, FNP-C
s NPs continue to make great strides toward full scope practice and demonstrate improved patient outcomes, it is important that compensation packages are representative of their work. NP programs across the country excel in providing the necessary clinical training but often gloss over the business side of practice. The following 10 principles are essential for ensuring fair compensation.
A
■ Employee vs. independent contractor The NP who is an employee of a practice or organization should expect to receive a benefit package with federal and state taxes deducted each pay period. The employer and employee each pay equal portions of Social Security and Medicare taxes at 6.2% and 1.45% respectively.1 The NP who is an independent contractor should not expect a benefit package and must meet the Internal Revenue Service’s (IRS’s) definition of independent contractor status.2 The IRS determines whether an individual is an employee or independent contractor based on a company’s behavioral control, financial control, and relationship to the individual providing services.3 The independent contractor must pay both the employee’s and employer’s portion of Social Security and Medicare, which is represented by a self-employment tax of 15.3% (see Social Security and Medicare taxes). Comparing dollars to dollars only, an independent contractor position must pay at least 7.65% more (the employer’s portion of Social Security and Medicare taxes)
than an employed position in order for the NP to begin negotiations on even monetary ground. ■ Compensation model types Both employment statuses (for the employee and independent contractor) can have a number of different compensation models on which salary is based. There are four main compensation models that are used in healthcare settings.4 A straight salary is a set amount paid evenly over the course of the year. This amount does not vary based on hours worked or number of patients seen. It is ideal for a new practice or a new provider trying to build a patient load. It allows for holidays, vacation, and other time off. Base salary plus incentive is a compensation method that provides the NP with a lower base salary (paid evenly over the course of a year) plus additional compensation once preset benchmarks are met. Benchmarks can be based on the number of patients seen, number of relative value units (RVUs), and/or amount of revenue generated. Base salary plus incentive is ideal for those with a heavy patient volume or high-acuity patients. Of note, if the incentive bonus is based on the amount of revenue generated, the NP must clarify if the amount is revenue billed or revenue collected. Generally speaking, the amount of revenue collected is approximately 50% of the amount billed (depending on the payer mix) and can make a big difference in the amount of incentive received. Hourly compensation is salary based strictly on the number of hours worked. It does not vary based on the
Keywords: contract negotiation, independent contractor, nurse practitioner compensation, salary
1 The Nurse Practitioner
Copyright © 2016 Wolters Kluwer Health, Inc. Unauthorized reproduction of this article is prohibited.
Copyright © 2016 Wolters Kluwer Health, Inc. All rights reserved.
Making “cents” of the business side of nurse practitioner practice
number of patients seen in a given hour. Hourly compensation is most conducive for those who have a varying workload and after-hours activities, such as rounds. Feefor-service is a model in which pay is based on generated revenue. The percentage paid is negotiated as part of the initial contract but can vary based upon how vested the NP is with the practice. Fee-for-service compensation is usually based on the amount of revenue collected—not the amount billed. The payer mix of the practice is discussed later in this article and is a key factor for those who are paid using a fee-for-service model. ■ Encounter types A baseline understanding of billing and coding principles is necessary to ensure metrics are reflective of the work performed. The NP should be informed of the types of patient encounters he or she will most commonly see. Postoperative visits are usually bundled into the operative fee paid to the physician; therefore, postoperative office visits conducted by the NP do not generate any additional revenue.5 The same principle applies to hospital rounds for postoperative patients. This is important to the NP who is working toward a revenue-based incentive model or evaluations that are based on revenue generation. Encounters that are billed using a “Z” code as the primary code are either paid at a preset reimbursement rate or are not reimbursable and should be used in conjunction with a reimbursable, standard code.5 For example, if the NP conducts a large number of wellness exams, such as wellwoman exams or annual physicals, meeting revenue-based benchmarks will be difficult, as these visits are billed as “Z” codes. Unless extenuating circumstances exist, reimbursement does not fluctuate based on the complexity of the wellness exam. Because the reimbursement amount is preset, the comprehensiveness of the care provided is not represented by the reimbursement received and can make it very difficult for the NP to generate enough revenue to meet incentive benchmarks or provide evidence of the quality of care provided.
