Physician Compensation In Today s Changing Market

Physician Compensation In Today s Changing Market PRESENTED BY: STEVE RICE, AREA PRESIDENT, INTEGRATED HEALTHCARE STRATEGIES STEVE MCCAMY, PRESIDENT AND CEO OF COVENANT MEDICAL GROUP NOVEMBER 9, 2016

Agenda 1 2 3 4 Current State of Physician Compensation Plans Current Models Patient Satisfaction and Quality Financial Performance Future State Case Study Covenant Medical Group Factors Forcing Change MACRA What Future Looks Like Sample Models Challenges with Change and What You Can Do What s Working and What Isn t Discussion Questions 1

Current State of Physician Compensation What are Organizations Doing Now? What we use to hear Comments from physicians I don t care what model you come up with, just make sure my income doesn t go down I want to be paid for both my practice (which is worth $1M) and my productivity (I think I deserve more than I make in private practice when I am employed) Don t change one thing with my practice when I become aligned (not employed) with your hospital including keeping my spouse as the practice administrator and my cousin as the billing agent I need to be paid for my contribution and downstream revenue I bring to the hospital Comments from administration I don t care what I have to pay, or how we will run their practice, I just need to get them employed Sure, let s initially keep their family in the practice as long as the doc is happy, we will deal with it later I worked this deal out with the physician on the golf course I don t know if it is consistent with anything else we have done I don t think we can pay them for their downstream revenues can we? 2

Current State of Physician Compensation What are Organizations Doing Now? What we hear now Comments from physicians I just want to be out of the business of running my practice I need a better quality of life What is my call/vacation schedule Do I get an RVU for going to that meeting I haven t been to the hospital in years, but I hear they are doing well I need another nurse and a scribe if I am going to get all of my work done Comments from administration I can t afford to pay what MGMA says How come we are losing so much money on physician practices? 3

Cash Compensation Models Current State of Physician Compensation What are Organizations Doing Now? Hospitals are evolving from a straight productivity model where cost and financial performance are not considered, to one that is based on a blend of productivity, quality, and financial performance pace of change varies dramatically by organization Practice Income Effort- Based (Market) Salary Models Private Practice Model Evolution Eat what you kill Initial I.D.S. Integration Blend of Salary and Market Market- Based Integrated Practice Compensation Model Blend of Market and Income Emerging Models 2

Current State of Physician Compensation What are Organizations Doing Now? Productivity Still Dominant Does Comp Plan Include Productivity? 100% 90% 80% 85% 87% 86% 80% 70% 60% 50% 40% 30% 20% 15% 13% 14% 20% 10% 0% Primary Care Medical Surgical Hospital Based Yes No Data above from 2016 Gallagher Integrated Survey shows vast majority of organizations use productivity incentives 5

Current State of Physician Compensation What are Organizations Doing Now? Productivity Still Dominant 100% 97% 98% Productivity Incentive Measures 96% 90% 85% 80% 70% 60% 50% 40% 30% 20% 10% 0% 27% 26% 23% 24% 15% 16% 13% 14% 8% 7% 8% 8% 6% 4% 5% 3% 1% 2% 2% 3% 2% 0% 0% 1% Primary Care Medical Surgical Hospital Based Work RVUs or ASA Units Professional Collections Visits or Encounters Hours/Shifts Worked Professional Charges Patient Panel Other Data above from 2016 Gallagher Integrated Survey shows Work Relative Value Units ( wrvus ) most dominant measure 6

Current State of Physician Compensation What are Organizations Doing Now? Most Common Model - Base Plus Production Most organizations today have a more complex compensation plan that pays physicians for any number of activities Quality is the most common with 80% to 85% of organizations offering some type of quality incentive BASE SALARY (DRAW) PRODUCTIVITY INCENTIVE TEACHING PAYMENTS RESEARCH PAYMENTS ADMINISTRATIVE PAYMENTS COMPENSATION FOR APC SUPERVISION QUALITY INCENTIVE PAYMENTS PAYMENTS FOR EXCESS CALL COVERAGE SIGNING AND RETENTION BONUSES STUDENT LOAN FORGIVENESS PAYMENTS MALPRACTICE TAIL PAYMENTS PHYSICIAN BENEFITS 7

