Physician Compensation: The Solution

Is in the Process

HFMA Gulf Coast Luncheon Meeting

June 17, 2016

Agenda

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Key Discuss ion Points

» What key industry trends are currently affecting physician compensation dynamics across the industry?

» What is the “best” approach or solution to physician compensation in the new healthcare landscape?

» How can organizations change physician compensation to mirror the value-based provider model?

» What related issues should progressive organizations be thinking about?

Meet ing Agenda I. Introduction

II. Audience Poll

III. Key Market Trends

IV. Process Considerations

V. Aspirational Plan Characteristics

VI. Q&A

Desi red Outcomes for Par t ic ipants

» Gain critical national survey insights on provider performance market trends, including compensation, production, and

benefits.

» Understand emerging compensation plans that mirror value-based reimbursement strategies.

» Apply learnings and processes for designing compensation plans in the context of the value-based world.

Why Are We Here?

For more than 40 years, ECG’s mission has been to provide exceptional

management consulting services exclusively to healthcare clients.

» ECG is a national consulting firm focused on offering strategic, management, and

financial advice to healthcare providers.

» We are particularly known for our expertise in strategy, hospital/physician

relationships, business planning, and program development.

» We focus on creating customized, implementable solutions to meet our clients’

specific challenges in both community-based and academic settings.

» We have approximately 200 consultants nationwide.

I. Introduction Firm Overview

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I. Introduction Our Compensation Planning Qualifications

» In addition, physician compensation issues

are at the forefront of all the

hospital/physician transactions we lead,

which means we address physician

compensation issues in the context of nearly

every project.

» For more than 15 years, we have conducted

proprietary compensation and

production surveys, notably our annual

National Provider Compensation Survey.

» ECG maintains a robust valuation practice,

which helps ensure compensation planning

approaches are aligned with evolving fair

market value and commercial reasonabless

principles.

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Since 2000, we have worked with more than 300 clients on 500-plus projects related

to provider compensation planning.

» We believe that provider compensation plans are an

expression of an organization’s culture and values.

» We do not believe there is a single “best” compensation

formula.

» Creating a plan that fits the environment and culture in

which you operate is the most critical component to

achieving buy-in and using the compensation plan to

support your other business objectives.

» Because of this, we believe that the planning process

is as important as the eventual compensation

philosophy and plan elements.

I. Introduction Our Compensation Planning Philosophy

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Our Compensation Planning Philosophy

At its best, compensation is a strategic enabler

of an organization’s mission, vision, and

values. At its worst, it can present significant

cultural, economic, and legal risks.

Compensation is not a “Swiss Army knife” or a panacea. It cannot solve

organizational problems in isolation. Rather, it must connect to a larger strategic

plan.

I. Introduction Keeping Perspective

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Physician

Leadership/

Governance

Practice

Management

Revenue Cycle

Performance

IT

(e.g., EMR)

Compensation

Plan

Patient Access

and Scheduling

Performance Monitoring

(Data-Driven)

Clinical

Integration

Integrated Physician Network

II. Audience Poll Why Are You Here?

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I never deal with physician

compensated issues but would like to

keep abreast of industry trends.

I occasionally deal with physician

compensation issues.

I routinely deal with physician

compensation issues as part of my

job responsibilities.

Which of the following best describes you?

Is anyone currently in the middle of (or

considering starting) a compensation redesign

process?

III. Key Market Trends ECG Survey Overview

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Select List of 2015 Members

» Baylor College of Medicine

» Beaumont Health

Physician Partners/

Beaumont Medical Group

» Carle Physician Group

» Catholic Health Initiatives

» DuPage Medical Group

» The Everett Clinic

» Group Health Permanente

» HCA Healthcare

» The Iowa Clinic

» Memorial Health System

» Northwest Permanente

» Palo Alto Medical

Foundation

» PeaceHealth Medical

Group

» Providence Medical

Group

» Scott & White Clinic

» SIU HealthCare

» Springfield Clinic

» Straub Clinic & Hospital

» Sutter Pacific Medical

Foundation

» UnityPoint Clinic

» University of Rochester

Medical Center

» University of Wisconsin

Medical Foundation

» Vanderbilt University

Medical Center

» Wake Forest Baptist Health

» Warren Clinic

Locations of 2015 Members

ECG’s national compensation, production, and benefits surveys include over

110 premier provider organizations from across the country, encompassing data

from more than 32,000 providers.

