Physician Compensation: The Solution Is in the Process HFMA Gulf Coast Luncheon Meeting

Transcription

1 Physician Compensation: The Solution Is in the Process HFMA Gulf Coast Luncheon Meeting June 17, 2016

2 Agenda K e y D i s c u s s i o n P o i n t s» 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? M e e t i n g Ag e n d a I. Introduction II. Audience Poll III. Key Market Trends IV. Process Considerations V. Aspirational Plan Characteristics VI. Q&A D e s i r e d Outcomes for Participants Why Are We Here?» 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. 1

3 I. Introduction Firm Overview 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. 2

4 I. Introduction Our Compensation Planning Qualifications Since 2000, we have worked with more than 300 clients on 500-plus projects related to provider compensation planning.» 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. 3

5 I. Introduction Our Compensation Planning Philosophy Our Compensation Planning Philosophy» 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. 4

6 I. Introduction Keeping Perspective 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. Clinical Integration Physician Leadership/ Governance Practice Management Performance Monitoring (Data-Driven) Integrated Physician Network Revenue Cycle Performance Patient Access and Scheduling Compensation Plan IT (e.g., EMR) 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. 5

7 II. Audience Poll Why Are You Here? Which of the following best describes you? I routinely deal with physician compensation issues as part of my job responsibilities. I occasionally deal with physician compensation issues. I never deal with physician compensated issues but would like to keep abreast of industry trends. Is anyone currently in the middle of (or considering starting) a compensation redesign process? 6

8 III. Key Market Trends ECG Survey Overview 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. Locations of 2015 Members Adult Pediatric 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 7

9 III. Key Market Trends At-Risk Compensation Declining 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. 80% Percentage of Physicians by Compensation Plan Type 60% 40% 20% 0% 69.5% 69.7% 64.3% 55.9% 50.0% 43.1% 39.0% 30.8% 29.5% 24.2% 17.6% 18.3% 17.9% 20.4% 12.9% 12.0% 11.5% 13.4% 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 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. 8

10 III. Key Market Trends Utilization of Nonproductivity Incentives Increasing 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. Compensation Plan Key Performance Indicators Source: ECG 2011 to 2015 Physician Compensation Surveys. Percentage of Organizations Attribute 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 9

11 III. Key Market Trends Use of Quality Compensation by Specialty Category 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. Quality Compensation by Specialty Category 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% Source: ECG 2015 Physician Compensation Survey. 1 Average represents organizations that utilize the indicator within their compensation plan. Clinical quality compensation by specialty is available in ECG s National Provider Compensation Survey. 10

12 III. Key Market Trends Disconnect Between Compensation and WRVU Production 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. 11

13 III. Key Market Trends Reimbursement Trends At-Risk Revenue While more organizations are entering into risk-based contracting arrangements, nearly 80% still have less than 10% of their gross revenue at risk. Percentage of Gross Revenue at Risk Percentage of Organizations Percentage of Organizations <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% Source: ECG 2013 to 2015 Physician Compensation Surveys. The trend toward more revenue being generated from risk-based contracting arrangements is likely to continue with new CMS mandates. 12

14 III. Key Market Trends Increased Physician Investments 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 $(20,000.00) % -10% $(70,000.00) -29.7% -33.2% -28.3% -28.3% -34.2% -31.5% -20% -30% -40% $(120,000.00) -$138,724 -$148,791 -$148,025-50% -60% $(170,000.00) -$181,407 -$181,963 -$194,266-70% -80% -90% $(220,000.00) Investment Per Physician Percentage of Net Collections -100% Source: ECG 2010 to 2015 Physician Compensation Surveys. 13

15 IV. Process Considerations Overview We believe successful compensation redesign initiatives are a factor of both process and product. PROCESS PRODUCT 14

16 IV. Process Considerations Our Typical Planning Approach Phase I Assessment and Design Criteria Phase II Conceptual Design and Refinement Phase III Implementation Planning Internal Assessment Market Analysis Articulation of Philosophy and Design Principles Design Compensation Elements and Mechanisms» Overarching Framework» Application to Specialty Areas» Plan Features and Elements Financial Analysis and Model Refinement Transition Method and Length Infrastructure Requirements Governance and Management Provider Communication Plan» Value-Based Components 45 to 90 Days 2 to 4-Plus Months 2 to 3 Months 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 15

17 IV. Process Considerations Group Development A successful compensation redesign process should consider a group s current and aspirational positioning along the following structural continuum: FEDERATED INTEGRATED MULTISPECIALTY Dept. G Dept. A Dept. B Dept. G Dept. A Dept. G Dept. A Dept. F Dept. E Limited Common Governance and Shared Services Dept. D Dept. C Dept. F Dept. E Shared Governance and Services Dept. D Dept. C Dept. B Dept. F Dept. E Dept. D Dept. B Dept. C Centrally Controlled Policies and Finances LIMITED CENTRAL GOVERNANCE AND MANAGEMENT STRONG CENTRAL GOVERNANCE AND MANAGEMENT COMMON GOVERNANCE, MANAGEMENT, AND FINANCES How would you characterize the current positioning of your organization? 16

18 IV. Process Considerations Typical Work Structures S T E E R I N G C O M M I T T E E 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 Estimated Meeting Frequency: Monthly S M A L L W O R K G R O U P 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 Estimated Meeting Frequency: Biweekly 17

19 IV. Process Considerations Physician Engagement NO YES Selection Considerations 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. Active physician participation and leadership is critical to a successful redesign process. 18