Current State of Physician Compensation What are Organizations Doing Now? Base Salary plus Incentive Considered the market standard model used for employed physicians today Risk amount must be meaningful (i.e., 10% to 50% of pay at risk) Incentive compensation performance indicators Individual productivity (typically 10% to 45% of at risk portion) o Measures typically either wrvus or professional collections o Can be tied to base salary threshold or used against a salary draw Non-production (typically 5% to 15% of at risk portion) Examples include patient satisfaction, quality of care, practice operations measures, citizenship, etc. Typically wrvus or collections Individual, Group, or combination Patient Patient Satisfaction Satisfaction Clinical Outcomes Other Other (e.g., Door to Doc) Coding Based on market or percent of prior year Physician Targeted Compensation Base Salary / Hourly Rate Production Incentive Quality / Citizenship 8

Current State of Physician Compensation What are Organizations Doing Now? The model can flex across specialties (e.g., primary care, specialists, hospital-based) for an appropriate allocation of compensation 10% 10% 15% 15% 30% 5% 75% 60% 80% Primary Care Specialist Hospital-Based Base Salary Production Incentive Clinical Quality/Satisfaction 9

Current State of Physician Compensation What are Organizations Doing Now? Some organizations have simplified their physician compensation models while still recognizing differences between primary care and specialty care models: Physician Compensation Primary Care Compensation Model Base Salary determined based on: Experience Specialty market rate Whether past performance is consistently above or below expected productivity 13.5% 8.0% 20.0% Specialty Care Compensation Model Base Salary determined based on work effort including: Teaching Research Administrative services Productivity Participation in PCMH paid on the basis of active participation in the hospital s medical home model of care delivery Incentive Bonus based on: Quality (60%) Citizenship (6%) Financial performance (34%) 78.5% 80.0% Primary Care Specialist Base Salary Participation in PCMH Incentive Bonus Incentive Bonus based on: Quality (40%) Innovation (10%) Legacy: education and research missions (10%) Growth: increasing population hospital serves (15%) Financial performance (25%) 10

Current State of Physician Compensation What are Organizations Doing Now? Implementation of Quality Incentives Organizations are selecting quality incentive measures for which they have accurate, credible data and measurement processes Quality incentives typically include the following types of measures: SATISFACTION Patient Referring physician Staff CLINICAL OUTCOMES Clinical indicators tied to specialty OPERATIONAL Documentation Chart review Coding PROGRAMMATIC Research Outreach Teaching activities Many programs are moving from Individual to Group models: Historically, incentives have been structured as individual measures Increasingly common for healthcare organizations to incorporate a Group Balanced Scorecard Incentive o Under this structure, the group must meet the goals or no physician earns the incentive 11

Current State of Physician Compensation What are Organizations Doing Now? - Quality/Operational Incentives The following lists the most common quality and operational based incentives: 89% 89% 90% 86% 71% 67% 73% 71% 43% 36% 36% 35% 32% 22% 25% 27% 29% 28% 24% 24% 22% 25% 18% 13% Primary Care (n=176) Medical (n=166) Surgical (n=175) Hospital Based (n=182) Patient Satisfaction Outcomes/Clinical Pathways Citizenship Patient Access Specialty/Practice Financials Hospital/Network Financials 12

Current State of Physician Compensation Impact of Financial Performance Data has shown that hospitals lose anywhere from $100,000 to $350,000 per physician on average However, latest data suggests that organizations have gotten better in this area with average loss per physician data coming down over the last year or two This could be attributable to slowing in spending on IT/EHR for some and/or standardizing and streamlining operations and administration as employed networks have grown o Or could simply be due to growing the group and adding more PCP physicians which typically have a lower cost Organizations have also started to adjust their compensation models (either through establishing wrvu rate and/or having separate incentives for financial performance as shown on the following page) to align the financial performance of the group and the level of physician compensation The illustration on the following page is a sample model for how organizations have adjusted their wrvu rates to account for cost o This model could be adjusted for any other factors including cost/rvu, collection/rvu, etc. 13

