Question

P 4–6: University Physician Compensation Physicians practicing in Eastern University’s hospital have the following compensation agreement. Each doctor bills the patient (or Blue Cross Blue Shield) for his or her services. The doctor pays for all direct expenses incurred in the clinic, including nurses, medical malpractice insurance, secretaries, supplies, and equipment. Each doctor has a stated salary target (e.g., $100,000). For patient fees collected over the salary target, less expenses, the doctor retains 30 percent of the additional net fees. For example, if $150,000 is billed and collected from patients, and expenses of $40,000 are paid, then the doctor retains $3,000 of the excess net fees [30 percent of ($150,000 – $40,000 – $100,000)] and Eastern University receives $7,000. If $120,000 of fees are collected and $40,000 of expenses are incurred, the physician’s net cash flow is $80,000 and Eastern University receives none of the fees. Required: Critically evaluate the existing compensation plan and recommend any changes.

Answer 1

Answer :

The significant issue with the pay conspire is that doctors just pay 30% of the net expense of costs once incomes surpass the expressed compensation target. In this manner, if the specialist esteems some consumption at over 30% of the expense, however its incentive to the training is not as much as its cost, the specialist will in any case make the use. For instance, assume the doctor has incomes in abundance of the compensation target and costs and is thinking about traveling to a therapeutic meeting in hawaii. The expense of the gathering is $5,000. The estimation of the gathering to the specialist is $4,500. Obviously, the outing would not be taken if the specialist needed to pay the full expense.

In any case, since she just bears 30% of the expense (or $1,500) however values the excursion at $4,500 she will take the trek.

The present compensation target recipe is broken. The healing facility must be cautious about plans that repay doctors for costs that can be unadulterated advantages. For instance, a specialist can travel to hawaii for which she gets private advantages and the healing center no advantages. Be that as it may, separating among Acceptable and unsuitable costs requires an expensive checking framework.

One option is to charge the specialists a settled rental expense for utilizing the center. Such settled expenses don't influence minimal choices.