Physician Income Distribution Plans: Opportunities and Challenges

Transcription

1 Physician Income Distribution Plans: Opportunities and Challenges Presented by: Debra Phairas, President Practice & Liability Consultants, LLC Copyrighted Practice & Liability Consultants, LLC 2106 February 19-21, 2017 Las Vegas No financial disclosures to report Learning Objectives This session will provide you with the knowledge to: Diagram common formulas and pros and cons of each methodology Explain why setting values first helps physicians determine the income/expense formula Analyze how work RVU formulas serve as a key component to compensation plan 1

2 What formula is best?? 2

3 Income/Expense Share Formulas Just like in a marriage, differences over the way money is spent or invested is one of the biggest areas of conflict and a major reason why partnerships and groups often dissolve. Different practice styles, in terms of the business side of the practice, particularly with income or expense distribution, leads to inevitable conflict. Goals/Core Values Mutually agreed upon roles Mutual trust and respect Shared norms and expectations Respect for individual differences and tolerance for diversity of views Richard Walton Professor Business Administration - Harvard University 3

4 Mission/Core Values Examples CVS Group Ortho Group GS Group Physicians are like Herding Cats! 4

5 In dividing the pie, when the pie shrinks the table manners get worse. Respectful Communication Manners No Interrupting No Attacking Any One Partner Ground Rules Partnership Meetings Consider Other Viewpoints Free Flowing Brainstorming Creative Thinking Think of what is best for the Corporation over Individual Needs or Wants No Side Bar Conversations 5

6 Income Distribution Recommended revote every 3-5 years Review for reflection of changing productivity partner slow down, drop call, drop OB/Surgery, etc. 100% equal or 100% productivity not fair 6

7 Income / Expense Formulas The one caveat to remember is that there is no ideal or completely equitable income distribution plan. All revenue distribution is dependent on: Physician behavior Physician efficiency Dissatisfaction with income distribution formulas can sometimes be traced back to: Unrealistic income expectations Overstatement of income potential A lifestyle that exceeds income reality Inefficient work habits Excessive time off/ or part time work in relation to income expectations 7

8 Expense Share Partnership Issues How to split up expenses How to utilize staff and will they be working for both Some staff can be fixed, some variable Accounting Promotion Need time frame for termination Need to decide financial responsibility if disabled or die for overhead Will overhead insurance be required? Key Man insurance? Income Distribution if co-mingle revenues or Share APC? Need Written Expense share agreement EXPENSE SHARING ARRANGEMENT Advantages This arrangement shares the advantages of group practice, but the physician's income is separate and not shared or divulged. If you are a high producer and would be resentful of less high producers, this may be an attractive arrangement. 8

9 EXPENSE SHARING ARRANGEMENT Disadvantages: The same potential for conflict exists between expense sharing partners as exists between true partners. Agreements must be reached over the formula to divide expenses, particularly if staff are shared. Ostensible Agency If public thinks you are a group, you are, and liable for each other if have group name EXPENSE SHARING FORMULAS Expenses are "Fixed", Direct or Variable An equal split of fixed expenses is the norm. Variable expenses vary according to use, production or volume,(can be measured by collections/# of visits or WRVU) so these are usually split according to the individual physician's use. Direct expenses are the responsibility of each physician. 9

10 Income Distribution/Expense Formula Not recommended to allocate expenses on straight productivity Fixed expenses remain If one partner slows down/drops surgery Not recommended to allocate by half day units of use MD can cram visits into half day units, Variable costs, supplies, billing are by visit, not time unit Fixed Expenses include: Rent Telephone basic service and equipment Maintenance Contracts on equipment Office manager Depreciation 10

11 Variable Expenses include: Staff Billing, MA, Techs, Records Reception 50% Fixed, 50% Variable Manager/Administrator fixed Medical supplies Office Supplies Telephone charges Direct Expenses include: Auto Entertainment Dues and Subscriptions CME/Travel Malpractice 11

