Physician Compensation: Ten Common Mistakes (and Four Solutions)

Transcription

1 MGMA 2017 ANNUAL CONFERENCE OCT ANAHEIM, CA Physician Compensation: Ten Common Mistakes (and Four Solutions) Craig Pederson, MHA, MBA Principal, Insight Health Partners LLC Lake Zurich, Ill. Craig Pederson does not have any financial conflicts to report at this time. 1

2 Learning Objectives Discuss physician compensation mistakes using a physician compensation top- 10 checklist as well as case studies from both independent and fully-aligned physician organizations Measure the strategic and economic cost of physician compensation mistakes from a clinical enterprise perspective Establish tools for evaluating current methodologies and developing more effective strategies Environmental trends Payment Methodology Full Capitation Subcapitation Case Rates P4P (Robust) P4P ( Lite ) Fee for Service Notes: 1-P4P = Pay for Performance 2-EMR = Electronic Medical Record Solo MD Practices Group Practices Registries Non MD Clinicians Multispecialty Group Practices Stage of Evolution EMR Closed System Team Based Care Disease Management Integrated Delivery System Clinic Model Source: Lee, T. and Mongan, J., Chaos and Organization in Health Care Cambridge: Massachusetts Institute of Technology,

3 Environmental trends The ongoing shift to an outpatient setting. Estimated Contribution Margin Per Case Hospital Inpatient $7,308 Outpatient Hospital $2,081 ASC $1,700 (assumption) An overly simplistic micro example. JV ASC $340 (assumption) The Call Conundrum. Cardiology (invasive, interventional, EP, general) Orthopedics (general, hand, foot, spine, etc.) Neurology (interventional, general) General surgery (general, vascular, colo rectal) Urology (robotics). And the list goes on Environmental Trends Annual Compensation Breakout by Estimated Work Effort Estimated Annual Compensation Percent Total Work Effort Internal External Internal External Description Method Method Difference Method Method Difference Non-Call related $ 440,000 $ 527,000 -$ 87,000 73% 88% -15% Call related $ 160,000 $ 73,000 $ 87,000 27% 12% 15% Total $ 600,000 $ 600,000 $ - 0% 0% 0% 3

4 1. Oncology: Failure to address site of service issue. 2. Failure to address reimbursement reality. 3. Unnecessary and/or poorly constructed PSAs. a. Call and coverage. b. Lack of an accurate denominator. c. Rate calculation. 4. Failure to recognize a competitive offer. 5. Too many low dollar incentives. 6. Failure to adjust for a lack of call. 7. Compensating physicians for APC work effort. 8. Failure to manage bad behavior. The Top 10 List 1. Oncology: Failure to address site of service issue Physician wrvu credit for infusion related services varies significantly depending on the site of service location. Clinic based infusion services: Infusion related CPT codes billed by the clinic include physician work credit. Infusion related wrvus typically account for percent of total wrvus for a medical oncologist. Hospital outpatient department (HOPD) infusion services: Infusion related CPT codes are no longer billed. Services are billed based on applicable Ambulatory Payer Classifications (APCs). Physician wrvu production will be lower with no noticeable change in physician work effort. The national physician compensation and production surveys do not specifically address the issue of site of service for infusion. Reported wrvu data includes data for medical oncologists who both do and don t receive CPT credit for infusion related CPT codes/work effort. 4

