hot topics in physician compensation

#AICPAhealth

Hot Topics in Physician CompensationCarol Carden CPA/ABV, ASA, CFEPershing Yoakley & AssociatesNovember 12, 2015

American Institute of CPAs #AICPAhealth

Bio Slide

Carol Carden is a Principal with PYA, and provides business valuation and related consulting services to a wide variety of business organizations, primarily in the healthcare industry. Ms. Carden’s primary areas of expertise are in finance, valuation, and managed care. She has performed appraisals of businesses and securities for a wide variety of purposes such as mergers, acquisitions, joint ventures, management service agreements, and other intangible assets. She is also a nationally recognized speaker and writer on healthcare valuation topics. In addition to being a Certified Public Accountant, she also has earned the Accredited in Business Valuation (ABV) credential from the American Institute of Certified Public Accountants, the Accredited Senior Appraiser (ASA) credential from the American Society of Appraisers, and the Certified Fraud Examiner (CFE) credential from the Association of Certified Fraud Examiners. She is the Chair of the Executive Committee for Forensic and Valuation Services and former Chair of the Business Valuation Committee for the AICPA, was Chair of the 2010 National AICPA Business Valuation Conference, and was on the planning committee for the 2011 AICPA National Healthcare Conference. She was inducted into the Business Valuation Hall of Fame of the AICPA in 2013.


Agenda

Stacking Considerations

The Role of Quality

Incentives

Affiliation Models

Population Health

Initiatives


Compensation Stacking


Employment Models

Common elements include: Base compensation Productivity threshold – many times based on work relative value unit

(“wRVU”) level Incentive compensation for productivity Incentive compensation for quality outcomes Sign on or retention bonus Compensation for excess call coverage Compensation for supervision services Administrative compensation

Hospitals and other organizations continue to utilize complex compensation models, often with multiple layers of compensation for multiple services sometimes referred to

as “stacking”


Regulatory Guidance

Bear in mind that Stark II Phase III specifies that you can pay for both clinical and

administrative services, but the rate paid for clinical services should be appropriate and

the rate paid for administrative services should be appropriate. These may or may

not be the same rates of pay.


Assessing the Risk

• More moving parts

• Higher total compensation

• Ensuring the correct benchmarks are considered

• Assessing each part and the whole package

How risky is this agreement?

=


Sources of Data

MGMA, Clinical compensation, medical director & call surveys

Sullivan Cotter, Clinical & administrative compensation and call surveys

AMGA, Clinical and administrative compensation

HHCS, Clinical and administrative compensation

Towers Watson, Clinical and administrative compensation

Niche surveys like anesthesia, trauma, academic compensation

And others…..choices galore!


Commercial Reasonableness

Department of Health and Human Services Definition1

• An arrangement which appears to be “a sensible, prudent business agreement, from the perspective of the particular parties involved, even in the absence of any potential referrals.”

Stark Definition2

• “An arrangement will be considered ‘commercially reasonable’ in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty, even if there were no potential designated health services (“DHS”) referrals.”

OIG Threshold 3

• Compensation arrangements with physicians should be “reasonable and necessary.”

1 63 Fed. Reg. 1700 (Jan. 9, 1998).2 69 Fed. Reg. 16093 (March 26, 2004).3 “OIG Compliance Program For Individual and Small Group Physician Practices,” Notice, 65 Fed. Reg. 59434 (Oct. 5, 2000); OIG Advisory Opinion No. 07-10, September 20, 2007, pg. 6, 10; “OIG Supplemental Compliance Program Guidance for Hospitals,” Notice, 70 Fed. Reg. 4858 (Jan. 31, 2005).


Factors in Determining CR

Business Purpose

Provider Analysis

Facility Analysis

Resource Analysis

Independence & Oversight

Commercial

Reasonableness

Determination


Quality Incentives


What Models Are Being Used?

0%

1%-24%

25%-49%

50%-74%

75%-99%

100%

21%

12%

10%

11%

14%

32%

Percent Employed Physician Staff with Portion of Compensation at

Risk?

Perc

ent a

t Ris

k

Source: HealthLeaders Media Physician Alignment Survey 2014

Old Models:• Straight Production

(wRVUs)• Guaranteed Salary

New Models:• Quality Incentives• Panel Management


Clear Trend: Some Portion of Physician Compensation “At Risk”

HealthLeaders Media, Physician Alignment: New Leadership Models for Integration, September 2014

57% of respondents currently have at least 50% of

their employed physicians with some portion of compensation at risk

81% of respondents expect to have at least 50% of their employed physicians with some portion of

compensation at risk within 3 years


Organizations’ Dominant Physician Compensation Model

HealthLeaders Media, Physician Alignment: New Leadership Models for Integration, September 2014

Of Note…• PYA’s experience and

observations mirror the shift indicated in these findings.

• PYA also observed a shift from models that only incorporate these elements as a “bonus” to standard pay, to those that place these components at risk (possible withhold) offset by the upside potential to earn above historical compensation levels.

58%Respondents using work RVU plus incentive

25%Respondents using work RVU only


Physician Incentive Payment Survey What does your organization use to guide the payment of physician incentives?

