PHYSICIAN COMPENSATION PLAN DESIGN
STRATEGY
Mark Blessing, CPA, FHFMA Partner [email protected]
Randy Biernat, CPA, ABV
Director [email protected]
April 17, 2014
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INTRODUCTION
• Framework for change
• Comparison of common compensation arrangements • Compensation as a tool to drive change
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PHYSICIAN COMPENSATION IN THE HEALTH
REFORM ERA
NAVIGATING HEALTH REFORM
• Next Generation Compensation Plans
o Generally matches the financial
realities of today (fee for service) for majority of compensation
o Encourages skills needed for tomorrow,
including providing some rewards for managing patient care, improving safety, patient satisfaction, etc.
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FINANCIAL ALIGNMENT
• Next Generation Compensation Plans
o We are observing that new compensation
plans link 60% - 80% of compensation to traditional work effort measures, linked as closely as possible to how services are actually reimbursed by insurers
o Reality is that providers tend to relate well to actual payment mechanisms of overall group
o Providers also are typically not pleased to hear they are a “net drain” on financials
MISSION ALIGNMENT
• Next Generation Compensation Plans
o We are observing that new
compensation plans link 20% - 40% of compensation connected to
nontraditional productivity measures of physician work efforts
o Consider items
Patient safety Patient satisfaction
Adherence to standard of care protocols Management participation
Miscellaneous “citizenship” items 7
PATHWAY TO CHANGE (WHY CHANGE?)
• Intent is rooted in mission/vision/values • Designed to create
enduring sustainability • Guided by need to adapt to
THERE ARE MANY WAYS…
MAJOR PLAN DESIGN OPTIONS
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COMPENSATION PLANS COMPARED
Key Factors Sala ry % Cha rges % Co llect ions Rev. - Exp . WRVU s Per Enco unter PMPM
Incentivizes Provider Productivity Provider Bears Payor Mix Risk Has No Inherent Fee Setting Constraint Rewards Keeping Practice Costs Low Easy for Management to Administer Matches Practice Income Method Incentivizes Providing Access to Care Incentivizes Practice Profitability Rewards Patient Visit Efficiency Rewards Quality Outcomes Rewards Patient Safety Rewards High Patient Satisfaction
Poor Fair Good Excellent Star Rating Key
KEY FACTORS DEFINED (1/4)
• Incentivizes Provider Productivity – method of compensation has a direct correlation to provider productivity
• Payor Mix Risk Matches Practice’s – compensation
methodology does not insulate provider from payor mix risk • Has No Inherent Fee Setting Constraint – compensation
mechanism is not designed such that changes in fee structure will drive a corresponding change in provider compensation
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KEY FACTORS DEFINED (2/4)
• Rewards Keeping Practice Costs Low – some element of cost (&, therefore, profit) is a fundamental feature of compensation plan
• Easy for Management to Administer – rates actual
expected pain to manage & administer compensation plan • Matches Practice Income Method – this gets to matching
principle of aligning provider compensation to practice reimbursement mechanisms
KEY FACTORS DEFINED (3/4)
• Incentivizes Providing Access to Care – provider
compensation plan has an inherent incentive for providers to see more patients/be more available for care
• Incentivizes Practice Profitability – direct link in plan exists between overall success of practice & provider
compensation
• Rewards Patient Visit Efficiency – elements that create an incentive to make patient visits quick & efficient
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KEY FACTORS DEFINED (4/4)
• Rewards Quality Outcomes – plan has incentives around measurable quality factors
• Rewards Patient Safety – plan elements that create
incentives to create or maintain high level of patient safety • Rewards High Patient Satisfaction – compensation
mechanisms that pay providers for achievement around patient safety measures
COMMITTED TO PROCESS & NO SURPRISES
EIGHT STEPS TO SUCCESS
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STEP 1: BENCHMARKING
• For each provider, benchmark charges, collections, WRVUs,
compensation & net income, as well as some key relationships between these points (i.e., compensation to collections ratio)
• Document results of a benchmarking exercise
STEP 2: INTRODUCE NEW PLAN DESIGN CONCEPTS TO
PROVIDERS
• Kick-off meeting with providers
o Introduce providers to general concepts to be explored in developing a new
