physician compensation strategies - becker's … compensation strategies avoiding the pitfall...

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Physician Compensation Strategies

Avoiding the Pitfall of "Accidental Employment"

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Becker’s Hospital Review: Annual Meeting

Chicago, Illinois

May 2011

BJ Millar, Director

Physician Services Group

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Employing Physicians Does not have to feel like this!

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. . . or like this!

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. . . or like this!

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Our session today

Employment

Objectives

Compensation

Model

Appendix

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Our session today

Employment

Objectives

Compensation

Model

Appendix

The Physician-Hospital Enterprise

Personal & Organizational Objectives

Physician Leaders: “Catalysts”

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A Physician-Hospital Enterprise requires a new focus, a new culture, and a new organization to put the pieces together

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Starting with a clear definition enables focus and purpose

en·ter·prise Pronunciation: \en-tə(r)-prīz\

Function: noun

Etymology: Middle English, from Anglo-French, from entreprendre to undertake, from entre- inter- + prendre to take — more at prize

1: a project or undertaking that is especially difficult, complicated, or risky

2: readiness to engage in daring or difficult action

3: a unit of economic organization or activity

4: a systematic purposeful activity

Source: Merriam-Webster on-line dictionary; http://www.merriam-webster.com/dictionary/enterprise

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Compensation models need to meet personal and organizational objectives

Incentivize provider production

Advance cost management and operational efficiencies

Deliver quality patient care

Improve patient, staff, and provider satisfaction

Empower providers with control over their practices and their incomes

Reward “mission focused” activities: teaching, research, outreach, etc.

http://www.merriam-webster.com/dictionary/prize

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Physician Leaders - the “Catalyst” needed to accelerate the evolution of the Physician-Hospital Enterprise

Employed partner, stewardship mindset, change agent, outcome focus, shared risk, hospital is a strategic partner

Enterprise-minded, cross-trained, change agent, bold with peers and management, IT savvy, patient-focused

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Our session today

Employment

Objectives

Compensation

Model

Appendix

Characteristics

Components

Sustainability

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There are 4 primary characteristics of all good physician compensation models

Clear definition of requirements,

expectations

Understandable calculations, terms, and

methodologies.

Financially sustainable for hospital and

providers

Promotes recruitment and

retention of quality medical

staff

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Physician compensation models must address different areas of performance and expectations

Clinical Production

Quality NPP

Oversight Leadership Citizenship

Physician Compensation Package

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To be sustainable a compensation model must be based on sound financial principles

Considers Market Dynamics (FMV)

Risk-Reward Based

Allows for Renegotiation

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Our session today

Employment

Objectives

Compensation

Model

Appendix

Characteristics

Components

Sustainability

The Physician-Hospital Enterprise

Personal & Organizational Objectives

Physician Leaders: “Catalysts”

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Our session today

Employment

Objectives

Compensation

Model

Appendix

Compensation Models

Benchmark Sources

Sample Tools

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Physician Compensation Models

1. Straight Salary

2. Guaranteed Base plus Production Incentive (Charges)

3. Guaranteed Base plus Production Incentive (WRVU)

4. Base Salary Draw plus Production Incentive (Pure Production)

5. Tiered Production (WRVUs, Charges, Net Revenue)

6. Direct linkage to market data

7. Compensation Model with Other Bonus Consideration (Quality, Patient Satisfaction, etc.)

Descriptions and examples of each included in handouts

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1. Straight Salary

Physician Compensation Scenario: 1. Straight Salary

Specialty: General Surgery Notes:

Salary 320,000$ Guarantee set at MGMA National Median, with no adjustments

Benefits % 16.5%

Benefits 52,800$

Total Comp & Benefits 372,800$

Benefits:

Straight Salary plans can be valuable when recruiting candidates for high demand, specialty positions, or for areas where collections are not sufficient to meet salary requirements.

Challenges:

Can create a disincentive for physicians to be productive and offers no remedy to address under production on a regular or formula-driven basis.

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2. Guaranteed Base plus Production (Charges)

Physician Compensation Scenario: 2. Base Salary plus Production Incentive (Charges)


Base Salary 320,000$ Negotiated at time of contract and defined in the agreement

Expected GPC 1,161,000$ Expected level of Gross Patient Charges defined in the agreement

Bonus Multiplier 32.5% Negotiated at time of contract and defined in the agreement

Example:

Annual GPC 1,300,000$

GPC over Expected 139,000$ Equal to Actual GPC minus Expected GPC

Production Bonus 45,175$ Bonus Multiplier times GPB over Expected

Base Salary 320,000$

Production Bonus 45,175$

Benefits 52,800$ Usually set at a fixed amount calculated from hospital benefits

package and MGMA Median Compensation


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2. Guaranteed Base plus Production (Charges)

Benefits:

Using Gross Charges as the basis for physician compensation addresses the candidate’s concerns regarding the hospital’s ability to collect at rates similar to those achieved by private practices. This is particularly the case with specialty services and where hospital collection policies differ from those used in private practice.