Adult Pediatric

III. Key Market Trends At-Risk Compensation Declining

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The majority of physicians are compensated under variable-based compensation

plans; however, we have seen a reduction in the variable component of

compensation across the board.

Percentage of Physicians by Compensation Plan Type

Source: ECG 2010 to 2015 Physician Compensation Surveys.

The data above is likely a reflection of many

factors, including the on-boarding of new

physicians with a base salary component and

the accelerating employment of

hospital-based specialists.

17.6%

69.5%

12.9% 18.3%

69.7%

12.0%

24.2%

64.3%

11.5%

30.8%

55.9%

13.4%

39.0% 43.1%

17.9%

50.0%

29.5%

20.4%

0%

20%

40%

60%

80%

Variable With Less Than 50% at Risk Variable With More Than 50% at Risk Straight Salary

2010 Survey 2011 Survey 2012 Survey 2013 Survey 2014 Survey 2015 Survey

III. Key Market Trends Utilization of Nonproductivity Incentives Increasing

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WRVUs remain the most common measure within incentive plans, and quality is

also measured by more than half of the survey members. Additionally, incentivizing

patient satisfaction is becoming prevalent within physician compensation plans.

Source: ECG 2011 to 2015 Physician Compensation Surveys.

Compensation Plan Key Performance Indicators

Percentage of Organizations

Attribute 2011 2012 2013 2014 2015

WRVUs 76% 81% 74% 88% 78%

Quality 27% 37% 52% 54% 57%

Patient Satisfaction 20% 33% 29% 38% 43%

Provider Profitability 14% 23% 26% 13% 13%

Net Professional

Collections

24% 21% 23% 13% 4%

Organization Profitability 14% 19% 10% 8% 9%

Panel Size N/A N/A 10% 4% N/A

III. Key Market Trends Use of Quality Compensation by Specialty Category

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PCPs earned 6.3% of total compensation from quality incentives in 2015, while

specialists, as a whole, earned 6.5% for quality incentives. Quality compensation is

gaining traction within compensation plans, but at a slow pace.

Specialty Category

Percentage of Total

Compensation Dependent

on Quality (Average)1

PCPs 6.3%

Medical Physicians 6.7%

Surgical Physicians 6.9%

Hospital-Based Physicians 6.0%

APCs 4.9%

1 Average represents organizations that utilize the indicator within their compensation plan.

Source: ECG 2015 Physician Compensation Survey.

Quality Compensation by Specialty Category

Clinical quality compensation by specialty is

available in ECG’s National Provider

Compensation Survey.

Median Primary Care Compensation and WRVU Trends From 2008 to 2014

Median Specialist Compensation and WRVU Trends From 2008 to 2014

Healthcare systems

employing

physicians are

discovering a

widening

disconnect between

compensation and

fundamental

practice economics.

Source: ECG 2008 to 2014 Physician Compensation Surveys.

III. Key Market Trends Disconnect Between Compensation and WRVU Production

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III. Key Market Trends Reimbursement Trends — At-Risk Revenue

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Source: ECG 2013 to 2015 Physician Compensation Surveys.

Percentage of Gross Revenue at Risk

Percentage of Organizations

Percentage of Organizations 2013 2014 2015

<10% of Revenue at Risk 79% 82% 76%

10% to 25% at Risk 15% 6% 6%

26% to 50% at Risk 6% 6% 18%

>50% at Risk 0% 6% 0%

While more organizations are entering into risk-based contracting arrangements,

nearly 80% still have less than 10% of their gross revenue at risk.

The trend toward more revenue being

generated from risk-based contracting

arrangements is likely to continue with new

CMS mandates.

III. Key Market Trends Increased Physician Investments

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Higher provider compensation and lower production, coupled with downward

pressure on reimbursement, have resulted in significant investments for health

system–sponsored organizations in the physician enterprise over the last 6 years.