Low WRVUs < P25 P25 - P50 Production Level <--- ----> P50 - P75 P75 - P90 High WRVUs > P90 Current State of Physician Compensation Impact of Financial Performance Expense Mgmt High Cost <--- ----> Low Cost > 50% 50-45% 45-35% 30-35% < 30% P50 P55 P60 P65 P70 P45 P50 P55 P60 P65 P40 P45 P50 P55 P60 P35 P40 P45 P50 P55 P30 P35 P40 P45 P50 14

FUTURE STATE 15

Future State of Physician Compensation Factors Forcing Change A number of factors over the last few years have been forcing organizations to reconsider their compensation plan including: Increased importance/focus on Triple Aim (Cost, Quality, Service) and organizations going through Six Sigma and Lean processes Increase in shared savings and bundled payment programs Increased at-risk payments for quality outcomes and patient satisfaction (HCAHPS/CGCAHPS) Increase in utilization of EHR and focus on clinical outcomes Hospitals continued focus to be top performing hospital The implementation of the Accountable Care Act and Accountable Care Organizations ( ACO s ) Increased implementation and utilization of Clinically Integrated Networks Reduced reimbursement Increase in consumerism and patients directing more of their care A change in the care delivery model/team to include increased use of Advanced Practice Clinicians, care coordinators, patient advocates, etc. Significant growth in employed physician networks that results in a significant investment per physician e.g., $100 - $200M investment not atypical today While these factors certainly have impacted hospitals and their physician compensation planning, perhaps none of them have generated as much discussion as MACRA 16

Future State of Physician Compensation MACRA: What is it? The Medicare Access and CHIP Reauthorization Act of 2015 ( MACRA or Doc Fix Bill ) is a law that ties Medicare payments to quality patient care Instead of tying payments to inflation or other economic indicators under the traditional fee-for-service system, MACRA shifts the Medicare payment system to one based on value Makes three (3) important changes to how Medicare pays for those who give care to Medicare beneficiaries: 1 Ends the Sustainable Growth Rate (SGR) formula for determining Medicare payments for health care providers services 2 Makes a new framework for rewarding health care providers for giving better care not just more care (under fee-for-service) 3 Combines the existing quality reporting programs (Physician Quality Reporting System, Value Modifier Program, and Medicare Electronic Health Record Incentive Program) into one new system 17

Future State of Physician Compensation How MACRA Works The proposed changes replace a patchwork system of Medicare reporting programs with a flexible system that allows organizations to choose from two (2) paths that link quality to payments: MIPS Merit-Based Incentive Payment System OR APM Alternative Payment Models Key ideals for these quality payment programs: First step to a fresh start A better, smarter program for healthier people Pay for what works to create a Medicare that is enduring Health information needs to be open, flexible, and user-centric 18

Future State of Physician Compensation Track 1: MIPS Performance Categories CMS would begin measuring performance for doctors and other clinicians through MIPS in January 2017, with payments based on those measures beginning in 2019 MIPS Performance Category Weights 25% 25% 25% Quality 15% 15% 15% Resource Use 10% 15% 30% Clinical Practice Improvement Activities 50% 45% Advancing Care Information 30% 2017 Reporting 2019 Payments 2018 Reporting 2020 Payments 2019 Reporting 2021 Payments 19

Future State of Physician Compensation Track 1: MIPS Payment The law requires MIPS to be budget neutral, thus the composite scores will be used to determine a positive, negative, or neutral adjustment to their Medicare payments Range of MIPS Adjustments by Year 27% 27% 21% 15% 12% -4% -5% -7% -9% -9% 2019 2020 2021 2022 2023 Physicians whose composite score is above the threshold will receive a positive adjustment o Positive adjustments will be awarded proportionally, up to a maximum of 3 the annual cap for negative payment adjustments (3 adjustment is unlikely) o An additional bonus (not to exceed 10%) will be applied to eligible clinicians with exceptional performance where the composite score is greater than an additional performance threshold 25 th percentile of possible values above performance threshold Composite scores below the performance threshold will result in a negative payment adjustment o Scores less than or equal to 25% of the threshold (lowest 25% of clinicians) will yield the maximum negative adjustment amount 20