12 Sample line item expenses Line Item Type of Expense Division Method Recommended Operating Expense Salaries and Wages V P, or sometimes a combination, i.e., 50% F and 50% based on P Advertising D I or if agree benefits both E Accounting F E for practice accounting I for personal tax preparation Auto Expense D I Bank Charges F E Education D I Collection V P Computer Expense F if maintenance charges E Contributions D I Bad Debt Expense V P Books & Tapes D I Dues and Subs D I Depreciation F E Pension Plan Staff= V MD =D Staff =P MD = I Promotion V Same as Advertising Meals D I Health Insurance Staff = F MD = D Staff =E MD =I Insurance Office =F Disability, Malpractice =D Office = E MD = I Laboratory V P Medical Supplies V P Office Expense V or F Stationery, etc. that benefits both =E other = P Office Supplies V P Outside Services consultants, etc. D I or E Travel D I Rent F E Repairs and Maintenance F E Taxes and Licenses F E Telephone Service Basic Charge= F E, P or I Rest of expense =V Cell phones =D Uniforms F E Utilities F E Expense Share case Treated as Expense Share Fixed = Equal split Variable = Production Direct = Individual Dr. A Dr. B Dr. C Dr. D 4 Partners Total Call should be equal or MD pays to give up P and L Type $ 1,752, ,177, ,092, ,206, ,229, % 22.52% 20.89% 23.07% % Advertising F CME Office F Donations Office F Depreciation F Dues Office F Health Office F Liability F Malpractice office F Work Comp F Interest F Pension/Profit F Postage V Professional Fees Office _ EMR, etc F Billing based on Fees 7% allocated to MD V 315, Rent F Repairs Maintenance F Telephone Office V Entertainment Office F Outside Services F 26, Office Expense V Payroll - BFL Ultrasound V Payroll Staff Manager F Payroll Staff The rest V Medical Supplies V Taxes Payroll - F & V Staff BFL Ultrasound 7.65% V Staff - Manager F Staff the rest V Taxes Licenses Office F Operating Expense 2,300, ,299,909 Net Income Prior to MD Direct Expense 1,026, , , ,087. 2,928,

13 Equal Distribution Formulas Not common As we have observed from the rapid decline of the communist system, it is simply human nature to work harder if you are directly rewarded for your efforts. There is no incentive or motivation to be more productive if you receive the same compensation regardless of productivity. Groups who have switched to productivity formulas from equal distribution formulas report an almost immediate increase in overall productivity from all partners, which levels out at higher levels than previous equal distribution levels. Income Distribution Shared/ % based on Productivity The more the MDs work individually, the greater the % should be on Productivity egg, 80% productivity, 20% equal Net Income Available for Distribution If the MDs are specialists and share work, the % may be weighted more on equal split, e.g. 60% equal, 40% production 13

14 Income Distribution Shared/ % based on Productivity case Dr. A Dr. B Dr. C Dr. D Group Total MD Revenue and % 1,752,862. 1,177,426. 1,092,423 1,206,383 5,229, % 22.52% 20.89% 23.07% % Operating Expense deemed reasonable and equal 2,300,284 2,300,284 Net Income Available for Distribution 2,928,812. Net Income Available for Distribution 60% equal/40% Production 60%2,928,812. 1,757, , , , , ,757, % 1,171, , , , , ,171, ,928, MD Net Income Prior to Direct Expense 60/40 832, , , , ,928, Stipend for Managing? Hourly Rate? Based on income/time spent? Arbitrary Amount? MGMA, AMGA and other Benchmarks? 14

15 Managing Partner Stipend? 4 MDS in the Practice Managing Partner Stipend $ 680,000 Net INCOME Per hour 5 Hours per week Per week $ 85, Per year $ 21, Per MD 4 hours per week 1308 per week $ 68, per year $ 17,000 Per MD SEMI RETIREMENT - DISCONTINUING CALL, SURGERY, OB The group should plan now how to handle when the doctor approaches retirement age and decides to slow down. A minimum expense shared must be maintained if the group splits expenses on an equal and variable basis If an income share arrangement occurs, the doctor will drop in income due to productivity percentage drop. The doctor who discontinues OB will not share in the OB pool Dropping call can be estimated by the group's hourly wage (income divided by hours) times the hours of call per weekend or evening per year. 15

16 Penalties for Behavior Time frames for charges submission Affects cash flow for the group Daily or weekly submission required Time frames for chart completion/dictation E.g. 2 grace periods, 3 rd $2,500 fine, 4 th $5,000 fine, 5 th termination MD Charged for Staff Overtime Quality & Clinical Measures Incentives Primary Care - Points Achieve DPRP/NCQA Recognition (Diabetes Management) Implementation of Electronic Medical Record Closing of charts within 48 hours Chart documentation is completed using Epic tools (no dictation) Patient Satisfaction Scores Tobacco Use Assessment and Cessation Counseling Coding Compliance Chart Audit Pro Bono Work 16

