HOW TO BEGIN TO IMPLEMENT A VALUE-BASED COMPENSATION MODEL

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1 HEALTH CARE INSIDER VOLUME 6 :: ISSUE 3 In This Issue: Next Trend In Physician Compensation Understanding Small Employer Payment Plans In The Wake Of The Affordable Care Act Don t overlook anything when picking a model to shadow. Allow for a period of time before switching your compensation model completely. You will want a complete understanding of the model before going through with it. This will allow you to forecast faults in the system and allows you to avoid them at all costs. NEXT TREND IN PHYSICIAN COMPENSATION Medical practices are moving towards value-based compensation at an increasing rate. Most practices are still using the traditional fee-for-service model, but this model is changing. Practices are starting to include valuebased compensation into the picture for quality, improved care and overall outcomes. Adding quality to a practice is going to be vital for their success in the near future. It will become more and more common for patients to pay for value, not just fee-for-service. An independent member of UHY International HOW TO BEGIN TO IMPLEMENT A VALUE-BASED COMPENSATION MODEL Research. Researching a model that has had success in the past can lead to your success. This will help you get a model that has shown positive signs in a practice that s similar to yours. Test. Watch a model currently at work for a period of time. Simple models can often be the most beneficial. Collaborate. Work with other practices and outside advisors. Getting a model that works can be tough. The more practices you work with, the faster you will get a solid value-based program. For most practices it is hard to tell if their value added approach is really working. It takes a long time to get valuable results. The more practices that are working on collecting data, the faster you can figure out what works and what doesn t. Data collection. Getting sophisticated data in the past was an expensive task. With data more readily available, this is no longer the case. Analytics and benchmarking are easily accessible through the internet as well as many other sources. This gives practices of all sizes the ability to engage in how a value-added approach can or may affect their practice. Continued on Page 3... The next level of service

2 2 UHY LLP HEALTH CARE INSIDER MEDICAL PRACTICES ARE MOVING TOWARDS VALUE-BASED COMPENSATION AT AN INCREASING RATE.

3 UHY LLP HEALTH CARE INSIDER 3 Continued from Page 1... Incentives. In the past, practices as an example would give incentives to physicians that prescribed a certain percentage of patients to a generic medication. Now a physician may also receive an incentive based upon value. Merit incentives mean increased revenue to a practice. If a physician can get a certain percentage of their patients blood pressure within a healthy reading, they receive some type of compensation. This is a value-added approach. According to a survey of 424 healthcare organizations by Sullivan, Cotter and Associates, incentive pay makes up 3 to 5 percent of total compensation of physicians. This is expected to rise to 7 to 10 percent in the next few years. An increase in quality, outcomes and patient satisfaction is going to lead to an increase in value. An increase in value can result in an increase in volume and profitability. Another survey conducted by the Hay Group stated that out of 182 health organizations surveyed, 66 percent of the practices incorporated some type of value-based compensation. The evolution from volume to value will not happen overnight. Although physician employment was once utilized as a fee-for-service, now we are starting to see an uptick in practices moving towards a valuebased compensation approach. Ideally, physician practices should seek to find a happy medium between the two. The goal of any plan should be to drive quality, productivity and work-life balance. Time, research and commitment are the only ways to see how a value-added approach will work for your practice in the long run. By Harold Burns, CPA National Health Care Practice Leader

4 UHY LLP HEALTH CARE INSIDER 4 UNDERSTANDING SMALL EMPLOYER PAYMENT PLANS IN THE WAKE OF THE AFFORDABLE CARE ACT The Affordable Care Act (ACA) has created a number of hurdles for businesses to overcome. Although businesses with fewer than 50 employees are not subject to either the employer mandate or the annual reporting requirements, these small businesses should not disregard the ACA altogether. This is because the market reform provisions which are regulations that were handed down along with the ACA could have significant implications for small businesses that are used to operating employer payment plans. EMPLOYER PAYMENT PLANS Under employer payment plans, an employer reimburses employees for premiums that the employees pay for their own individual health insurance. Prior to the ACA, these arrangements presented no challenges with respect to tax law so long as the reimbursement was made in accordance with a plan under Code Section 105 and the employer could verify that the reimbursement was actually spent on health insurance. Code Section 106 allowed these payments to be excluded from income. The Affordable Care Act (ACA) has created a number of hurdles IRS POSITION AS PROVIDED IN NOTICE In Notice , the IRS stated that employer payment plans are considered group health plans under the ACA regime and must adhere to the market reform requirements. Most employer payment plans do not satisfy the market reform requirements. This is because a group health insurance plan used to purchase individual market plans cannot be integrated with the individual market policies. In light of these circumstances, Continued on Page 5... for businesses to overcome.

5 UHY LLP HEALTH CARE INSIDER 5 Continued from Page 4... the reimbursing of employees for premiums the employees paid on individual health insurance policies subjects employers to penalties for violating the market reform provisions. Penalties for violating the market reform provisions are steep. Code Section 4980D imposes a fine of $100 per employee per day that their plan is in violation of the market reform rules. This adds up to $36,500 for each employee who is enrolled in a plan that fails to satisfy the market reform provisions for the entire year. This does not even take into consideration penalties and fines that could be levied by the Department of Labor, as the market reform provisions fall under their purview as well. STEPS SMALL EMPLOYERS CAN TAKE TO INSURE EMPLOYEES Although the market reform provisions present high hurdles to overcome along with large penalties for failing to do so small employers are not left empty handed. They can still provide coverage as a tax-free fringe benefit under Code Section 105 so long as it is through an ACA-approved employer sponsored plan. Small employers can provide coverage through the SHOP Marketplace. In addition, small employers can simply increase their employees wages to provide them with funds that they can use to purchase individual health insurance on their own. Keep in mind, the employer cannot require that such employees purchase health insurance. CONCLUSION Despite the fact that small employers avoid some of the burdens brought on by the ACA, they still must comply with the market reform provisions. This ultimately means that employer payment plans are no longer an option. Nonetheless, there are great alternatives available to small employers. By Daniel Willingham, Senior Tax Accountant

6 PROVIDING VALUE TO THE HEALTH CARE INDUSTRY Today s growing and advanced health care industry is a fast-paced environment where regulatory issues, competition, and rapidly changing consumer expectations converge. Managing risks and realizing opportunities becomes a more important focus as health care organizations decide how they will adapt and evolve their business models for long-term survival. Ensuring today s actions will lead to achieving long-term goals can be a major challenge for anyone. Many health care organizations are unable to address the issues at hand and consider the big picture because they are overwhelmed with urgent matters and patient care. UHY LLP s National Health Care Practice brings an understanding of the industry together with innovative solutions that have a positive impact on bottom line. We understand the challenges facing health care providers and facilities. OUR LOCATIONS GA Atlanta MD Columbia MI Detroit MI Farmington Hills MI Sterling Heights MO St. Louis NJ Oakland NY Albany NY New York NY Rye Brook ADDITIONAL UHY ADVISORS LOCATIONS IL Chicago Our firm provides the information in this newsletter as tax information and general business or economic information or analysis for educational purposes, and none of the information contained herein is intended to serve as a solicitation of any service or product. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided as is, with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose. UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc. and its subsidiary entities. UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of UHY Advisors. UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms. UHY LLP and UHY Advisors, Inc. are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. UHY is the brand name for the UHY international network. Any services described herein are provided by UHY LLP and/or UHY Advisors (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members UHY LLP. All rights reserved. [0715]