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Physician Compensation Plans Are Changing

by Jim White on March 4, 2016

One of the questions we are asked on a regular basis is whether or not a practice’s compensation plan is “fair” and incentivizes each physician. I usually respond with another question, “What are you trying to incentivize?” The answers I receive usually are related to a perceived deficiency in a certain physician in the practice. The question is often asked by either a more senior higher producing physician in the practice or the practice administrator. Common answers are:

  • Increase production
  • Increase profits
  • Finish chart documentation timely
  • Reach out to referring physicians
  • Use more of our ancillaries (be careful of Stark issues)
  • Follow practice procedures
  • Take more or less call

We then would work to add a component to the compensation plan which would account for any of these additional factors. But is just tweaking your current model enough?

Quick History of Physician Compensation Models 

In the days of solo practices all physicians by default had an “eat what you kill” compensation model in that the physician took home whatever was left after the rent, electric bill and the employees were paid. Practices with two to four physicians often had a similar model but with certain “settle-up” items to adjust for differences in CME, entertainment or a fancier car.

Sometimes they shared things equally (the “socialist” model) but most often had some form of productivity model.

As practices merged during the ‘90s and accounting software allowed for easier ways to allocate and track revenues and expenses, more elaborate models were developed to incentivize the higher producing physicians while allowing those who wanted a “better quality of life”—the ability to work less and make less. Allocating fixed and variable expense as well as directly allocable expenses became easy.

But has your compensation model kept up with recent trends? Have you reviewed how your practice makes money and aligned your compensation plan with these newer payment models? Payers such as Medicare, Florida Blue and United are no longer just paying providers for procedures. Hospitals and Accountable Care Organizations (ACOs) are on the forefront of these changes. Understanding how healthcare systems and Accountable Care Organizations are determining physician pay will be essential for physicians to make educated decisions regarding their future.

Evaluating Physician Compensation Models

Health care systems and ACOs are transitioning traditional fee-for-service (FFS) compensation systems to value-based, pay-for-performance programs, shared savings and compensation plans, global or bundled payments, episode-of- care reimbursement and quality compensation plans. This doesn’t mean that FFS and collections are not a part of the compensation model.

Just that other factors are being added to the compensation plans. When evaluating a compensation system, physicians should ask the following questions:

  1. If separate services are bundled into an episode for a single payment, how will physicians be compensated for their portion?
  2. What compensation incentives are present for improved quality, better care coordination and outcomes?
  3. Are there withholds or disincentive features?
  4. What is the degree of risk that a physician has and how does this affect compensation?
  5. What percent of base compensation is based on quality factors?
  6. Is compensation based on obtaining all or none of the incentive amount?
  7. Is the compensation system based on work relative value units (wRVUs)?

Leveraging a Competitive Compensation Model Based on Work Relative Value Units (wRVUs) 

Many ACOs and health care systems have found that implementing a model based on wRVUs is advantageous to both the system and the physician. A wRVU-based model is closely tied to market rates and allows physicians to easily understand how the model is being applied. In addition, a wRVU-based model provides independent physicians with the ability to compare their current compensation with the compensation offered by an ACO or health care system. 

Do you have the data?

If your practice isn’t tracking the same data that is being used by Medicare and insurance payers your practice will be at a disadvantage.

  • Are you tracking patient quality?
  • Do you perform patient satisfaction surveys?
  • Do you research which facility for your procedures has the lowest cost and highest quality?
  • Do your patients have better outcomes and shorter hospital stays than the competition?
  • If you refer patients to another provider, how do that provider’s cost and quality measures stack up?
  • Do you prescribe lower cost prescriptions?
  • Do you track the of outcomes coordinated patient care?

The payers are using this type of information plus many other metrics when evaluating your practice’s contract rates or even whether to retain your practice in a network. Not only should the practice be reviewing statistical data and how the practice compares to its competitors but it should incentivize physicians to maximize your scores when contracting with payers.

If you haven’t reviewed your compensation plan in a while maybe it is time to take a fresh look. There is not a perfect system and what works for one practice in a specialty may not work for yours. By not reviewing the compensation system you may be putting your practice at a disadvantage in recruiting, succession planning, contracting and ultimately profitability.

By Jim White, CPA

 

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