Diagnosing a $2.9M Cardiology Subsidy: Compensation, Productivity, or Referral Leakage

Decompose the loss.

• Professional loss: $9.9M expense − $7.0M collections = $2.9M
• Collections per wRVU: $7.0M / 118,000 = $59.32
• Compensation per wRVU: $9.2M / 118,000 = $77.97
• The group pays out 131% of collections in physician compensation alone.

Test 1 - is it compensation? Repricing all 118,000 wRVUs at the $62 market median gives $7.32M, saving $1.88M. Even with that correction, expense falls to $8.02M against $7.0M of collections - still a $1.02M loss. So compensation is the largest single controllable line, but it does not explain the whole subsidy.

Test 2 - is it productivity? The distribution is the tell: 4,100 to 11,800 wRVUs with flat pay. A physician at 4,100 wRVUs collects roughly $243,000 against an average compensation of $657,000. The group is not under-producing on average; it has a small number of very low producers subsidized by the rest.

Test 3 - is it leakage? 260 cases × $8,400 = $2.18M of annual downstream contribution walking out the door, which is comparable to the entire professional loss and is invisible in the group's P&L.

Ranking. (1) Compensation design - largest, fastest, fully controllable. (2) Leakage - largest strategic value and the reason the system bought the group. (3) Individual productivity - a subset of compensation design, but it determines who stays.

The trap. Fixing only compensation produces a plan that drives out the high producers, worsens the wRVU base, and leaves the subsidy intact. The three expiring contracts - two high producers - mean the compensation redesign is also a retention negotiation.

Structure.

• Guaranteed base for 12 months set at the physician's current actual compensation, declining on a published schedule (100% / 75% / 50% of the gap) to a market-based rate.
• wRVU conversion at $64 per wRVU, slightly above the $62 median, which is defensible in an FMV opinion and signals that productivity will be rewarded. At the current 118,000 wRVUs that costs $7.55M - a $1.65M saving against $9.2M.
• 10% quality and access withhold, tied to metrics the group helps choose: guideline adherence, access within 10 days, appropriate-use imaging, documentation completeness.
• A minimum productivity expectation of 5,500 wRVUs by the start of year two, with a defined performance-improvement path and a documented consequence if it is not met.

Protecting the high producers. The two expiring contracts belong to physicians at the top of the productivity range. Under the current flat model they are subsidizing colleagues; under a wRVU model they should earn more. Model each physician's year-one and year-two pay under the new plan and show them their own numbers. If a high producer's pay falls under the new plan, the rates are wrong - fix the conversion factor, not the physician.

Compliance guardrails. Compensation must be fair market value, commercially reasonable, and for personally performed services. Do not tie any part of pay to referrals or to downstream revenue from the physician's own ordering - that is a Stark/Anti-Kickback problem unless a specific exception applies. If you want to reward value-based outcomes, use a recognized value-based exception with documented metrics and a written plan, and obtain an independent FMV opinion before the first payment.

Sequencing. Negotiate the two expiring contracts first, on the new model, and use their signatures as the anchor for the other twelve. Announcing a plan and then losing the top producers destroys the credibility of the entire redesign.

Size the prize honestly. 260 leaked cases × $8,400 = $2.18M of contribution. But a new EP program does not capture 100% of that: some cases will still transfer for complexity or patient preference, and some of the 260 include cardiac surgery that a new EP lab will not touch. Assume a realistic 60% capture, or about $1.3M - and that is gross contribution before the program's own costs.

Required analysis before capital approval.

1. Case-level leakage data, not physician estimates: which procedures, which physicians, which payers, and what fraction is clinically appropriate to repatriate.
2. Program breakeven. Two EP physicians, an EP lab at roughly $3.5M, and supporting staff carry a fixed cost likely north of $3M a year. At $8,400 contribution per case, that requires roughly 360 cases to break even - more than the entire leaked volume. The program has to grow the market, not just recapture it, and that assumption must be tested.
3. Physician supply and call coverage. A one-physician program is not a program; it is a vulnerability with a capital budget attached.
4. Cath lab utilization. At 54%, the constraint may be scheduling and staffing, not physical capacity. Confirm the lab cannot absorb incremental volume before funding a new one.
5. Payer mix of the incremental cases, especially MA, where rates are stepping down.

What cannot be done. You cannot pay cardiologists a bonus for keeping referrals in-house. Compensation tied to downstream referrals from the physician's own ordering violates the Stark and Anti-Kickback statutes absent a specific exception. The permissible levers are genuine service expansion, access and scheduling improvements, quality reporting, and value-based arrangements structured under a recognized exception with documented metrics and FMV support.

Recommendation. Fund the data and the clinical recruitment before the capital. If the leakage analysis shows fewer than 250 realistically recapturable cases, the correct move is a clinical affiliation or transfer agreement with the competitor - capturing some of the contribution without building an underutilized lab.