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Hot Topics in Physician CompensationCarol Carden CPA/ABV, ASA, CFEPershing Yoakley & AssociatesNovember 12, 2015
American Institute of CPAs #AICPAhealth
Bio Slide
Carol Carden is a Principal with PYA, and provides business valuation and related consulting services to a wide variety of business organizations, primarily in the healthcare industry. Ms. Carden’s primary areas of expertise are in finance, valuation, and managed care. She has performed appraisals of businesses and securities for a wide variety of purposes such as mergers, acquisitions, joint ventures, management service agreements, and other intangible assets. She is also a nationally recognized speaker and writer on healthcare valuation topics. In addition to being a Certified Public Accountant, she also has earned the Accredited in Business Valuation (ABV) credential from the American Institute of Certified Public Accountants, the Accredited Senior Appraiser (ASA) credential from the American Society of Appraisers, and the Certified Fraud Examiner (CFE) credential from the Association of Certified Fraud Examiners. She is the Chair of the Executive Committee for Forensic and Valuation Services and former Chair of the Business Valuation Committee for the AICPA, was Chair of the 2010 National AICPA Business Valuation Conference, and was on the planning committee for the 2011 AICPA National Healthcare Conference. She was inducted into the Business Valuation Hall of Fame of the AICPA in 2013.
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Agenda
Stacking Considerations
The Role of Quality
Incentives
Affiliation Models
Population Health
Initiatives
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Compensation Stacking
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Employment Models
Common elements include: Base compensation Productivity threshold – many times based on work relative value unit
(“wRVU”) level Incentive compensation for productivity Incentive compensation for quality outcomes Sign on or retention bonus Compensation for excess call coverage Compensation for supervision services Administrative compensation
Hospitals and other organizations continue to utilize complex compensation models, often with multiple layers of compensation for multiple services sometimes referred to
as “stacking”
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Regulatory Guidance
Bear in mind that Stark II Phase III specifies that you can pay for both clinical and
administrative services, but the rate paid for clinical services should be appropriate and
the rate paid for administrative services should be appropriate. These may or may
not be the same rates of pay.
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Assessing the Risk
• More moving parts
• Higher total compensation
• Ensuring the correct benchmarks are considered
• Assessing each part and the whole package
How risky is this agreement?
=
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Sources of Data
MGMA, Clinical compensation, medical director & call surveys
Sullivan Cotter, Clinical & administrative compensation and call surveys
AMGA, Clinical and administrative compensation
HHCS, Clinical and administrative compensation
Towers Watson, Clinical and administrative compensation
Niche surveys like anesthesia, trauma, academic compensation
And others…..choices galore!
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Commercial Reasonableness
Department of Health and Human Services Definition1
• An arrangement which appears to be “a sensible, prudent business agreement, from the perspective of the particular parties involved, even in the absence of any potential referrals.”
Stark Definition2
• “An arrangement will be considered ‘commercially reasonable’ in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty, even if there were no potential designated health services (“DHS”) referrals.”
OIG Threshold 3
• Compensation arrangements with physicians should be “reasonable and necessary.”
1 63 Fed. Reg. 1700 (Jan. 9, 1998).2 69 Fed. Reg. 16093 (March 26, 2004).3 “OIG Compliance Program For Individual and Small Group Physician Practices,” Notice, 65 Fed. Reg. 59434 (Oct. 5, 2000); OIG Advisory Opinion No. 07-10, September 20, 2007, pg. 6, 10; “OIG Supplemental Compliance Program Guidance for Hospitals,” Notice, 70 Fed. Reg. 4858 (Jan. 31, 2005).
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Factors in Determining CR
Business Purpose
Provider Analysis
Facility Analysis
Resource Analysis
Independence & Oversight
Commercial
Reasonableness
Determination
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Quality Incentives
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What Models Are Being Used?
0%
1%-24%
25%-49%
50%-74%
75%-99%
100%
21%
12%
10%
11%
14%
32%
Percent Employed Physician Staff with Portion of Compensation at
Risk?
Perc
ent a
t Ris
k
Source: HealthLeaders Media Physician Alignment Survey 2014
Old Models:• Straight Production
(wRVUs)• Guaranteed Salary
New Models:• Quality Incentives• Panel Management
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Clear Trend: Some Portion of Physician Compensation “At Risk”
HealthLeaders Media, Physician Alignment: New Leadership Models for Integration, September 2014
57% of respondents currently have at least 50% of
their employed physicians with some portion of compensation at risk
81% of respondents expect to have at least 50% of their employed physicians with some portion of
compensation at risk within 3 years
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Organizations’ Dominant Physician Compensation Model
HealthLeaders Media, Physician Alignment: New Leadership Models for Integration, September 2014
Of Note…• PYA’s experience and
observations mirror the shift indicated in these findings.
• PYA also observed a shift from models that only incorporate these elements as a “bonus” to standard pay, to those that place these components at risk (possible withhold) offset by the upside potential to earn above historical compensation levels.
58%Respondents using work RVU plus incentive
25%Respondents using work RVU only
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Physician Incentive Payment Survey What does your organization use to guide the payment of physician incentives?