Integrated Health System Investment/(Loss) Per Physician

Source: ECG 2010 to 2015 Physician Compensation Surveys.

-$138,724 -$148,791 -$148,025

-$181,407 -$181,963

-$194,266

-29.7% -33.2%

-28.3% -28.3%

-34.2% -31.5%

-100%

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

$(220,000.00)

$(170,000.00)

$(120,000.00)

$(70,000.00)

$(20,000.00)

2010 2011 2012 2013 2014 2015

Investment Per Physician Percentage of Net Collections

IV. Process Considerations Overview

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We believe successful compensation redesign initiatives are a factor of both process

and product.

PROCESS PRODUCT

IV. Process Considerations Our Typical Planning Approach

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» Overarching

Framework

» Application to Specialty

Areas

» Plan Features and

Elements

» Value-Based

Components

Articulation of

Philosophy and

Design Principles

Design Compensation

Elements and Mechanisms

Financial Analysis

and Model

Refinement

Transition Method and Length

Infrastructure Requirements

Governance and Management

Provider Communication Plan

Phase I Assessment and Design Criteria

Phase II Conceptual Design and Refinement

Phase III Implementation Planning

45 to 90 Days 2 to 4-Plus Months 2 to 3 Months

Market

Analysis

Internal

Assessment

Deliverables

» Quantitative and Qualitative Assessment

Findings

› Benchmarking Analysis

› Physician Survey

› Stakeholder Interviews

» Defined Compensation Philosophy and

Principles

Deliverables

» Physician Compensation Framework

» Financial Modeling Results

Deliverables

» Management Tools and Processes

» Provider Communication Strategy

» Policy and Procedure Manual

» Transition Plan

IV. Process Considerations Group Development

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INTEGRATED

Dept.

A

Dept.

B

Dept.

C

Dept.

D

Dept.

E

Dept.

F

Dept.

G

FEDERATED

Dept. A

Dept. B

Dept. C

Dept. D

Dept. F

Dept. E

Dept. G

MULTISPECIALTY

COMMON GOVERNANCE,

MANAGEMENT, AND FINANCES

Dept.

A

Dept.

B

Dept.

C Dept.

D

Dept.

E

Dept.

F

Dept.

G

Centrally Controlled Policies and Finances

STRONG CENTRAL GOVERNANCE

AND MANAGEMENT

LIMITED CENTRAL GOVERNANCE

AND MANAGEMENT

Limited

Common

Governance

and Shared

Services

Shared

Governance

and

Services

A successful compensation redesign process should consider a group’s current and

aspirational positioning along the following structural continuum:

How would you characterize the current

positioning of your organization?

IV. Process Considerations Typical Work Structures

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Estimated Meeting Frequency: Monthly

Typical Composition: Senior Leadership, Legal, Physician Champions

» Ensures appropriate representation from key stakeholders across the organization

» Approves work group recommendations and associated deliverables

» Provides guidance to work group regarding aspirational plan characteristics

» Drives accountability toward timely completion of project tasks

» Liaises with other governing/approval bodies

S T E E R I N G C O M M I T T E E

Estimated Meeting Frequency: Biweekly

Typical Composition: VPs/Directors, Physicians, Project Management

» Creates the project work plan and timeline

» Engages with frontline physicians, managers, and staff as necessary

» Iterates requisite quantitative analyses and associated deliverables

» Formulates initial design recommendations based upon guidance from steering committee

» Identifies potential risks and critical success factors for steering committee review

S M A L L W O R K G R O U P

IV. Process Considerations Physician Engagement

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When selecting project participants, we recommend including a diverse set of

physician voices, such as:

» High producers.

» Primary care representative(s).

» Medicine representative(s).

» Surgical representative(s).

» Coverage-based representative(s).

» Part-time physicians.

Selection Considerations

Active physician participation and leadership is

critical to a successful redesign process.

NO YES

IV. Process Considerations Data Analytics

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Advanced analytics help ensure data-driven decision making and are an essential

ingredient in effective compensation redesign.