Future State of Physician Compensation Track 2: APM Overview APM Track: Alternative Payment Models are new approaches to paying for medical care through Medicare that incentivize quality and value As defined by MACRA, advanced APMs are those in which clinicians accept risk for providing coordinated, highquality care o Advanced APMs must meet certain criteria and include the following: Comprehensive End-Stage Renal Disease (ESRD) Care Model (Large Dialysis Organization arrangement) Comprehensive Primary Care Plus (CPC+) Medicare Shared Savings Program (Track 2) Advanced APMs Medicare Shared Savings Program (Track 3) Next Generation Accountable Care Organization (ACO) Model Oncology Care Model Two-Sided Risk Arrangement (available in 2018) MACRA does not change how any particular APM functions or rewards values, but rather it creates extra incentives for advanced APM participation Goal is to have 50% of all Medicare fee-for-service payments made through APMs by the year 2018 21

Future State of Physician Compensation MIPS and APM Track Timelines 2015 and earlier 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 + PFS 0.5% 0.5% 0.5% 0.5% 0% 0% 0% 0% 0% 0% 0.75% QAPMCF* 0.25% N-QAPMCF** Quality Resource Use MIPS Clinical Practice Improvement Activities 4% 5% 7% Meaningful Use of Certified EHR Technology PQRS, Value Modifier, EHR Incentives MIPS Payment Adjustment (+/-) 9% Certain APMs Qualifying APM Participant Medicare Payment Threshold Excluded from MIPS 5% Incentive Payment Excluded from MIPS * Qualifying APM Conversion Factor ** Non-Qualifying APM Conversion Factor 22

Future State of Physician Compensation What Does the Future Look Like? Current State vs. Future State for Providers: 1 Current State FFS Only vs. Other Payment Models Future State Projected Mix of Payment Models Among Providers who are Other Than 100% FFS FFS 57% 43% 34% FFS Only, 7% I don t know, 12% Mix of FFS and Other Models, 81% Episode of Care/Bundled Capitation 11% 11% 14% 13% 12% 16% 13% 14% Global Payment P4P Other (e.g., Shared Savings) 10% 9% 15% 21% 3% 3% 3% Today 2 Years 5 Years 1 McKesson Corporation, The State of Value-Based Reimbursement and the Transition from Volume to Value in 2014 (2014) 23

Future State of Physician Compensation What Does Future Look Like? Current State vs. Future State for Providers: 1 Though not prevalent in models today, many organizations anticipate implementing cost efficiency measures within two to three years Value-Based Metrics Measured in Provider Organizations Today 2-3 Years Neither Don't Know 2% 3% 4% 3% 4% 2% 2% 2% 2% 4% 17% 16% 18% 22% 21% 9% 7% 47% 79% 78% 76% 73% 71% 37% Patient Experience Measures Mortality Measures Healthcare Associated Infection Measures Clinical Process of Care Measures Patient Safety Measures Cost Efficiency Measures 1 McKesson Corporation, The State of Value-Based Reimbursement and the Transition from Volume to Value in 2014 (2014) 24

Future State of Physician Compensation What Does Future Look Like? A sample compensation model for primary care physicians that incorporates panel size and quality measures: 1 Physician A's Compensation Proportions vary based on productivity levels, panel size, and performance relative to quality scores 45% 55% Physician B's Compensation 55% 45% Based on Panel Size & Quality Compensation Based on Panel Size & Quality: Panel Size Component: internally-set minimum panel size expectation for physician to earn a defined level of compensation (e.g., median compensation) Quality Component: a portion of panel size & quality-based compensation may be at-risk or added-on based on the physician s scores relative to various quality metrics Resulting amount is multiplied by a percentage determined by the organization that represents the level of compensation attributed to physician panel size and quality Example: Panel size of 1,500 patients corresponds to a base salary level of $200,000 Physician quality scores add another $20,000 $220,000 50% = $110,000 in panel size & quality compensation Based on Productivity Compensation Based on Productivity: Physician wrvu productivity multiplied by a specialtyspecific payout rate (similar to fee-for-service world) Resulting amount is multiplied by a percentage determined by the organization that represents the level of compensation attributed to physician productivity (volume-based compensation) Example (continued): 4,500 wrvus $42.00 per wrvu = $189,000 $189,000 50% = $94,500 in productivity-based compensation Physician s clinical compensation would be $110,000 + $94,500 = $204,500 1 ECG Management Consultants, Paying Primary Care Physicians in a Hybrid Reimbursement Environment 25