Social Security and Medicare taxes1-3 Social Security
Medicare
Total
6.2%
1.45%
7.65%
Employee Employer Independent contractor
2 The Nurse Practitioner
6.2% 12.4%
1.45% 2.9%
7.65% 15.3%
■ Call The NP may be asked to take call depending on the type of provider and practice. Call pay negotiation is one of the most difficult components of the compensation package. Call pay should be based on the frequency of calls, responsibilities during the call period (phone calls only versus being called in), and the average number of calls received per call period. If the NP is being paid a straight salary, call is likely included in that salary, which is something to keep in mind when reviewing the salary.6 Call pay should be in addition to the hourly rate if the NP is an hourly employee and is usually paid per call period. The call period is determined by the practice and can be per hour, per day, per weekend, or per week. Call pay itself is relatively nominal salary in most cases and can range from $100 to $500 per day. The NP should be compensated additionally if the provider is required to come into a facility when called. ■ Rounds It is not uncommon for providers to have facility rounds as a part of their clinical responsibilities. Details regarding rounds should be discussed prior to agreeing upon a compensation package. Facility rounds vary from monthly long-term-care facility rounds to daily inpatient rounds. The number of facilities, number of patients, estimated amount of time needed to complete the rounds, and frequency should be described in full detail. Rounds should be a part of the NP’s scheduled day (for example, 6 hours of clinic plus 2 hours to round for an 8-hour day). Compensation must account for such activities if rounds are not accounted for in the regular workday. Additional compensation for facility rounds performed outside of the regular workday can be in the form of paid time off (four 8-hour days of clinic plus 2 hours of rounds before/after clinic each day followed by one full day off with pay) or monetary compensation. Establishing the NP’s hourly rate and multiplying this by number of additional hours needed for after-hours rounds can help determine monetary compensation. ■ Overhead Overhead expenses may be a consideration when negotiating with private practices.7 Overhead is shared by all practices within the organization. Details such as staffing, supplies, and the electronic medical record system are predetermined and paid for by the organization. Overhead is traditionally shared among all providers in the practice. The NP joining a private practice may be asked to share overhead expenses with the other providers.
Copyright © 2016 Wolters Kluwer Health, Inc. Unauthorized reproduction of this article is prohibited.
Copyright © 2016 Wolters Kluwer Health, Inc. All rights reserved.
Making “cents” of the business side of nurse practitioner practice
If the NP is funding a portion of the overhead, he or she should have input into the resources purchased using the practice’s overhead. He or she should also request to receive a monthly breakdown of the practice’s overhead. If the NP has limited patient volume, the employer should consider a reduced percentage of overhead share for the first 2 to 3 years to allow the NP to build his or her patient load. ■ Insurance payer mix The practice’s payer mix should be considered if compensation is based in any part on the amount of revenue generated. The payer mix is a breakdown of the patient population according to the type of health insurance plan, such as Medicare, Medicaid, private insurance, and the uninsured. Meeting revenue-based incentives may be difficult if the NP has a large number of patients with low reimbursing insurance coverage. In this situation, utilizing RVUs in place of amount of revenue generated would be a more accurate method to determine the amount of work the NP has performed. Payer mix does not affect those receiving a straight salary or hourly compensation. ■ Benefits Employer-offered benefits vary greatly. Common benefit packages include: health insurance, paid time off, licensure reimbursement, malpractice, and continuing education.4 Again, this should not be expected from all employers— especially if the NP is an independent contractor or practicing on a part-time basis. The cost of providing each of these benefits should be factored in to the total compensation package. For example, if the NP accepts a position as an independent contractor without benefits, the cost of health insurance, malpractice, licenses, and continuing education must be