Challenges:

Gross Patient Charges can be inflated by regular Fee Schedule increases and may not reflect the hospital’s ability to collect on those charges. If the majority of managed care contracts are paid on a Percent-of-Charges basis, the risk is lower; but where payments are determined by an Approved-Fee or Allowable-Amount, the level of collections will not match the physician compensation.

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3. Guaranteed Base plus Production (WRVU)

Physician Compensation Scenario: 3. Base Salary plus Production Incentive (WRVUs)



Expected WRVUs 6,895 Expected level of WRVUs defined in the agreement

Bonus Multiplier* 34.81$ Negotiated at time of contract and defined in the agreement

for this example 75% of Median was used.

(*Risk adjusted to reflect level of guaranteed base salary)

Example:

Annual WRVUs 8,358

WRVUs over Expected 1,463 Equal to Actual WRVUs minus Expected WRVUs

Production Bonus 50,927$ Bonus Multiplier times WRVUs over Expected

Base Salary 320,000$

Production Bonus 50,927$




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3. Guaranteed Base plus Production (WRVU)

Benefits:

The most significant benefit to the WRVU methodology is that it takes into account the severity and acuity of the work being performed by the physician and provides a sound basis for measuring true clinical production. This method works equally well across specialties and provides a foundation for calculating production-based compensation that is comparable to national benchmarks as well as local market data.

Challenges:

One challenge in using this method is the possible exposure to the hospital to changes in RVU valuations for certain procedures and/or dramatic shifts in reimbursement per RVU from government and private payers. Contracts based on WRVU production calculations should also have a clause that allow the hospital to renegotiate the expected levels of production and the WRVU multiplier if significant regulatory or reimbursement changes take place.

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4. Draw plus Pure Production (WRVU)

Physician Compensation Scenario: 4. Pure Production - Base Salary Draw Against Production Incentive (WRVUs)


Salary Draw 240,000$ Monthly Draw of $20,000 based on 80% of median as defined in the

agreement

Expected WRVUs 6,895 Expected level of WRVUs defined in the agreement

Production Multiplier 46.41$ Negotiated at time of contract and defined in the agreement at full

risk generally assumed to be 100% of MGMA Median

Example:

Annual WRVUs 9,100

Production Multiplier 46 Equal to Actual WRVUs minus Expected WRVUs

Production Compensation 422,335$ Bonus Multiplier times WRVUs over Expected

Salary Draw 240,000$

Reconciliation 182,335$




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4. Draw plus Pure Production (WRVU)

Benefits:

The primary benefit of this model to the hospital is the shared risk of the physician relative to his or her production. For the provider, the benefit is a higher WRVU multiplier and full control over the his or her ability to increase earnings.

Challenges:

This is a difficult model to use to recruit and retain physicians. The provider has no guaranteed minimum salary and takes almost as much risk as he or she would in a private practice setting.

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5. Tiered Production

Physician Compensation Scenario: 5. Tiered Production (WRVU, Charges)



(example is 80% of MGMA median)

Expected WRVUs 5,519 Expected level of Gross Patient Charges defined in the agreement

0 to 5,519 WRVUs* 46.39$ Negotiated at time of contract and defined in the agreement

(*Risk adjusted to reflect level of guaranteed base salary)

Production Tiers

5,520 to 6,519 WRVUs 48.70$ Negotiate at time of contract (example 105% of median)

6,520 to 7,519 WRVUs 51.02$ Negotiate at time of contract (example 110% of median)

7,520 or more WRVUs 53.34$ Negotiate at time of contract (example 115% of median)

Example:

Annual WRVUs 8,358

Base Compensation 256,000$ Equals 5,519 WRVUs x $46.39 per

Tier 1 Compensation 48,700$ Equals 1,000 WRVUs x $48.70 per

Tier 2 Compensation 51,020$ Equals 1,000 WRVUs x $51.02 per

Teir 3 Compensation 44,752$ Equals 839 WRVUs x $53.34 per

Base Compensation 256,000$

Combined Tier Comp 144,472$




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5. Tiered Production

Benefits:

The clear benefit of this type of plan is the incentive it provides for a physician to be highly productive. Under this model, a provider becomes very focused on the activities that yield increased productivity and the hospital benefits from motivated and focused employed physician.