Future State of Physician Compensation What Does Future Look Like? A sample compensation model for primary care physicians that incorporates a per-patient per-month component: 1 Physician's Compensation 66% 29% 5% Base Salary Incentive-Based Compensation Per-Patient Per-Month Compensation Plan Components: Base Salary based on years of experience Incentive-Based Compensation tied to: Access Clinical quality Service quality Efficiency Productivity Citizenship Panel management fee Example: $4.00 per patient managed Sample Calculation: Compensation Component Compensation Productivity: 2,500 patients Base Salary: $140,000 Incentive-Based Compensation For Service Quality: $10,000 For Clinical Quality: $50,000 Per-Patient Per-Month Management Fee: $10,000 Clinical Compensation: $210,000 1 Physician Leaders, Roadmap for Physician Compensation in a Value-Based World (2014)) 26

Future State of Physician Compensation What Does Future Look Like? Sample PCP Panel Model Used By Client Assumptions for Modeling: We started all modeling using a Family Practice Physician (w/out OB) based upon the following market data: 25 th Percentile Compensation - $175,000 Median Cash Compensation - $215,000 62.5 Percentile Cash Compensation - $235,000 75 th Percentile Cash Compensation - $265,000 90 th Percentile Cash Compensation - $335,000 Median wrvus - 5,000 Average Panel Size - 2,000 Panel Member Rate - $107.50 ($215,00 / 2,000 pts) The model started by developing the compensation pools for the average/median performer The compensation pools were then fixed and set at the same opportunity for all physicians in that specialty based upon the philosophy of the model The ability to increase income above P75 will be based upon panel size The intent of the model is that it would be updated every year to reflect latest market data 27

Future State of Physician Compensation What Does Future Look Like? Sample PCP Panel Model Sample Model Structure: Philosophy is to position base salary at 50% of market median and allow a physician with the average panel size, who is earning the expected value based payments (e.g., assumes 70% of total opportunity is earned), to be paid at market median If the physician earns full value based payments they would be paid up to 62.5 percentile The only way to earn more than the 62.5 percentile would be to take on a larger panel size Base Salary Base Salary will be same for every physician and set at 50% of the P50 rate for the specialty Panel Size Assumes each physician has a panel of 2,000 patients Expected that physician will have a minimum panel size to participate Value Based Performance Value Based Performance opportunity determined based on (percent of at risk opportunity): Financial Performance Quality Patient Satisfaction Citizenship Utilization Clinical Cash Compensation 28

Future State of Physician Compensation What Does Future Look Like? Sample PCP Panel Model Sample Model Illustration: Result: Median Producer, with Average (70%) VBP can earn P50 P50 FTE Weight Comp Base Salary $215,000 1.0 50% $107,500 Rate Panel Weight Comp Panel Size $107.50 2000 25% $53,750 Value Based Performance Perf Opportunity Weight Comp Quality 70% $15,000 $10,500 Patient Sat 70% $15,000 $10,500 Finance 70% $15,000 $10,500 Citizenship 70% $15,000 $10,500 Utilization 70% $15,000 $10,500 TOTAL VALUE BASED PAYMENTS $75,000 $52,500 TOTAL $213,750 Result: Median Producer, with very high (100%) VBP can earn P62.5 P50 FTE Weight Comp Base Salary $215,000 1.0 50% $107,500 Rate Panel Weight Comp Panel Size $107.50 2000 25% $53,750 Value Based Performance Perf Opportunity Weight Comp Quality 100% $15,000 $15,000 Patient Sat 100% $15,000 $15,000 Finance 100% $15,000 $15,000 Citizenship 100% $15,000 $15,000 Utilization 100% $15,000 $15,000 TOTAL VALUE BASED PAYMENTS $75,000 $75,000 TOTAL $236,250 29