HealthLeaders Media, Physician Compensation: Shifting Incentives, October 2011

Referrals

Chart Completion

Participation in Administrative Duties

Patient Satisfaction Scores

Quality Metrics

Productivity Measures

0% 10% 20% 30% 40% 50% 60% 70% 80%

4%

23%

7%

50%

57%

75%


Inclusion of Quality Incentives

Source: Sullivan, Cotter and Associates, Inc. 2012 Physician Compensation and Productivity Survey.

About one-half (49%) of organizations incorporate non-productivity measures in incentive compensation plans.

Patien

t Sati

sfacti

on

Patien

t Safe

ty

Care C

oordi

natio

n0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

60%

30%23%

83%

39%35%

Primary Care Providers Specialists

Perc

enta

ge o

f Org

aniz

atio

ns U

sing

Typ

e of

Q

ualit

y In

cent

ive


$180$160

$120

$20 $25

$35

$25 $85

Quality Incen-tive

Capitation or Episode Based

Productivity-based

CURRENT NEAR TERM LONGER TERM

A Balancing Act Compensation Stacking(in 000’s)

Compensation only increases if quality

improves


Physician Value Modifier – 2017 Quality Tiering

Low Quality Average Quality High Quality

Low Cost 0.0% +2.0x* +4.0x*

Average Cost -2.0% 0.0% +2.0x*

High Cost -4.0% -2.0% 0.0%*Eligible for an additional +1.0x if reporting clinical data for quality measures and average beneficiary risk score in the top 25% of all beneficiary risk scores.

Based on 2015 Performance


Here to Stay

“Our goal is to have 85% of all Medicare fee-for-service payments tied to quality or value by 2016, and 90% by 2018.”

“Our target is to have 30% of Medicare payments tied to quality or value through alternative payment models by the end of 2016, and 50% of payments by the end of 2018.”

Source: HHS Secretary Sylvia Burwell (January 30, 2015)


Affiliation Models


Trends in Merger & Acquisition Activity• Still a fairly active trend

• Involves primary care and specialty practices

• Generally only paying for tangible assets unless large practice

• Post-transaction compensation is a key assumption

• Generally involves ancillary service lines like ASCs and imaging

• Likelihood of cash distribution is a key driver• Many are structured as pass-through entities,

so this becomes an important component of the valuation

Hospital Acquisition of

Physician Practices

Hospital/ Physician

Joint Ventures

Physician Management Agreements

Still see new and renewed clinical co-management agreements

Bundled payment for care improvement (BPCI) is becoming more commonplace and likely to continue expanding if Comprehensive Care for Joint Replacement (CCJR) is approved

Increasingly seeing gainsharing arrangements being pursued


Other Physician Affiliation Models

New employment and renewals of existing employment agreements

Physician leasing arrangements – not as common

Professional Services Agreements (PSA) as an alternative to employment, sometimes referred to as synthetic employment. Popular in states with corporate practice of medicine prohibitions.


Population Health


Key Healthcare Reform Provisions

Bundled Payments

Value-Based Purchasing

Accountable Care Organizations

Clinically-Integrated Networks


Levels of Fund Distribution


Key Assumption

The hospital/health system is the Provider of Record on the APM

Shared Savings Distribution Considerations

Shared Savings for Distribution

Infrastructure/ROIto Hospital Operations

0% 100%

Increasing Decreasing• Downside/Two-Sided Risk• Total Compensation At Risk• Capitation Reimbursement• Additional Duties Required• Outcomes/Quality Thresholds• Primary Care Physicians

• Guaranteed Base Salary

• FFS Reimbursement

• Process Thresholds

GUARDRAILX% above

Compensation per wRVU in a Traditional

FFS environment

The Risk Continuum:

GUIDING PHILOSOPHYDistributions should be

proportional to a provider’s effort

Physician Providers and Others


Compensation Guardrail Example

Example Compensation per wRVU Using 25% above Traditional FFS

Specialty MGMA Median125% MGMA

Median Hospital (Actual)Primary Care

Internal Medicine $51.06 $63.83

Family Practice $46.50 $58.13(Actual

Compensation (before Shared

Savings Distributions)÷

Actual wRVUs) x

125%

OR


Shared Savings Plan Design Considerations

0% - 15% 50% - 80% 0% - 25%

Participation Outcomes/Quality EfficiencyExamples:• Minimum meeting

attendance• Minimum reporting

requirements• Good citizenship• Plan/contract

evaluations

All Outcomes/Quality metrics must be achievedWeighted Outcome/Quality metrics with minimum threshold (3 of 5)

Equal Weighted Average Outcome/Quality metrics with minimum threshold (3 of 5)

Weighted Outcome/Quality metrics with no minimum threshold (1 of 5)

Must achieve all Outcome/ Quality metrics to receive

Must achieve a portion of Outcome/Quality metrics

No efficiency payment if minimum Outcome/Quality metrics not achieved.

#AICPAhealth


Contact Information

Carol Carden, CPA/ABV, ASAPershing Yoakley & Associates, P.C.

(800) 270-9629

[email protected]://twitter.com/carolcardenpya