5 1. Oncology: Failure to address site of service issue Sample wrvu differentials by site of service. Colon Cancer Example Est. wrvus by Setting Group Prov. CPT Description Type Volume Practice Based Dif Office/outpatient visit est E&M Tx/proph/dg addl seq iv inf Infusions Ther/diag concurrent inf Infusions Chemo iv push addl drug Infusions Chemo iv infusion 1 hr Infusions Chemo iv infusion addl hr Infusions Chemo prolong infuse w/puminfusions Est. Totals Percent infusion wrvus 45% Breast Cancer Example Est. wrvus by Setting Group Prov. CPT Description Type Volume Practice Based Dif Office/outpatient visit est E&M Ther/proph/diag inj sc/im Infusions Tx/proph/dg addl seq iv inf Infusions Chemo iv push addl drug Infusions Chemo iv infusion 1 hr Infusions Est. Totals Percent infusion wrvus 41% 1. Oncology: Failure to address site of service issue Sample compensation calculations based on site of service: Annual Compensation Annual wrvus Market Cognitive Total Difference Physician Cognitive Infusion Total CF Only wrvus Total Percent A 8,060 2,045 10,105 $ $ 730,478 $ 915,816 $ 185, % B 7,604 1,744 9,348 $ $ 689,151 $ 847,209 $ 158, % Totals 15,664 3,789 19,453 $ 1,419,628 $ 1,763,025 $ 343, % % Total 81% 19% 100% wrvus Compensation per wrvu Cogn. Infusion Annual Cogn. Total Percent Physician Specialty Only Only Total Comp. Only wrvus Difference Difference C Oncology 2, ,189 $ 315, % D Oncology 2, ,076 $ 320, % Totals 5,137 1,128 6,265 $ 635, % 5

6 1. Oncology: Failure to address site of service issue Potential Costs Quantitative (Hard) 1. Over or under compensated physicians (relative to work effort). Qualitative (Soft) 1. Frustrated physicians (and administrative leadership. Difficult concepts. No right answer or definitive survey data. 2. Fair Market Value (FMV) risk. How will work effort be measured by external organizations? 2. Failure to address reimbursement reality Modeling Assumptions for Physician P&L Sensitivity Analysis Commercial payer reimbursement rates Physician FTEs = 1.0 (a mature practice) Annual Total RVUs (trvus) = 11,000 (a solid performer) Payer Mix based on trvus: Government Payers: 50 percent Commercial payers: 50 percent Physician Expenses: Annual Compensation: $240,000 Benefits: $35,000 Reimbursement rates: Government Payers: 90 percent of Medicare CF Commercial Payers: Scenario A: 100 percent of Medicare CF Scenario B: 250 percent of Medicare CF Overhead: $200,000 6

7 2. Failure to address reimbursement reality Question: What is a reasonable expectation for profit and loss performance for a hospital employed primary care physician? Answer: It depends see sensitivity analysis below: Commercial payer reimbursement rates 2. Failure to address reimbursement reality Government payer reimbursement rates 7

8 2. Failure to address reimbursement reality Modeling Assumptions for Physician P&L Sensitivity Analysis Government payer reimbursement rates Physician FTEs = 1.0 (a mature practice) Annual Total RVUs (trvus) = 11,000 (a solid performer) Payer Mix based on trvus: Government Payers: 50 percent Commercial payers: 50 percent Physician Expenses: Annual Compensation: $240,000 Benefits: $35,000 Reimbursement rates: Government Payers: Scenario A: 90 percent of Medicare CF Scenario C: 135 percent of Medicare CF Commercial Payers: 100 percent of Medicare CF Overhead: $200, Failure to address reimbursement reality Question: What is a reasonable expectation for profit and loss performance for a hospital employed primary care physician? Answer: It depends see sensitivity analysis below: Government payer reimbursement rates 8

9 2. Failure to address reimbursement reality Potential solutions? Define a lower end to the range of physician total cash compensation (TCC) by reducing it similar to how Medicare reimburses professional services in the region versus nationally. CPT FP Market Medicare Fee Est. Reimburs. Difference Codee Description Baske Actual No GPCI Actual No GPCI Total % Office/outpatient visit est 480 $ $ $ 9,058 $ 9,787 $ % Office/outpatient visit est 3,462 $ $ $ 141,042 $ 152,328 $ 11, % Office/outpatient visit est 41,939 $ $ $ 2,883,726 $ 3,090,904 $ 207, % Office/outpatient visit est 19,507 $ $ $ 1,978,985 $ 2,114,559 $ 135, % Office/outpatient visit est 588 $ $ $ 80,362 $ 85,824 $ 5, % Totals 65,976 $ 5,093,172 $ 5,453,403 $ 360, % 2. Failure to address reimbursement reality Potential Costs Quantitative (Hard) 1. Compensation levels that do not reflect regional economics. 2. Sustained and significant operating losses for the physician group. Qualitative (Soft) 1. Commercial payers that continue to reimburse at levels that are below cost. Have providers emphasized hospital reimbursement levels at the expense of the physician group? 9