subtracted from the salary paid to determine the net salary. The employed NP should add the cost of the aforementioned benefits to the salary amount paid to get the total compensation salary amount. ■ Five-year plan Both the NP and the employer should be in agreement regarding the long-term plan for the NP’s position. A 5-year plan should be discussed at minimum. In most clinical settings, the NP will build a practice and patient population of his or her own. As the practice grows, the compensation package should change to reflect such growth. A compensation model that is reflective of short-term employment (as opposed to one that focuses on the building of a practice) should be used if the provider’s position is not stable 3 The Nurse Practitioner
through a 5-year period. Finally, the NP should not automatically turn down a position with an initial suboptimal compensation package. Negotiations for future compensation increases can be made based on the projections for the 5-year period. ■ Clinician comparison NPs should use the information presented here to make the case for a fair compensation package. The requested NP compensation package should not be compared with compensation packages offered to other healthcare providers. NPs and physician assistants (PAs) are frequently thought of as serving in the same role and compensated as such, but this is not an accurate assumption. As with NPs, the PA scope of practice varies by state.8 The PA’s services that are billed as incident-to are paid at 100%; however, the reimbursement is paid in the physician’s name.9,10 The NP practicing without direct physician oversight can bill independently but is reimbursed 85% of the amount that would be paid to a physician or other healthcare providers who bill incident-to.9,10 Based on these regulations, revenue generated by a PA can appear to be greater than the revenue generated by the NP due to the PA’s claims being paid at 100% (as opposed to 85% for an independently billing NP). The NP’s compensation package also cannot be compared with a physician’s compensation package. A fair compensation package is not a compensation package equal to a physician’s compensation. Instead, it should reflect the amount and quality of work the NP performs inclusive of all activities. Compensation is not just a number. Many factors influence how and why compensation models are set. Appropriate compensation should be defined as a compensation package that is an accurate reflection of the NP’s work. Just as NPs have built upon their nursing foundation to transition to providers, they should also build upon their clinical knowledge to become business savvy. REFERENCES 1. Internal Revenue Service. Self-employment tax. 2015. www.irs.gov/ Businesses/Small-Businesses-&-Self-Employed/Self-Employment-Tax. 2. Buppert C. Should an NP take a position as an independent contractor? J Nurse Pract. 2012;8(8):657-658. 3. Internal Revenue Service. Independent Contractor defined. 2014. www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/IndependentContractor-Defined. 4. Dillon D, Hoyson P. Beginning employment: a guide for the new nurse practitioner. J Nurse Pract. 2014;10(1):55-59. 5. Centers for Medicare and Medicaid Services. ICD-10-CM Official Guidelines for Coding and Reporting. www.cms.gov/Medicare/Coding/ICD10/ Downloads/2016-ICD-10-CM-Guidelines.pdf.
Copyright © 2016 Wolters Kluwer Health, Inc. Unauthorized reproduction of this article is prohibited.
Copyright © 2016 Wolters Kluwer Health, Inc. All rights reserved.
Making “cents” of the business side of nurse practitioner practice
6. American Association of Nurse Practitioners. Employment negotiations. 2014. www.aanp.org/practice/reimbursement/68-articles/579-employmentnegotiations.
10. Jett K. Alternative medicare billing for nurse practitioners: “incident to.” Geriatr Nurs. 2007;28(3):169-117.
7. Dahring R. Contract negotiation: don’t be afraid. Adv NPs PAs. 2012;3(3): 18-21.
AtNena Luster-Tucker is an assistant professor, Graduate Nursing, at Southeastern Louisiana University, Hammond, La.
8. Curren J. Nurse practitioners and physician assistants: do you know the difference? Medsurg Nurs. 2007;16(6):404-407. 9. American Academy of Physician Assistants. Reimbursement issues: thirdparty reimbursement for PAs. 2013. www.aapa.org/WorkArea/DownloadAsset.aspx?id=1256.
4 The Nurse Practitioner
The author has disclosed that she has no financial relationships related to this article. DOI-10.1097/01.NPR.0000480583.15128.c3
Copyright © 2016 Wolters Kluwer Health, Inc. Unauthorized reproduction of this article is prohibited.
