Even nurse practitioners who normally are confident and assertive become reticent, tachycardic, and diaphoretic when negotiating their own salaries. One method of reducing stress when confronting the salary issue is to focus on hard figures that document an NP’s monetary contribution to a practice and the costs of an NP to a practice.
NPs bring in income on a fee-for-service basis or on a per-member-per-month basis. Figuring an NP’s share of income in a fee-for-service practice is done by multiplying the number of visits by the fee collected per visit. When a practice’s patients are capitated, an NP’s share of income is figured by multiplying the number of patients on an NP’s panel by the per-member-per-month fee coming into the practice.
The cost of maintaining an NP is figured by adding practice expenses and the cost of physician consultation. Practice expenses can be estimated or calculated for a particular practice. For a solo practice, expenses can be 40% to 50% of income, whereas for a large practice, expenses are typically lower—20% to 30% of income. Practice expenses include rent, salaries, taxes and benefits for support staff, taxes and benefits for NPs, supplies, laboratory expenses, depreciation, car, continuing education, and insurance (malpractice, workers’ compensation, and premises). (Please see Let’s Talk Money on page 5 of the May/June issue of NP World News for a brief discussion of practice expenses.)
An NP who needs a great deal of physician consultation should expect to compensate the NP’s employer physicians for their time. An NP who needs little consultation should command a higher salary, because he or she needs little of a physician’s time. Until NPs no longer need a physician on a written agreement, all NPs should expect to pay something for physician consultation. Experienced NPs often pay physician employers/consultants 10% to 15% of their net income brought to the practice.
Most employers will want a percentage of an NP’s earnings as profit. An experienced NP who needs little consultation from an employer physician might consider his or her contribution to profit to be the 10% to 15% of net income paid for consultation as noted above. A newer NP should expect to contribute 10% to 15% of net earnings to an employer as profit, in addition to 15% to 25% of net earnings for physician consultation.
To project an appropriate salary for a particular NP, it is necessary to
- calculate income to the practice based on NP billings;
- subtract 10% for unpaid bills;
- the calculated figure for practice expenses (20% to 50% of earnings),
- the cost of physician consultation (10% to 20% of net earnings, and
- a percentage for employer profit.
Fee-for Service Practices
In a fee-for-service practice, an NP who sees 15 patients a day at $35 per patient visit, on average, brings in $525 a day. Allowing one week off for continuing education, one week for illness, and four weeks for vacation, this NP will bring in $120,750 a year, potentially. But not all bills are paid. With a 90% collection rate—a reasonable collection rate for an efficient practice—this NP actually will bring in $108,675 per year.
An NP who sees 24 patients per day at the same per-patient rate, will bring in $840 per day, or $193,200 per year in accounts receivable, With a 90% collection rate, this NP will bring $173,880 to the practice.
Deducting 40% of the NP’s gross generated income for overhead expenses (rent, benefits, continuing education, supplies, malpractice insurance, lab expenses, and depreciation of equipment) leaves $65,205 for the 15-patient-per-day NP and $104,328 for the 24-patient-per-day NP.
Further deducting 15% of that figure to pay a physician for consultation services leaves $55,425 in salary for the 15-patient-per-day NP and $88,679 in salary for the 24-patient-per-day NP.
In a fully capitated practice, an NP who has a panel of 1,000 patients at an average fee-per-member-per-month of $10 will bring in $120,000 annually. There should be a 100% collection rate under a capitated system of reimbursement. Applying 40% to overhead leaves $72,000, and paying 15% for physician consultation and then 10% for employer profit, leaves $55,080 for the NP’s salary. An NP with a larger panel will make more.
Are These Projections Accurate?
One could argue about whether the percentages used here are correct. In fact, some practices have poor rates of collection, some practices have higher overhead expenses, and some physicians want more payment for consultation than the $9,780 per year for a 15-patient-per-day NP or the $15,649 per year for a 24-patient-per-day NP, and some employers want more profit than that which is projected here. However, a nurse practitioner should not be subsidizing a poorly run practice nor should he or she be overcompensating a physician or employer.