Challenges:

Tiered models are subject to the same risks as the Base Salary plus Production Bonus and the Pure-Production models. They may be impacted by changes in RVU reimbursement methodologies and they also may place the physicians at risks similar to private practice with no guaranteed salary.

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6. Direct Linkage to Market Data

Physician Compensation Scenario: 6. Direct Linkage to Market Data


WRVU Production 8,358 Actual production calculated from physician billing data

MGMA percentiles by Specialty

Comp per WRVU

RatioWRVUs

25th %tile 41.13 5,565

30th %tile 42.83 5,902

35th %tile 44.72 6,217

40th %tile 46.15 6,469

45th %tile 48.00 6,729

50th %tile 49.25 6,893

55th %tile 51.02 7,206

60th %tile 52.47 7,525

65th %tile 54.46 7,859

70th %tile 56.67 8,202

75th %tile 59.94 8,703

Direct Link Salary 473,631$ WRVU Production times 70th percentile ratio - $56.67




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6. Direct Linkage to Market Data

Benefits:

This type of plan is easily explained and readily executed based on national survey data. It provides a model in which providers can measure their performance directly against their peers and model their practice patterns accordingly.

Challenges:

The biggest challenge with this model (actually a WARNING), is that compensation and production do not directly correlate in the survey. In other words, median compensation per unit is not necessarily equal to median production divided by median compensation. Therefore, systems using the Direct Linkage method to compensation per unit ratios, may in fact end up paying more than median compensation for median production. Instead of directly linking to the compensation per unit values, a system would be much better off to calculate the dollar amount per work value from the survey components themselves.

See handout for example of “calculated” dollar per WRVU ratios

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7. “Other” Bonus Considerations

Physician Compensation Scenario: 8. Other Bonus Consideration (Quality, Patient Satisfaction, etc.)

Quality Measures

These areas may be tied directly to Core Measures or based on

marekt/ facility level initiatives

Benchmarks are often times stipulated by Specialty Associations

Each of these areas is negotiated with the provider and included in

the agreement. Fulfimment of each may be determined by survey,

interview, or subjectively.

Program Development

In this example physician is eligible for a bonus of $10,000 based on

Principles of Practice Leadership in four categories

Each of these areas is negotiated with the provider and included in

the agreement. Fulfimment of each may be determined by survey,

interview, or subjectively.

A percentage of base salary or a predetermined amount, such as

$10,000 may be set up to reward high satisfaction scores from both

patients, collegues, and referring physicians

An amount may be identified to reward the achievement of specific

operational goals or imperatives

Areas are defined with the provider and included in the agreement.

These may be short or long-term objectives and may change from

year to year.

Other Quality & Operational Areas

EMR implementation & usage

Documentation & Coding

Mid-level Supervision

Customer Satisfaction (40%)

Cost Control (30%)

Clinical Focus (20%)

Satisfaction: Patient and Peers

Patient Satisfaction

Citizenship (collegue satisfaction)

Referring Physician Satisfaction

Identify area(s) of focus for quality.

Stipulate benchmarks for each quality

measure to receive bonus.

Level of bonus may be tied to

completion of one or all benchmarks and

paid out on a percentage basis.

Practice Leadership

Collaboration/Leadership (10%)

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Benchmarks are the starting point

Benchmark and Survey Sources:

MGMA Physician Compensation and Productivity (annual)

MGMA Cost Survey (annual)

AMGA Medical Group Compensation and Financial (annual)

Sullivan Cotter Physician Compensation and Production (annual)

Merritt-Hawkins Profiles

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QHR Benchmark Tools (MGMA)

MGMA Specialty Profile

Internal Medicine: General <----Use Drop Down Menu

2009 Data / 2010 Survey Report

MGMA Physician Compensation & Production Survey 2010 - Per Physician FTE

Internal Medicine: General Mean 25th %tile Median 75th %tile 90th %tile

Weeks Worked per Year 46.83 46.00 47.00 48.00 48.00

Ambulatory Encounters 3,533.24 2,590.00 3,414.00 4,344.00 5,304.80

Hospital Encounters 665.87 134.00 463.50 933.75 1,624.90

Physician Work RVUs (CMS RBRVS Method) 5,042.39 3,878.37 4,805.79 5,843.81 7,213.50

Physician Total RVUs (CMS RBRVS Method) 9,262.91 7,050.31 8,857.25 10,724.61 13,391.55

Gross Charges (TC/NPP) excluded $636,948.48 $451,679.65 $594,410.98 $766,493.75 $960,361.63