20 IV. Process Considerations Data Analytics Advanced analytics help ensure data-driven decision making and are an essential ingredient in effective compensation redesign. Impact: System Wide Current State Straw Model #2 Variance % Variance Total FTEs % Total WRVUs 332, ,437-0% WRVUs Per FTE 5,735 5,735-0% Average WRVU Percentile Rank % 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 Physicians Increased 37 Avg. % Increase 23.2% Physicians Decreased 24 Avg. % Decrease -17.2% 19

21 IV. Process Considerations Pre-Implementation Planning Pre-Implementation Checklist Transition Mechanism and Length Infrastructure Requirements Governance and Management Processes Plan Document Market Data Provider Communication Plan 20

22 V. Aspirational Plan Characteristics Overview PERFORMANCE-DRIVEN Compensation levels should be commensurate with a provider s work efforts and holistic performance. 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. TRANSPARENT Compensation mechanisms should be easily understood, with clear rules for adjudicating exceptions. 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. COMPREHENSIVE Plan elements should be inclusive of all relevant mission areas ( CARTS ): Clinical, Administrative, Research, Teaching, and Strategic. SUSTAINABLE Compensation levels should be affordable and aligned with the organization s fundamental practice economics. 21

23 V. Aspirational Plan Characteristics Patient-Centered Compensation Increasingly, organizations are seeking to remove financial disincentives that may impede their ability to deliver patient-centered care. 1 Cardiology 2 Gastroenterology 3 Example Example A cardiology practice pooled WRVUs in order to maintain appropriate levels of patient access to noninvasive services. A gastroenterology practice pooled compensation in order to increase access to chronic disease management services (IBD, Crohn s, etc.). OB/GYN 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. 4 Primary Care 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. 5 Multispecialty 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. 22

24 V. Aspirational Plan Characteristics Flexible Compensation Mechanisms The intrinsic variability between different specialty types and work environments typically precludes a one size fits all approach to compensation. Specialty A Primary Care Specialty B Enterprise Standard: No plan specialization Medical Specialists Surgical Specialists Coverage-Based Specialists Specialty Groupings: Plans based on the categorization of specialties, such as the examples provided above Specialty C Specialty D Specialty E Specialty F Specialty G Specialty H Specialty-Specific Plans Physician-Specific Plans Low High 23

25 V. Aspirational Plan Characteristics Flexible Compensation Mechanisms (continued) In an effort to increase plan consistencies, many organizations are framing core clinical compensation elements in terms of broader specialty groupings. Clinical Activities Component Clinical Activities Component Value-Based Component Clinical Activities Component Value-Based Component Value-Based Component Value-Based Component Base/Fixed Component Base/Fixed Component Base/Fixed or Shift Component Base/Fixed Component PRIMARY CARE MEDICAL OR OFFICE-BASED SPECIALTIES COVERAGE- BASED SPECIALTIES SURGICAL OR PROCEDURAL-BASED SPECIALTIES 24

26 V. Aspirational Plan Characteristics Sustainability 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). Salary guarantees for new recruits are often significantly higher than the average earnings for existing physicians. Many organizations are paying exclusively from market benchmarks, regardless of their underlying group financials. 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. 25

27 V. Aspirational Plan Characteristics Sustainability (continued) A hybrid market definition may help physician organizations keep in touch with the realities of their group s underlying economic performance. FINANCIAL PERFORMANCE EVALUATION I n t e r n a l S t a n d a r d s HYBRID MARKET DEFINITION OBJECTIVE MARKET SURVEYS E x t e r n a l S t a n d a r d s» 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). 26

28 V. Aspirational Plan Characteristics Comprehensive In response to changing market dynamics, some organizations have begun to employ a more progressive payment structure that segments compensation elements by mission area. Clinical Admin. Research Teaching Strategic Volume-Based Compensation Performance Incentive Performance Incentive Performance Incentive Value-Based Compensation Base Compensation Base Compensation Base Compensation Base Compensation Base Compensation To t a l C o m p e n s a t i o n 27

29 Total Clinical Compensation V. Aspirational Plan Characteristics Transparent A lack of transparency and predictability is the most common complaint among physicians who are surveyed as part of our compensation engagements. Base/Fixed Salary Specialty-Specific Benchmark Clinical FTE Status Panel Size Incentive Number of Attributed Risk-Adjusted Patients Panel Size Payment Rate Value-Based Modifier WRVU Incentive Number of Personally Performed WRVUs Above Performance Threshold WRVU Payment Rate Value-Based Modifier Value Incentive Value-Based Performance Value-Based Funding APC Supervision APC Supervisory Stipend Attributed APC FTEs 28

30 V. Aspirational Plan Characteristics Performance-Driven The use of explicit employment obligations and physician compacts supports a performance-driven culture, even as base/fixed salary levels continue to increase. Example Employment Obligations (Primary Care) ACCESS REQUIREMENTS Physicians will maintain a defined number of open slots daily for new patients. WEEKS WORKED PER YEAR Physicians will work a minimum of 47 weeks per year. CLINIC HOURS PCPs will work either 9 sessions (if they follow patients in the hospital) or 10 sessions (if they use hospitalists) each week. NOTE: One session = 4 clinic hours. 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 ADMINISTRATIVE PARTICIPATION WRVU PRODUCTION 29

31 VI. Questions and Discussion Questions & Discussion Tom Methvin