17 Quality & Clinical Measures Incentives Primary Care - Points Open Access Scheduling Geriatric METRIC Coronary Artery Disease Colorectal Screening Patient Centered Medical Home Childhood Immunizations Hypertension Quality & Clinical Measures Incentives Primary Care BONUS POTENTIAL Based on POINTS FOR THE MEASURES 1-5 scale Pay Out Grid: 4.5 to 5 = $20, to 4.49 = $15, to 3.49 = $10, to 2.49 = $ 5, to 1.49 = $ 3,000 < 1.0 = $ 0 17

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19 3 Centerpieces in Hospital-Owned Physician Group Compensation Plans Written by Bob Herman December 13, 2012 Social Sharing Here are three common areas of hospital-owned group compensation plans and how much emphasis each area typically warrants according to the article: Individual production (wrvus or collective revenues): 70 percent Individual performance (quality, safety, patient satisfaction, efficiency): 10 percent Team/organizational performance (profitability, quality, safety, patient satisfaction, efficiency): 20 percent WRVU Calculation Must have data RVU DATA GASTROENTEROLOGY Physician Work RVUs Physician Work RVUs Physician Work RVUs Physician Compensation per Physician Work RVUs Physician Compensation per Physician Work RVUs Physician Compensation per Physician Work RVUs MGMA Physician Compensation and Production Survey 2016 AMGA 2016 Sullivan Cotter 2016 MGMA Physician Compensation and Production Survey 2016 AMGA 2016 Sullivan Cotter 2016 Mean 8,674 8,569 8,059 $73.22 $62.89 $ th Percentile 13,142 12,332 11,761 $ $85.84 $ th -80 th Perc. 10,051 10,801 9,654 $77.37 $73.91 $71.88 Median 8,338 8,264 7,922 $62.84 $59.25 $ th -25 th Perc. 6,807 6,226 6,094 $49.94 $47.16 $

20 Must have Regional data RVU DATA GASTROENTEROLOGY Western Region Physician Work RVUs MGMA Physician Compensation and Production Survey 2016 Physician Work RVUs MGMA Physician Compensation and Production Survey 2016 Physician Work RVUs Sullivan Cotter 2016 Physician Compensation per Physician Work RVUs MGMA Physician Compensation and Production Survey 2016 Physician Compensation per Physician Work RVUs MGMA Physician Compensation and Production Survey 2016 *Physician Owned *Physician Owned Mean 7,741 7,653 7,894 $83.65 $ th Percentile 10,733 10,333 10,884 $ $ th -80 th Perc. 8,821 8,643 9,004 $93.60 $ Median 7,360 7,252 7,678 $67.62 $ th -25 th Perc. 6,251 6,251 6,467 $55.89 $58.20 Sample Salary based WRVU GI Usually set at 80% of Median FMV Salary, may try to set at 25% level of $ per WRVU, but production expectation set at Median level Median Salary = $500,000 at Minimum WRVU of 8,000 median at 80% = $400,000 base salary 80% = 6,400 WRVU Any WRVU achieved over this base level will be paid at $60.00 per WRVU MD achieves 1600 additional WRVU over 6,400 gets additional compensation 1600 WRVU x $60.00 = $96,000 Plus base of $400,000 = $496,000 for the year or close to median salary level. What if expectation of productivity was at median level, but bonus at 25% level or $47 per WRVU? 1600 x $47 = $75,200 bonus or $23,500 less compensation 20

21 PHOTO OPTION Melissa J. Garretson, MD, a delegate for the American Academy of Pediatrics and a pediatrician in a Texas emergency department, talked about the pressure she faces to meet her employer's performance goals. "Over the past few years, it's gotten uglier and uglier, " she said. [Photo by Luci Pemoni / AP Images for American Med Transitioning to Health Reform Future: Reasons to move toward alternative compensation models: Commercial payors already shifting toward payment for quality and outcomes, ahead of CMS Greater lead time for employers and physicians to identify and become comfortable with appropriate quality and outcomes measures May soften impact of cultural/economic shifts associated with future ACO implementation 21