Physician Collection for Professional Charges (TC/NPP) excluded $388,080.33 $286,241.21 $366,622.14 $468,382.54 $575,809.40

Compensation (Over 1 Year in Specialty) $214,905.78 $160,731.25 $197,079.50 $250,000.00 $316,038.00

Physician Compensation per Total RVU (CMS RBVS Method) $25.45 $19.95 $23.89 $28.60 $35.52

Physician Compensation per Total RVU (Calculated) $23.20 $22.80 $22.25 $23.31 $23.60

Physician Compensation per Work RVU (Calculated $42.62 $41.44 $41.01 $42.78 $43.81

Physician Work RVUs to Total Encounters Ratio (CMS RBRVS Method)(NPP Excluded) 1.42 1.17 1.30 1.47 1.76

Physician Work RVUs to Total Encounters Ratio (Calculated)(NPP Excluded) 1.20 1.42 1.24 1.11 1.04

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QHR Placement Salary Survey Tool (MGMA)

Specialty Neurology

First-Year Post-Residency or

Fellowshipweight Median Comp Weighted Comp

Table_1 All Respondents 35.0% 6 $218,334 $76,417 2 82

Table_2 Single Specialty 0.0% 5 $200,000 $0 2 3

Table_3 Hospital/ISD Owned 25.0% 5 $240,000 $60,000 2 26

Table_4 Southern Region 15.0% 7 $242,500 $36,375 6 20

Table_5 HHS Region 4 0.0% 9 $218,500 $0 8 16

Table_6 Non-metropolitan 15.0% 3 $223,200 $33,480 2 12

Table_7 Years of experience 10.0% 3 * 2 4

Table_8 AMG 0.0% 3 $225,000 $0 2 50

Table_8 IMG 0.0% 5 $211,000 $0 4 20

Table_9 Male 0.0% 3 $225,000 $0 2 58

Table_9 Female 0.0% 5 $211,000 $0 4 24

100% $206,272

2010 Report Based on 2009 Data, Medical Group Management Association.

First-Year Post-Residency or

Fellowshipweight Benefits

Weighted

Benefits

Table_10 Signing Bonus 100.0% 6 $20,000 $20,000 2 35

Table_11 Paid Relocation 100.0% 6 $10,000 $10,000 2 36

Table_12 Paid Vacation (in weeks) 0.0% 6 5.00 2 51

Table_13 Paid Time for CME (in weeks) 0.0% 6 2.00 2 47

$30,000

2010 Report Based on 2009 Data, Medical Group Management Association.

All Physicians First-Year Compensation in a New Practice Estimate: Using MGMA 2010 Physician

Placement Starting Salary Survey

Survey

Participants

Survey

Participants

QHR Physician Compensation Model development tool

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NMC 3-Tier Physician Compensation Modeling Tool - Production BasedNotes: MGMA Specialty (Prod & Comp Survey 2010)

Provider Name: Beattie, Robert Orthopedic Surgery: General

Specialty Orthopedic Surgery: General If MGMA Specilaty box is RED

Year Employed 2011 Please select correct specialty

FTE Status 1.0

Base Comp 675,000

Annualized WRVUs -

Base Comp / Annualized WRVUs -

FULL Guarantee - No Physician Risk

Specialty: Orthopedic Surgery: General Notes: Model Variables

Guaranteed Base Source:

Base Salary 675,000 Guaranteed minimum of first-years salary Percent of Base Source: 100%

Expected WRVUs 13,610 Expected level of WRVUs at MGMA Comp/Median

WRVU x Market Dynamic Variable of 85%Market Dynamic Variable: 85%

Bonus Multiplier* 24.80 Risk Adjusted Multiplier = 50% of Market Adjusted

Comp per WRVU. Multiplier Percentage 50%

WRVU Source:

Annual WRVUs 8,120 100% of MGMA 50th Percentile Percent of WRVU Source 100%

WRVUs over Expected (5,490) Equal to Actual WRVUs minus Expected WRVUs

Production Bonus - Bonus Multiplier times WRVUs over Expected

Base Salary 675,000

Production Bonus -

142% of MGMA 2010 Median Compensation MGMA Median Compensation 473,770

Total Salary & Bonus 675,000 135% of AMGA 2010 Median Compensation AMGA Median Compensation 500,672

152% of Sullivan Cotter 2010 Median Compensation Sullivan Cotter Median Comp 443,990

Prior Year's Base Comp

MGMA 50th Percentile

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B.J. Millar, Director Physician Services Group

[email protected]

Cell phone: (801) 455-6092

Contact Information

physician compensation strategies - becker's … compensation strategies avoiding the pitfall...

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