Future State of Physician Compensation What Does Future Look Like? Sample PCP Panel Model Sample Model Illustration Result: Low Producer, with higher (80%) VBP can earn below P50 P50 FTE Weight Comp Base Salary $215,000 1.0 50% $107,500 Rate Panel Weight Comp Panel Size $107.50 1200 25% $32,250 Value Based Performance Perf Opportunity Weight Comp Quality 80% $15,000 $12,000 Patient Sat 80% $15,000 $12,000 Finance 80% $15,000 $12,000 Citizenship 80% $15,000 $12,000 Utilization 80% $15,000 $12,000 TOTAL VALUE BASED PAYMENTS $75,000 $60,000 TOTAL $199,750 Result: High Producer, with very high (100%) VBP can earn above P75 P50 FTE Weight Comp Base Salary $215,000 1.0 50% $107,500 Rate Panel Weight Comp Panel Size $107.50 4500 25% $120,938 Value Based Performance Perf Opportunity Weight Comp Quality 100% $15,000 $15,000 Patient Sat 100% $15,000 $15,000 Finance 100% $15,000 $15,000 Citizenship 100% $15,000 $15,000 Utilization 100% $15,000 $15,000 TOTAL VALUE BASED PAYMENTS $75,000 $75,000 TOTAL $303,438 30

Future State of Physician Compensation Challenges Challenges in Shifting to New /Future Compensation Models: REIMBURSEMENT In most locales, reimbursement patterns haven t changed enough to matter as demonstrated by the amount of revenue from risk-based contracts equating to only 2-3% for the median health system RISK ADVERSE Many hospitals and systems have chosen to wait and watch rather than experiment and are learning from others experience what works best without having to invest or risk much in these early stages INFRASTRUCTURE Most hospitals and systems don t have the information systems or databases they need to measure or manage risk and manage patient attribution/panels Some are developing systems and databases but are not yet using them for measuring performance; others are acquiring or merging with health plans (or other non-traditional partners), or experimenting with their self-insured populations COST Many hospitals and systems lack the resources and can t afford the needed information systems to make the changes necessary to manage population health, and as such are exploring other alternatives (mergers, sales, and affiliations) 31

Future State of Physician Compensation What Can I Do? 4 Organizational Capabilities that Providers can Develop as the Industry Shifts to Reward Value: 1 People & Culture Business Intelligence Performance Improvement Contract & Risk Management What it is: Ability to collaborate, effectively manage change, communicate a value message, and create accountability to valuedriven goals Ability to collect, analyze, and connect quality and financial data to support organizational decision making Ability to eliminate clinical variation, unsafe practices, and waste Ability to predict and manage different forms of patient-related risk under different payment methodologies Specific Strategies and Tactics that Organizations can Adopt: Determine strategy for achieving value Align executive leaders Strengthen governing board Integrate and incentivize physicians Strategically transition staff Invest in clinical IT Invest data warehouse and analytics Improve costing capabilities Track performance Develop process improvement capabilities Adopt evidence-based medicine Partner for population health management Engage patients and community Plan for value-based initiatives Understand your costs Mitigate insurance risks Pursue value-based payment contacts Develop a flexible culture 1 Healthcare Financial Management Association, A Common Trek to Value (2014) 32

CASE STUDY COVENANT MEDICAL GROUP 33

Case Study Covenant Medical Group Background Discuss quick background on CMG 261 providers 39 specialties Historically FFS and a wrvu model Very financially focused and aligned with new pay models Relationship with hospital Competitive environment Clinical Integrated Network with independents Member Accountable Care Organization 34

Case Study Covenant Medical Group Current Plan Discuss current model Still mostly FFS/wRVU but implementing Cost, Quality, Service etc. Financial performance, individual, Medical Group Each physician has base pay of 90% of previous year earnings up to 75 th %ile of survey data Withhold of 5 20% for quality, EMR utilization, CME, patient satisfaction ACO payback is bonus 35

Case Study Covenant Medical Group Lessons Learned/Challenges Discuss what worked and what didn t for CMG Most important Physician Leadership/Board of Directors/Medical Directors Biggest Concern Recruiting, retaining physicians that want to make this new system successful. Changing Culture Reality It must be integrated with all levels of care 36

Questions? 37