10 3. Unnecessary and/or poorly constructed PSAs Sample professional services agreement (PSA) structure Hospital Health System: Owns and operates a physician practice(s). Employs non physician staff. Assumes operational/financial risk for clinic performance. Is the designated provider of service bills for both the professional and technical component through its tax ID. Services $ Physician Group Physician Group: Maintains independent physician practice. Assigns all professional claims to the health system (for defined geographies/clinics). Provides professional services at health system clinic location. Agrees to compensation terms for services performed. 3. Unnecessary and/or poorly constructed PSAs The parade of horribles A sample worst case scenario: Hospital A loses its cardiology volumes when independent group aligns with Hospital B. In order to preserve cardiology electrophysiology volumes, Hospital A develops a professional services agreement (PSA) with Hospital B to provide EP professional services and coverage. Hospital A has historically generated significant contribution margin from EP services. 10

11 3. Unnecessary and/or poorly constructed PSAs The cost: Actual Total Compensation 1.0 FTE EP $ 540,000 Fringe Benefits (24%) $ 129,600 Prof. Liability Insurance $ 16,500 CME $ 10, Physician FTE Total $ 696, Physician FTE Total $ 835,320 Administrative Charge (5%) $ 41,766 Total $ 877,086 EP Medical Director $ 55,000 Estimated total annual cost $ 932, Unnecessary and/or poorly constructed PSAs What does Hospital A get? 1.2 physician FTEs of EP coverage. Physician providers provide 24/7 on call coverage for EP. Full time EP clinical coverage on Hospital s premises from 8am 5pm, Monday Friday. Consultative services on a 24/7 basis provided consults come from Hospital A s Cardiology Department. Billings for professional services at Hospital A will be collected by, paid to and owned by Hospital A. Hospital B s providers bill and collect for all of the professional services generated in the physician practice. 11

12 3. Unnecessary and/or poorly constructed PSAs Where are the mistakes? A. Does Hospital A need 24/7/365 EP coverage? B. Lack of a denominator: A definition of how much actual clinical time was purchased (mixed in with coverage definition). C. High costs and some double counting in the construction of the contract rate. 3. Unnecessary and/or poorly constructed PSAs Potential Costs Quantitative (Hard) 1. PSA rate too high by 75K to $100K. 2. Hospital A may have been better off purchasing the full services of 1.0 FTE physician (including clinic and hospital clinical time) vs. an investment in 24/7 coverage. Qualitative (Soft) 1. Delays the development of an integrated cardiology group with a full scope of services and coverage. 12

13 4. Failure to recognize a competitive offer Case Study Background: Independent oncology group with 2 physicians. High producers. Physician production for the group practice includes infusion related CPTs and wrvu credit. Historical compensation rates that are below market. A payer mix that reflects a high percentage of government payers. Physicians and hospital invested significant time and effort to develop a mutually beneficial alignment model. 4. Failure to recognize a competitive offer Physician compensation: The final offer Total Proposed Compensation Change Physician Specialty wrvus CF Actual Proposed Total Percent A Med. Onc. 6, $ 413,000 $ 550,683 $ 137, % B Med. Onc. 9, $ 509,000 $ 817,284 $ 308, % Totals $ 922,000 $ 1,367,967 $ 445, % Outcome: Proposed physician compensation levels were rejected by independent group practice. Discussions terminated. 13

14 Potential Costs 4. Failure to recognize a competitive offer Quantitative (Hard) 1. A significant loss of incremental physician compensation (and potentially benefits) over the life of the contract. More than $2 Mil over 5 years. Qualitative (Soft) 1. Loss of sleep. 5. Too many low dollar incentives Value based compensation model design to incent physicians to achieve Triple Aim incentives: Patient experience. Quality of care Cost Case study physicians: Individual incentive value too low to invest direct physician work effort. Physicians will likely pick up 50% or more of incentive dollars with no/minimal effort. Lost incentive made up with increased wrvu production. Annual Percent Totals Total Production Pay $ 230, % Quality Incentives Incentive 1 $ 2, % Incentive 2 $ 2, % Incentive 3 $ 2, % Incentive 4 $ 2, % Total Comp. $ 241, % 14