Copyright © 2016 Wolters Kluwer Health, Inc. All rights reserved.
s NPs continue to make great strides toward full scope practice and demonstrate improved patient outcomes, it is important that compensation packages are representative of their work. NP programs across the country excel in providing the necessary clinical training but often gloss over the business side of practice. The following 10 principles are essential for ensuring fair compensation.
A
■ Employee vs. independent contractor The NP who is an employee of a practice or organization should expect to receive a benefit package with federal and state taxes deducted each pay period. The employer and employee each pay equal portions of Social Security and Medicare taxes at 6.2% and 1.45% respectively.1 The NP who is an independent contractor should not expect a benefit package and must meet the Internal Revenue Service’s (IRS’s) definition of independent contractor status.2 The IRS determines whether an individual is an employee or independent contractor based on a company’s behavioral control, financial control, and relationship to the individual providing services.3 The independent contractor must pay both the employee’s and employer’s portion of Social Security and Medicare, which is represented by a self-employment tax of 15.3% (see Social Security and Medicare taxes). Comparing dollars to dollars only, an independent contractor position must pay at least 7.65% more (the employer’s portion of Social Security and Medicare taxes)
than an employed position in order for the NP to begin negotiations on even monetary ground. ■ Compensation model types Both employment statuses (for the employee and independent contractor) can have a number of different compensation models on which salary is based. There are four main compensation models that are used in healthcare settings.4 A straight salary is a set amount paid evenly over the course of the year. This amount does not vary based on hours worked or number of patients seen. It is ideal for a new practice or a new provider trying to build a patient load. It allows for holidays, vacation, and other time off. Base salary plus incentive is a compensation method that provides the NP with a lower base salary (paid evenly over the course of a year) plus additional compensation once preset benchmarks are met. Benchmarks can be based on the number of patients seen, number of relative value units (RVUs), and/or amount of revenue generated. Base salary plus incentive is ideal for those with a heavy patient volume or high-acuity patients. Of note, if the incentive bonus is based on the amount of revenue generated, the NP must clarify if the amount is revenue billed or revenue collected. Generally speaking, the amount of revenue collected is approximately 50% of the amount billed (depending on the payer mix) and can make a big difference in the amount of incentive received. Hourly compensation is salary based strictly on the number of hours worked. It does not vary based on the
Keywords: contract negotiation, independent contractor, nurse practitioner compensation, salary
1 The Nurse Practitioner
Copyright © 2016 Wolters Kluwer Health, Inc. Unauthorized reproduction of this article is prohibited.
Copyright © 2016 Wolters Kluwer Health, Inc. All rights reserved.
Making “cents” of the business side of nurse practitioner practice
number of patients seen in a given hour. Hourly compensation is most conducive for those who have a varying workload and after-hours activities, such as rounds. Feefor-service is a model in which pay is based on generated revenue. The percentage paid is negotiated as part of the initial contract but can vary based upon how vested the NP is with the practice. Fee-for-service compensation is usually based on the amount of revenue collected—not the amount billed. The payer mix of the practice is discussed later in this article and is a key factor for those who are paid using a fee-for-service model. ■ Encounter types A baseline understanding of billing and coding principles is necessary to ensure metrics are reflective of the work performed. The NP should be informed of the types of patient encounters he or she will most commonly see. Postoperative visits are usually bundled into the operative fee paid to the physician; therefore, postoperative office visits conducted by the NP do not generate any additional revenue.5 The same principle applies to hospital rounds for postoperative patients. This is important to the NP who is working toward a revenue-based incentive model or evaluations that are based on revenue generation. Encounters that are billed using a “Z” code as the primary code are either paid at a preset reimbursement rate or are not reimbursable and should be used in conjunction with a reimbursable, standard code.5 For example, if the NP conducts a large number of wellness exams, such as wellwoman exams or annual physicals, meeting revenue-based benchmarks will be difficult, as these visits are billed as “Z” codes. Unless extenuating circumstances exist, reimbursement does not fluctuate based on the complexity of the wellness exam. Because the reimbursement amount is preset, the comprehensiveness of the care provided is not represented by the reimbursement received and can make it very difficult for the NP to generate enough revenue to meet incentive benchmarks or provide evidence of the quality of care provided.