22 Current FFS environment Productivity-based compensation plans tend to be most prevalent. Physicians are not directly incentivized to perform nonclinical work. Work RVUs utilize tiered payment rate structures that disproportionately reward high producers Hospitals are seeking greater physician involvement in their broader service line performance efforts. Specific service line performance incentives that reward physicians for quality, citizenship, and other non-productivity related efforts can better support hospital objectives. Objectives of compensation plan: Reward physicians at FMV Encourage diligent work efforts Provide reasonable income stability/continuity during transition to reformed healthcare industry Promote quality Reward collaboration with other providers and caregivers Encourage better communication with patients Promote care in the right setting Reward effective/efficient use of limited hospital/system resources Health Leaders Media Intelligence Report, Physician Compensation: Shifting Incentives (2011) 22

23 First Step Benchmark the MDs MD Annualized Wage Cardiology Specialty Benchmark Level Dr. A 410,000 Interventional 20-25% Dr. B 364,008 Medical cardiology 20-25% Dr. C 410,000 Interventional 20-25% Dr. D 222,000 Medical/ cardiology <20% Dr. E 450,125 Medical/Some Interventional 50% Dr. F 278,475 Interventional <20% Dr. G 366,998 Interventional <25% 23

24 WRVU Benchmarking 2015 Annualized Benchmark Level MD Cardiology Specialty Dr. A 6,464 Interventional 20% Dr. B 1,336 Medical cardiology NA Dr. C 7,131 Interventional 25% Dr. D 2,659 Medical/ cardiology 10% Dr. E 4,372 Medical/Some Interventional <20% Dr. F 5,427 Interventional 20-25% Dr. G 7,166 Interventional 25% TOTAL 34,364 Weighted Average WRVU 2013 $49.20 X1 $ $50.00 X2 $ $51.22 X3 $ =6 = $ /6 WEIGHTED AVERAGE = $

25 New Compensation Model MD TERMS New contracts Dr. A Dr. B Dr. C Dr. D Dr. E Dr. F Dr. G MGMA weighted average $50.48 per for baseline of 6500 WRVU, above = $56 per WRVU, >8500 = $62 per WRVU Cath Lab/Interventions = 50% equal, 50% on Production, $12,000 bonus as described, If does not achieve 6,500 for the year subsequent year baseline reduced by # of WRVUs less than 6500 x $50 per WRVU Yr1 - $30,334/mo plus $60 above 1520 qrtly WRVUs. Yr2 - $27,300/mo plus $60 above 455 mthly WRVUs. Yr3 - $21,234/mo plus $60 above 354 monthly WRVUs threshold should be 5500 WRVUs per year times weighted average or reduction in base subsequent year. $12,000 bonus as described, MGMA weighted average $50.48 per for baseline of 6500 WRVU, above = $56 per WRVU, >8500 = $62 per WRVU Cath Lab/Interventions 50% equal, 50% on Production, $12,000 bonus as described. If does not achieve 6500 for the year subsequent year baseline reduced by # of WRVUs less than 6500 x $50 per WRVU 3500 threshold at $$49 per WRVU, WRVUs = $50.48 per WRVU, = $56 WRVU, >5500 = $62 per WRVU. If does not achieve 3500 threshold for the year, subsequent year baseline reduces by # of WRBVUs less than 3500 x $49. $12,000 bonus as described WRVU baseline at $50.48, = $56 per WRVU > 6500 = $62 per WRVU + CMO comp $124,800/year; $150/day for telemedicine services, $12,000 bonus as described, MGMA weighted average $50.48 per for baseline of 6500 WRVU, above = $56 per WRVU, >8500 = $62 per WRVU Cath Lab/Interventions = 50% equal, 50% on Production, $12,000 bonus as described, If does not achieve 6,500 for the year subsequent year baseline reduced by # of WRVUs less than 6500 x $50 per WRVU MGMA weighted average $50.48 per for baseline of 6500 WRVU, above = $56 per WRVU, >8500 = $62 per WRVU Cath Lab/Interventions = 50% equal, 50% on Production, $12,000 bonus as described, If does not achieve 6,500 for the year subsequent year baseline reduced by # of WRVUs less than 6500 x $50 per WRVU GROUP All share group bonus equally split among MDS for WRVUs at $50 per WRVU over 10,125 per quarter Group Bonus Goal The target goal would be a threshold of 10,145 WRVUs for quarter. Any WRVUs over this threshold would be compensated at $50 for WRVU split equally among all the doctors. Example: 10,325 WRVUS = 200 over threshold x $ 50 per WRVU = $10,000/7 MDs = $1, group bonus per MD. The physician is still credited individually, but this will also stimulate group goals to work together and to have all doctors encourage all to pull your weight. It benefits the organization by total higher productivity. 25