Current State Straw Model #2 Variance % Variance

Total FTEs 58.0 58.0 - 0%

Total WRVUs 332,437 332,437 - 0%

WRVUs Per FTE 5,735 5,735 - 0%

Average WRVU Percentile Rank 52 52 - 0%

Total Clinical Compensation 16,311,724$ 16,987,411$ 675,687$ 4%

Compensation Per FTE 281,397$ 293,053$ 11,656$ 4%

Average Percentile Rank 53 57

Physicians Increased 37 Avg. % Increase 23.2%

Physicians Decreased 24 Avg. % Decrease -17.2%

Impact: System Wide

IV. Process Considerations Pre-Implementation Planning

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Transition Mechanism and Length

Infrastructure Requirements

Governance and Management Processes

Plan Document

Market Data

Provider Communication Plan

Pre-Implementation Checklist

V. Aspirational Plan Characteristics Overview

COMPREHENSIVE

Plan elements should be inclusive of all

relevant mission areas (“CARTS”): Clinical,

Administrative, Research, Teaching, and

Strategic.

PERFORMANCE-DRIVEN

Compensation levels should be

commensurate with a provider’s work

efforts and holistic performance.

TRANSPARENT

Compensation mechanisms

should be easily understood,

with clear rules for adjudicating

exceptions.

SUSTAINABLE

Compensation levels should be affordable

and aligned with the organization’s

fundamental practice economics.

PATIENT-CENTERED

Plan incentives should align with the Triple

Aim goals of improving the patient

experience of care, improving the health of

populations, and reducing the per capita cost

of healthcare.

FLEXIBLE

Compensation mechanisms

should be sufficiently flexible to

accommodate different specialty

types (e.g., primary care,

medical/surgical specialists,

coverage-based specialists, etc.)

and diverse work environments.

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V. Aspirational Plan Characteristics Patient-Centered Compensation

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Increasingly, organizations are seeking to remove financial disincentives that may

impede their ability to deliver patient-centered care.

A cardiology practice pooled

WRVUs in order to maintain

appropriate levels of patient

access to noninvasive services.

Cardiology

Example

A gastroenterology practice

pooled compensation in order to

increase access to chronic

disease management services

(IBD, Crohn’s, etc.).

Gastroenterology

Example

An OB/GYN group pooled

WRVUs for its laborist shifts; this

helped contribute to a 20%

reduction in elective inductions

compared to an individualized

approach.

OB/GYN

Example

A primary care practice funded

incentive pools based on

group-wide productivity

(geographic areas); this helped

balance patient loads

between/within practice sites and

increase access to care.

Primary Care

Example

A multispecialty practice migrated

away from a

revenue-minus-expense plan to a

payor-neutral WRVU approach;

this significantly increased access

for Medicare/

Medicaid patients.

Multispecialty

Example 5 4

2 1 3

V. Aspirational Plan Characteristics Flexible Compensation Mechanisms

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The intrinsic variability between different specialty types and work environments

typically precludes a “one size fits all” approach to compensation.

Primary Care

Medical

Specialists

Surgical

Specialists

Specialty A

Specialty B

Specialty C

Specialty D

Specialty E

Specialty F

Specialty G

Specialty H

Enterprise

Standard:

No plan

specialization

Low High

Specialty Groupings:

Plans based on the

categorization of specialties,

such as the examples

provided above

Specialty-Specific Plans Physician-Specific

Plans

Coverage-Based

Specialists

V. Aspirational Plan Characteristics Flexible Compensation Mechanisms (continued)

24

PRIMARY CARE

Base/Fixed

Component Base/Fixed

Component

Base/Fixed or

Shift Component

Base/Fixed

Component

Clinical Activities

Component

Value-Based

Component

MEDICAL OR

OFFICE-BASED

SPECIALTIES

Clinical Activities

Component

Value-Based

Component

COVERAGE-

BASED SPECIALTIES

Value-Based

Component Clinical Activities

Component

Value-Based

Component

SURGICAL OR

PROCEDURAL-BASED

SPECIALTIES

In an effort to increase plan consistencies, many organizations are framing core

clinical compensation elements in terms of broader specialty groupings.