Social Security and Medicare taxes1-3 Social Security
Medicare
Total
6.2%
1.45%
7.65%
Employee Employer Independent contractor
2 The Nurse Practitioner
6.2% 12.4%
1.45% 2.9%
7.65% 15.3%
■ Call The NP may be asked to take call depending on the type of provider and practice. Call pay negotiation is one of the most difficult components of the compensation package. Call pay should be based on the frequency of calls, responsibilities during the call period (phone calls only versus being called in), and the average number of calls received per call period. If the NP is being paid a straight salary, call is likely included in that salary, which is something to keep in mind when reviewing the salary.6 Call pay should be in addition to the hourly rate if the NP is an hourly employee and is usually paid per call period. The call period is determined by the practice and can be per hour, per day, per weekend, or per week. Call pay itself is relatively nominal salary in most cases and can range from $100 to $500 per day. The NP should be compensated additionally if the provider is required to come into a facility when called. ■ Rounds It is not uncommon for providers to have facility rounds as a part of their clinical responsibilities. Details regarding rounds should be discussed prior to agreeing upon a compensation package. Facility rounds vary from monthly long-term-care facility rounds to daily inpatient rounds. The number of facilities, number of patients, estimated amount of time needed to complete the rounds, and frequency should be described in full detail. Rounds should be a part of the NP’s scheduled day (for example, 6 hours of clinic plus 2 hours to round for an 8-hour day). Compensation must account for such activities if rounds are not accounted for in the regular workday. Additional compensation for facility rounds performed outside of the regular workday can be in the form of paid time off (four 8-hour days of clinic plus 2 hours of rounds before/after clinic each day followed by one full day off with pay) or monetary compensation. Establishing the NP’s hourly rate and multiplying this by number of additional hours needed for after-hours rounds can help determine monetary compensation. ■ Overhead Overhead expenses may be a consideration when negotiating with private practices.7 Overhead is shared by all practices within the organization. Details such as staffing, supplies, and the electronic medical record system are predetermined and paid for by the organization. Overhead is traditionally shared among all providers in the practice. The NP joining a private practice may be asked to share overhead expenses with the other providers.
Copyright © 2016 Wolters Kluwer Health, Inc. Unauthorized reproduction of this article is prohibited.
Copyright © 2016 Wolters Kluwer Health, Inc. All rights reserved.
Making “cents” of the business side of nurse practitioner practice
If the NP is funding a portion of the overhead, he or she should have input into the resources purchased using the practice’s overhead. He or she should also request to receive a monthly breakdown of the practice’s overhead. If the NP has limited patient volume, the employer should consider a reduced percentage of overhead share for the first 2 to 3 years to allow the NP to build his or her patient load. ■ Insurance payer mix The practice’s payer mix should be considered if compensation is based in any part on the amount of revenue generated. The payer mix is a breakdown of the patient population according to the type of health insurance plan, such as Medicare, Medicaid, private insurance, and the uninsured. Meeting revenue-based incentives may be difficult if the NP has a large number of patients with low reimbursing insurance coverage. In this situation, utilizing RVUs in place of amount of revenue generated would be a more accurate method to determine the amount of work the NP has performed. Payer mix does not affect those receiving a straight salary or hourly compensation. ■ Benefits Employer-offered benefits vary greatly. Common benefit packages include: health insurance, paid time off, licensure reimbursement, malpractice, and continuing education.4 Again, this should not be expected from all employers— especially if the NP is an independent contractor or practicing on a part-time basis. The cost of providing each of these benefits should be factored in to the total compensation package. For example, if the NP accepts a position as an independent contractor without benefits, the cost of health insurance, malpractice, licenses, and continuing education must be subtracted from the salary paid to