And, many practices receive more than $35 per NP visit, on average. In these practices, the NP’s salary should be proportionately higher.
Reported Median NP Salaries
Comparing these calculated NP salaries with some of the recently reported median salaries for NPs is an interesting exercise. Some large medical groups are using the Medical Group Management Association’s median salary data for 1995. As reported in the February 1997 issue of Clinicians Review, the median NP salary for 1995 was $49,200. The median primary care physician salary was $133,322. According to another 1995 salary survey, the median salary for an adult nurse practitioner was $49,143. These data come from Nurse Practitioner Support Services, as reported in the December 1996 issue of The Nurse Practitioner. Rumor has it that NP salaries are being driven downward by an oversupply of physicians. According to the rumor, physicians are willing to take such low salaries that hiring an NP is no longer cost-effective.
There is no evidence that anything like that is actually happening. Salaries for primary care physicians have continued to rise. Therefore, an NP at $50,000 to $70,000 is still a bargain, compared with a physician at $100,000 to $140,000. "NPs are half-price"! said one clinic director who hires NPs and physicians.
Embarking on a Salary Negotiation
An NP embarking on a salary negotiation needs to gather the following data from the employer:
- What is the most frequently billed CPT code for the practice? What amount does the practice bill and receive, on average, for that CPT code?
- What is the percent of practice income that goes to cover practice expenses? If the employer is not willing to reveal this information, ask how many providers share practice overhead expenses. A solo practitioner pays 43% of income for office expenses, whereas a group practice of 10 to 24 doctors pays 23.5% for office expenses. Armed with this information, determine the appropriate rate to deduct for practice expenses.
- What is the collection rate for the practice. Remember, 90% is good.
- How many patients is the NP expected to see per day?
After obtaining this information, the NP needs to make the following assessments about his or her speed and comfort level:
- How many patients can I see per hour, day, month, or year?
- How much physician consultation time will I need a 10-minute consultation on every patient, a 5-minute consultation once a day, or a 5-minute consultation once a week, or once a month, or once a year?
The "New" NP
What can a newly graduated NP without experience expect? A newly graduated NP may be able to see only 10 patients a day, with four or five 10-minute consultations with a physician per day for the first six months. Plugging in the figures as in the examples above, the NP will bill 2400 visits per year (two weeks vacation for the new grad) at $35 per visit to total $84,000 in accounts receivable. With a 90% collection rate, the new NP will bring in $75,600.
Deduct 40% for office expenses, which brings the net income to $45,360.
Because a new NP often requires significant consultation time with a physician or with an experienced NP, deduct 25% for payment for consultation, bringing the new NP’s salary down to $34,020. With a 10% contribution to employer profit, this new NP’s appropriate salary is down to $30,618.
After six months, when the same NP becomes more comfortable and more efficient, the income number should double, and consultation requirements should decrease, so that the appropriate salary would more closely approximate the salary of the 15-patient-per-day NP, and eventually the 24-patient-per-day NP, used in the examples above. Many employers start a new NP at a salary significantly higher than $30,618, expecting that low productivity in the first six months will be balanced by high productivity the second six months.
The Experienced NP
Experienced NPs who are seeing more than 15 patients per day at CPT code level 99213 or higher should be making at least $50,000 per year. If not, there are inefficiencies in the practice or the NP is not sharing in the profits. One final suggestion for NPs who think their salaries are too low. Show this article to employers and ask for feedback and let us know what you hear.
(Editor’s Note: This article "Negotiating Salary" by Carolyn Buppert was originally published in the July/August issue of NP World News. We received many favorable comments about the article and requests for reprints. For readers who missed the article in NP World News, we are reprinting it here.)
Link to NP Central Salary Data