26 What if MD falls below expected productivity? Due to decreased reimbursement and decreased reimbursement trends in hospital revenue generated by physicians, and the average loss per physician of $ ,000 per year per employed physician, it is recommended to have a clause in the employment contract that if the physician does not achieve the baseline WRVUs for the year, the base compensation for the following year will be reduced. This encourages productivity by the physician. Example: If the physicians productivity level for the year of this agreement falls below the baseline threshold of WRVUs, (annual threshold level), Physicians base compensation salary for the following year will be reduced by an amount equal to the difference between the annual threshold level and physician productivity level for the current year, multiplied by $ per WRVU unless after meeting with the medical group leadership team, Physician can demonstrate to the medical group leadership team s reasonable satisfaction that the physician s reduced productivity levels were due to unforeseen, or unavoidable issues. Bonus structure: The doctors have been awarded $12,000 incentive bonus per year with no defined criteria to achieve this bonus. It is recommended to have 50% or $6,000 based on individual performance including individual patient satisfaction, promotional activities such as speaking out in the community and marketing plus quality measures developed by the committee and organization and 50% based on team/organizational goals. A point system for each criterion is developed with a five point scale for each criterion. Example: 5 for excellent performance, 4 for very good, 3 for good, 2 for average, 1 below average and 0 for not participating. A sample contract clause is as follows: The physician will be eligible for the individual and team/organization bonus in the maximum amount of $12,000, 50% on individual performance and 50% on team/organization performance. The bonus will be determined in accordance with Medical Group s Scorecard, as amended from time to time or anytime. The bonus will be paid within 30 days after December 31 st of each year. 26

27 AMA Advice For example, if an employer requires or pressures physicians to send referrals within the health care organization, that practice ought to be disclosed to patients, the AMA policy states. Another principle at stake is physicians freedom to advocate for their patients or act on matters of professional judgment, which the house said employers should not restrict. Also, employers should make clear to doctors the factors on which their compensations are based and how their performances will be evaluated. Employed physicians should have the same rights to participate in medical staff self-governance as doctors in independent practices, the policy states. The American Medical Association adopted a set principles for physician employment, five of which address conflicts of interest. The policy seeks to help doctors manage the divided loyalty they may face as employed physicians. A doctor s paramount responsibility is to his or her patients. Additionally, given that an employed physician occupies a position of significant trust, he or she owes a duty of loyalty to his or her employer. This divided loyalty can create conflicts of interest, such as financial incentives to over- or undertreat patients, which employed physicians should strive to recognize and address. Employed physicians should be free to exercise their personal and professional judgment in voting, speaking and advocating on any matter regarding patient care interests, the profession, health care in the community and the independent exercise of medical judgment. Employed doctors should not be deemed in breach of their employment agreements, nor be retaliated against by their employers, for asserting these interests. 27

28 In any situation where the economic or other interests of the employer are in conflict with patient welfare, patient welfare must take priority. Doctors should always make treatment and referral decisions based on the best interests of their patients. Employers and the physicians they employ must ensure that agreements or understandings (explicit or implicit) restricting, discouraging or encouraging particular treatment or referral options are disclosed to patients. Assuming a position such as medical director that may remove a doctor from direct patient-physician relationships does not override professional ethical obligations. Physicians who hold administrative leadership positions should use whatever administrative and governance mechanisms exist within the organization to foster policies that enhance the quality of patient care and the patient care experience. 28

29 Contact Me: Debra Phairas, President (415) Second Street #229 San Francisco, CA Continuing Education ACMPE 1 credit, CPE 1.2 credits, CEU 1credit NEW! CPE code: Remember to get scanned into every session throughout the conference to qualify for CPE and CEU credit. Let the speakers know what you thought! Fill out the speaker evaluation ed to you at the end of each day. 29