0100.015\364700(pptx)-E2 DD 6-17-16

V. Aspirational Plan Characteristics Sustainability

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A confluence of factors have significantly increased demand within the physician

labor market and contributed to a “whatever it takes” approach to compensation.

Bidding wars have prevailed at both local and national levels. This is especially

true in certain high-demand specialties (e.g., primary care).

Many organizations are paying exclusively from market benchmarks,

regardless of their underlying group financials.

Salary guarantees for new recruits are often significantly higher than the

average earnings for existing physicians.

Highly fixed compensation plans continue to increase in prevalence across the

industry.

Progressive organizations are beginning to

incorporate “economic adjustment factors” in

order to maintain long-range affordability.

V. Aspirational Plan Characteristics Sustainability (continued)

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FINANCIAL

PERFORMANCE

EVALUATION

OBJECTIVE

MARKET SURVEYS

I n t e r n a l S t a n d a r d s E x t e r n a l S t a n d a r d s

HYBRID MARKET

DEFINITION

» In this approach, the

amount allocated to

physician compensation

is based entirely on the

financial performance of

the system.

» This approach may be

applied at the group,

specialty/site, or

individual level.

» The hybrid approach

involves the use of

external market

benchmarks and an

economic adjustment

factor.

» Raw market benchmarks

are adjusted using a

transparent formula that

ties to group economics.

» With the market survey

approach, the amount

allocated to physician

compensation is tied

directly to external

surveys.

» Potential survey sources

include MGMA; AMGA;

ECG; Sullivan, Cotter and

Associates; and

specialty-specific sources

(e.g., AAARAD, AAAP).

A “hybrid” market definition may help physician organizations keep in touch with the

realities of their group’s underlying economic performance.

V. Aspirational Plan Characteristics Comprehensive

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In response to changing market dynamics, some organizations have begun to employ

a more progressive payment structure that segments compensation elements by

mission area.

To t a l C o m p e n s a t i o n

Clinical Admin. Teaching Strategic Research

Value-Based

Compensation

Base

Compensation

Volume-Based

Compensation

Base

Compensation

Base

Compensation Base

Compensation

Performance

Incentive

Base

Compensation

Performance

Incentive

Performance

Incentive

V. Aspirational Plan Characteristics Transparent

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Base/Fixed

Salary

Panel Size

Incentive

WRVU

Incentive

Value

Incentive

APC

Supervision

Specialty-Specific Benchmark × Clinical FTE Status

Number of Attributed Risk-Adjusted Patients × Panel Size

Payment Rate × Value-Based Modifier

Number of Personally Performed WRVUs Above Performance

Threshold × WRVU Payment Rate × Value-Based Modifier

Value-Based Performance × Value-Based Funding

APC Supervisory Stipend × Attributed APC FTEs

A lack of transparency and predictability is the most common complaint among

physicians who are surveyed as part of our compensation engagements.

Tota

l C

linic

al C

om

pensation

28

V. Aspirational Plan Characteristics Performance-Driven

Physicians will maintain a defined number

of open slots daily for new patients.

Physicians will work a minimum of 47

weeks per year.

PCPs will work either 9 sessions (if they

follow patients in the hospital) or 10

sessions (if they use hospitalists) each

week.

Physicians will complete their charts within

48 hours of the patient encounter.

Physicians will attend a minimum of 75%

of group and system professional staff and

department meetings.

Physicians will meet a specialty-specific

level of WRVU production. This includes a

minimum threshold (e.g., median).

CHART COMPLETION/

DOCUMENTATION STANDARDS

WRVU

PRODUCTION

ADMINISTRATIVE

PARTICIPATION

ACCESS REQUIREMENTS CLINIC HOURS WEEKS WORKED PER YEAR

NOTE: One session = 4 clinic hours.

Example Employment Obligations (Primary Care)

The use of explicit employment obligations and physician compacts supports a

performance-driven culture, even as base/fixed salary levels continue to increase.

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Tom Methvin

tmethvin@ecgmc.com

210-845-5754

Questions & Discussion

VI. Questions and Discussion

30