determine the net salary. The employed NP should add the cost of the aforementioned benefits to the salary amount paid to get the total compensation salary amount. ■ Five-year plan Both the NP and the employer should be in agreement regarding the long-term plan for the NP’s position. A 5-year plan should be discussed at minimum. In most clinical settings, the NP will build a practice and patient population of his or her own. As the practice grows, the compensation package should change to reflect such growth. A compensation model that is reflective of short-term employment (as opposed to one that focuses on the building of a practice) should be used if the provider’s position is not stable 3 The Nurse Practitioner
through a 5-year period. Finally, the NP should not automatically turn down a position with an initial suboptimal compensation package. Negotiations for future compensation increases can be made based on the projections for the 5-year period. ■ Clinician comparison NPs should use the information presented here to make the case for a fair compensation package. The requested NP compensation package should not be compared with compensation packages offered to other healthcare providers. NPs and physician assistants (PAs) are frequently thought of as serving in the same role and compensated as such, but this is not an accurate assumption. As with NPs, the PA scope of practice varies by state.8 The PA’s services that are billed as incident-to are paid at 100%; however, the reimbursement is paid in the physician’s name.9,10 The NP practicing without direct physician oversight can bill independently but is reimbursed 85% of the amount that would be paid to a physician or other healthcare providers who bill incident-to.9,10 Based on these regulations, revenue generated by a PA can appear to be greater than the revenue generated by the NP due to the PA’s claims being paid at 100% (as opposed to 85% for an independently billing NP). The NP’s compensation package also cannot be compared with a physician’s compensation package. A fair compensation package is not a compensation package equal to a physician’s compensation. Instead, it should reflect the amount and quality of work the NP performs inclusive of all activities. Compensation is not just a number. Many factors influence how and why compensation models are set. Appropriate compensation should be defined as a compensation package that is an accurate reflection of the NP’s work. Just as NPs have built upon their nursing foundation to transition to providers, they should also build upon their clinical knowledge to become business savvy. REFERENCES 1. Internal Revenue Service. Self-employment tax. 2015. www.irs.gov/ Businesses/Small-Businesses-&-Self-Employed/Self-Employment-Tax. 2. Buppert C. Should an NP take a position as an independent contractor? J Nurse Pract. 2012;8(8):657-658. 3. Internal Revenue Service. Independent Contractor defined. 2014. www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/IndependentContractor-Defined. 4. Dillon D, Hoyson P. Beginning employment: a guide for the new nurse practitioner. J Nurse Pract. 2014;10(1):55-59. 5. Centers for Medicare and Medicaid Services. ICD-10-CM Official Guidelines for Coding and Reporting. www.cms.gov/Medicare/Coding/ICD10/ Downloads/2016-ICD-10-CM-Guidelines.pdf.
Copyright © 2016 Wolters Kluwer Health, Inc. Unauthorized reproduction of this article is prohibited.
Copyright © 2016 Wolters Kluwer Health, Inc. All rights reserved.
Making “cents” of the business side of nurse practitioner practice
6. American Association of Nurse Practitioners. Employment negotiations. 2014. www.aanp.org/practice/reimbursement/68-articles/579-employmentnegotiations.
10. Jett K. Alternative medicare billing for nurse practitioners: “incident to.” Geriatr Nurs. 2007;28(3):169-117.
7. Dahring R. Contract negotiation: don’t be afraid. Adv NPs PAs. 2012;3(3): 18-21.
AtNena Luster-Tucker is an assistant professor, Graduate Nursing, at Southeastern Louisiana University, Hammond, La.
8. Curren J. Nurse practitioners and physician assistants: do you know the difference? Medsurg Nurs. 2007;16(6):404-407. 9. American Academy of Physician Assistants. Reimbursement issues: thirdparty reimbursement for PAs. 2013. www.aapa.org/WorkArea/DownloadAsset.aspx?id=1256.
4 The Nurse Practitioner
The author has disclosed that she has no financial relationships related to this article. DOI-10.1097/01.NPR.0000480583.15128.c3
Copyright © 2016 Wolters Kluwer Health, Inc. Unauthorized reproduction of this article is prohibited.
Copyright © 2016 Wolters Kluwer Health, Inc. All rights reserved.
