Question: Physicians practicing in eastern university’s hospital have the following compensation agreement. Each doctor bills the patient or insurance 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 (eg $100,000) for patient fees collected over the salary target, less expenses; the doctor retains 30% of the additional net fees. For example if $150,000is billed and collected from patients and expenses of $40,000 are paid then the doctor retains $3000 of the excess net fees (30% of 150,000- $40,000- $100,000) and eastern university receives $7000. If $120,000 if 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.

a. Critically evaluate the existing compensation plan and recommend any changes.