HealthLeaders Media, Physician Compensation: Shifting Incentives, October 2011
Referrals
Chart Completion
Participation in Administrative Duties
Patient Satisfaction Scores
Quality Metrics
Productivity Measures
0% 10% 20% 30% 40% 50% 60% 70% 80%
4%
23%
7%
50%
57%
75%
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Inclusion of Quality Incentives
Source: Sullivan, Cotter and Associates, Inc. 2012 Physician Compensation and Productivity Survey.
About one-half (49%) of organizations incorporate non-productivity measures in incentive compensation plans.
Patien
t Sati
sfacti
on
Patien
t Safe
ty
Care C
oordi
natio
n0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
60%
30%23%
83%
39%35%
Primary Care Providers Specialists
Perc
enta
ge o
f Org
aniz
atio
ns U
sing
Typ
e of
Q
ualit
y In
cent
ive
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$180$160
$120
$20 $25
$35
$25 $85
Quality Incen-tive
Capitation or Episode Based
Productivity-based
CURRENT NEAR TERM LONGER TERM
A Balancing Act Compensation Stacking(in 000’s)
Compensation only increases if quality
improves
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Physician Value Modifier – 2017 Quality Tiering
Low Quality Average Quality High Quality
Low Cost 0.0% +2.0x* +4.0x*
Average Cost -2.0% 0.0% +2.0x*
High Cost -4.0% -2.0% 0.0%*Eligible for an additional +1.0x if reporting clinical data for quality measures and average beneficiary risk score in the top 25% of all beneficiary risk scores.
Based on 2015 Performance
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Here to Stay
“Our goal is to have 85% of all Medicare fee-for-service payments tied to quality or value by 2016, and 90% by 2018.”
“Our target is to have 30% of Medicare payments tied to quality or value through alternative payment models by the end of 2016, and 50% of payments by the end of 2018.”
Source: HHS Secretary Sylvia Burwell (January 30, 2015)
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Affiliation Models
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Trends in Merger & Acquisition Activity• Still a fairly active trend
• Involves primary care and specialty practices
• Generally only paying for tangible assets unless large practice
• Post-transaction compensation is a key assumption
• Generally involves ancillary service lines like ASCs and imaging
• Likelihood of cash distribution is a key driver• Many are structured as pass-through entities,
so this becomes an important component of the valuation
Hospital Acquisition of
Physician Practices
Hospital/ Physician
Joint Ventures
Physician Management Agreements
Still see new and renewed clinical co-management agreements
Bundled payment for care improvement (BPCI) is becoming more commonplace and likely to continue expanding if Comprehensive Care for Joint Replacement (CCJR) is approved
Increasingly seeing gainsharing arrangements being pursued
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Other Physician Affiliation Models
New employment and renewals of existing employment agreements
Physician leasing arrangements – not as common
Professional Services Agreements (PSA) as an alternative to employment, sometimes referred to as synthetic employment. Popular in states with corporate practice of medicine prohibitions.
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Population Health
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Key Healthcare Reform Provisions
Bundled Payments
Value-Based Purchasing
Accountable Care Organizations
Clinically-Integrated Networks
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Levels of Fund Distribution
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Key Assumption
The hospital/health system is the Provider of Record on the APM
Shared Savings Distribution Considerations
Shared Savings for Distribution
Infrastructure/ROIto Hospital Operations
0% 100%
Increasing Decreasing• Downside/Two-Sided Risk• Total Compensation At Risk• Capitation Reimbursement• Additional Duties Required• Outcomes/Quality Thresholds• Primary Care Physicians
• Guaranteed Base Salary
• FFS Reimbursement
• Process Thresholds
GUARDRAILX% above
Compensation per wRVU in a Traditional
FFS environment
The Risk Continuum:
GUIDING PHILOSOPHYDistributions should be
proportional to a provider’s effort
Physician Providers and Others
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Compensation Guardrail Example
Example Compensation per wRVU Using 25% above Traditional FFS
Specialty MGMA Median125% MGMA
Median Hospital (Actual)Primary Care
Internal Medicine $51.06 $63.83
Family Practice $46.50 $58.13(Actual
Compensation (before Shared
Savings Distributions)÷
Actual wRVUs) x
125%
OR
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Shared Savings Plan Design Considerations
0% - 15% 50% - 80% 0% - 25%
Participation Outcomes/Quality EfficiencyExamples:• Minimum meeting
attendance• Minimum reporting
requirements• Good citizenship• Plan/contract
evaluations
All Outcomes/Quality metrics must be achievedWeighted Outcome/Quality metrics with minimum threshold (3 of 5)
Equal Weighted Average Outcome/Quality metrics with minimum threshold (3 of 5)
Weighted Outcome/Quality metrics with no minimum threshold (1 of 5)
Must achieve all Outcome/ Quality metrics to receive
Must achieve a portion of Outcome/Quality metrics
No efficiency payment if minimum Outcome/Quality metrics not achieved.
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Contact Information
Carol Carden, CPA/ABV, ASAPershing Yoakley & Associates, P.C.
(800) 270-9629
[email protected]://twitter.com/carolcardenpya