physician compensation plan
o Establish a connection to outcome & lay foundation for general goals &
principles to be followed in redesign process
• Key items to include
o General update on state of health care o General results of benchmarking exercise
o Pros & cons of three or four possible plan philosophies o Overview of general design & implementation process
o Materials & delivery should focus both on a collaborative process as well as a
compliant model/outcome
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STEP 3: WRITTEN PROCESS COMMITMENT
• Document & share process to be followed • Important process elements include
o Key milestones
o Commitments made in the kick-off meeting (such as data sharing, nonstarters, key elements agreed to)
o Meeting dates
o Key responsible parties
o Points of general feedback
• This will be memorialization of mutual commitments made in kick-off meeting & is important in establishing expectations & accountability
STEP 4: PHYSICIAN INTERVIEWS
• Solicit individualized feedback (both positive & negative) • Educate providers by answering
specific questions & concerns • Provides a real sense of what
will & will not work for a particular group of providers
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STEP 5: SCENARIO ANALYSIS
• Model out a baseline scenario compared to historical
• Modeling is recommended to be done after there is buy in to the conceptual changes
STEP 6: PRESENTATION OF RESULTS TO DATE
• Document & present key work performed, including
o Final concepts
o “Before & after” scenario results o Compensation calculation &
payment mechanics o Next steps & timing
• This is “80% complete” marker
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STEP 7: WORKING GROUP FINALIZATION
• Select key leaders & technical experts to finalize open details • Resolve open items/issues raised at general presentation of
results to date
• To accept change, providers will need to o Understand data elements utilized o Trust data to be complete & accurate
o Become comfortable with ongoing internal controls related to all
compensation data elements
• Intended outcome of this step is to document o Key plan principles (in writing)
o Sources of information used in model o Updated sample compensation calculation o Implementation timeline details
STEP 8: IMPLEMENTATION
• New contracts need to be drafted, approved & signed
• Compensation plan details will need to be communicated with finance staff
• New or revised communications about physician results will need to be developed & deployed
• Updates should be made to written internal controls policies
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PRO-TIP #1
• When considering utilization of nonproductivity measures, consider outcome versus process rewards
o Outcomes oriented – provider is held
accountable (& compensated) based on an actual tangible, measureable result
o Process oriented – provider is held
accountable (& compensated) based on complying with an agreed-upon process that is integral in achieving desired outcome
• For example, consider
o Smoking cessation o Patient satisfaction
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PRO-TIP #2
• Consider a “better of” adjustment period
o There will be kinks to work out with most
new systems. This creates uncertainty in providers &, therefore, a hesitancy to adopt a new system
o To combat uncertainty, utilizing a grace period of three to nine months provides management & physicians an opportunity to ease into new plan with some
understanding that pain of change will be blunted by design
PRO-TIP #3
• Utilize a sliding scale for nonproductivity incentives
o Helps with frustrations from “falling behind” early
o Rewards effort, even short of ideal
outcomes
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PRO-TIP #4
• Build employment contract for change
o By structuring employment contract to
refer to a “compensation plan” set at management’s discretion, employers avoid needing to frequently rewrite & resign employment contracts
o Especially if nonproductivity elements
PRO-TIP #5
• To combat physician turnover, create and fund retention bonus pools
o Bringing this element into the annual
review process can help with a frank dialogue on happiness, career intentions, and overall expectations
o An advanced retention fund can be
creatively structured and payments can be made for a variety of achievements or milestones
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THANK YOU
Mark Blessing, CPA, FHFMA | Partner | 260.460.4063 | [email protected]