15 Potential Costs 5. Too many low dollar incentives Quantitative (Hard) 1. Potential loss of physician group and hospital reimbursement tied to performance metrics. Qualitative (Soft) 1. Lack of real movement on incentive improvement. 2. A physician compensation model that is a complex drug reaction of fee for service and value based design. 6. Failure to adjust for a lack of call Overview of the issue: Medical staff bylaws frequently include the ability for physicians to drop out of the call rotation based on meeting defined criteria, typically a defined age. Potential impact of a physician dropping out of their specialty call rotation: Remaining physicians in the specialty absorb the extra call responsibility. The physician group and/or hospital purchases additional call coverage to supplement current call group. Physician compensation levels within independent group practices and hospital aligned groups should be adjusted for the decreased call responsibility (if the physician group/specialty allows the physician to petition out of call. 15

16 Potential Costs 6. Failure to adjust for a lack of call Quantitative (Hard) 1. Cost of failure to reduce compensation for physician dropping out of call. 2. Coverage cost of purchasing incremental coverage. Qualitative (Soft) 1. Cost of frustration of physicians remaining call group. 7. Compensating physicians for APC work effort Alternative slide title: Utilizing a very expensive nursing model Example A. Cardiothoracic surgeons with super charged wrvu production. Example B. Physicians (medical specialty) with wrvu productivity that is 220 percent of the MGMA median and compensated through a PSA by a community hospital. Physician production includes APC work effort. Hospital also compensates independent group for all costs related to the employment of the APCs. Example C. A health system aggressively adding APCs to an aligned physician group with average productivity in primary care at the 20 th percentile. 16

17 7. Compensating physicians for APC work effort Potential Costs Quantitative (Hard) 1. Inflated physician compensation costs. 2. An expensive clinical staffing model. Qualitative (Soft) 1. Fair market value (FMV) risk. 8. Failure to manage bad behavior Unfortunately, examples of mistake #8 can be readily found in both independent and health system aligned group practice settings. Example A. Physician shareholder combines physician and APC schedules to game the shareholder compensation plan. Example B. A gastroenterologist refuses to see patients in clinic in order to focus time on procedural work with a higher wrvu yield. Example C. Physician providers who shorten their overall clinical work week. And the list goes on Too often, leadership tries to address the problem indirectly through a change in the physician compensation model 17

18 Potential Costs 8. Failure to manage bad behavior Quantitative (Hard) 1. Low productivity and professional revenue. 2. Clinic expenses that are too high relative to production. Qualitative (Soft) 1. Indirect solutions, in many cases, don t solve the issue. 2. Frustrated providers impacted by bad behavior. Now the real work begins What now? Potential solutions 1. Develop a group practice leadership structure and culture. Steal the best practices from independent group practice. 2. Implement two separate compensation models. A FFS model. A managed care model. Where do value based lives fit? 18

19 Develop a group practice structure and culture Collecting the Pieces After years of health systems adding physicians, how do they integrate a high number of previously separate pieces into a provider structure capable of driving strong performance? Integrating the Pieces Implement two separate compensation models: FFS Model Includes all FFS patients/contracts. Includes non capitated, attributed ACO patients. Quality Incentives Managed Care Compensation Model Includes capitated patients (assigned to primary care physician). Patient Experience Incentives Citizenship Incentives 3 rd generation physician compensation models will include FFS and Managed Care Compensation methodologies with incentives common to both. 19

20 Questions & Discussion QUESTIONS Continuing Education ACMPE credit for medical practice executives. 1 AAPC Core A credit 1 ACHE credit for medical practice executives 1 CME AMA PRA Category 1 Credits.. 1 CNE credit for licensed nurses 1 CPE credit for certified public accountants (CPAs) 1.2 CEU credit for generic continuing education 1 Let the speakers know what you thought! Evaluations are available on the MGMA mobile app 20

21 Craig Pederson Insight Health Partners LLC 830 W Rte 22, Ste 224 Lake Zurich, IL