Physician Compensation: The Solution
Is in the Process
HFMA Gulf Coast Luncheon Meeting
June 17, 2016
Agenda
1 0100.015\364700(pptx)-E2 DD 6-17-16
Key Discuss ion Points
» 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?
Meet ing Agenda I. Introduction
II. Audience Poll
III. Key Market Trends
IV. Process Considerations
V. Aspirational Plan Characteristics
VI. Q&A
Desi red Outcomes for Par t ic ipants
» 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.
Why Are We Here?
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.
I. Introduction Firm Overview
2 0100.015\364700(pptx)-E2 DD 6-17-16
I. Introduction Our Compensation Planning Qualifications
» 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 0100.015\364700(pptx)-E2 DD 6-17-16
Since 2000, we have worked with more than 300 clients on 500-plus projects related
to provider compensation planning.
» 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.
I. Introduction Our Compensation Planning Philosophy
4 0100.015\364700(pptx)-E2 DD 6-17-16
Our Compensation Planning Philosophy
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.
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.
I. Introduction Keeping Perspective
5 0100.015\364700(pptx)-E2 DD 6-17-16
Physician
Leadership/
Governance
Practice
Management
Revenue Cycle
Performance
IT
(e.g., EMR)
Compensation
Plan
Patient Access
and Scheduling
Performance Monitoring
(Data-Driven)
Clinical
Integration
Integrated Physician Network
II. Audience Poll Why Are You Here?
6 0100.015\364700(pptx)-E2 DD 6-17-16
I never deal with physician
compensated issues but would like to
keep abreast of industry trends.
I occasionally deal with physician
compensation issues.
I routinely deal with physician
compensation issues as part of my
job responsibilities.
Which of the following best describes you?
Is anyone currently in the middle of (or
considering starting) a compensation redesign
process?
III. Key Market Trends ECG Survey Overview
7 0100.015\364700(pptx)-E2 DD 6-17-16
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
Locations of 2015 Members
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.
Adult Pediatric
III. Key Market Trends At-Risk Compensation Declining
8 0100.015\364700(pptx)-E2 DD 6-17-16
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.
Percentage of Physicians by Compensation Plan Type
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.
17.6%
69.5%
12.9% 18.3%
69.7%
12.0%
24.2%
64.3%
11.5%
30.8%
55.9%
13.4%
39.0% 43.1%
17.9%
50.0%
29.5%
20.4%
0%
20%
40%
60%
80%
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
III. Key Market Trends Utilization of Nonproductivity Incentives Increasing
9 0100.015\364700(pptx)-E2 DD 6-17-16
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.
Source: ECG 2011 to 2015 Physician Compensation Surveys.
Compensation Plan Key Performance Indicators
Percentage of Organizations
Attribute 2011 2012 2013 2014 2015
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
III. Key Market Trends Use of Quality Compensation by Specialty Category
10 0100.015\364700(pptx)-E2 DD 6-17-16
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.
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%
1 Average represents organizations that utilize the indicator within their compensation plan.
Source: ECG 2015 Physician Compensation Survey.
Quality Compensation by Specialty Category
Clinical quality compensation by specialty is
available in ECG’s National Provider
Compensation Survey.
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.
III. Key Market Trends Disconnect Between Compensation and WRVU Production
11 0100.015\364700(pptx)-E2 DD 6-17-16
III. Key Market Trends Reimbursement Trends — At-Risk Revenue
12 0100.015\364700(pptx)-E2 DD 6-17-16
Source: ECG 2013 to 2015 Physician Compensation Surveys.
Percentage of Gross Revenue at Risk
Percentage of Organizations
Percentage of Organizations 2013 2014 2015
<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%
While more organizations are entering into risk-based contracting arrangements,
nearly 80% still have less than 10% of their gross revenue at risk.
The trend toward more revenue being
generated from risk-based contracting
arrangements is likely to continue with new
CMS mandates.
III. Key Market Trends Increased Physician Investments
13 0100.015\364700(pptx)-E2 DD 6-17-16
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
Source: ECG 2010 to 2015 Physician Compensation Surveys.
-$138,724 -$148,791 -$148,025
-$181,407 -$181,963
-$194,266
-29.7% -33.2%
-28.3% -28.3%
-34.2% -31.5%
-100%
-90%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
$(220,000.00)
$(170,000.00)
$(120,000.00)
$(70,000.00)
$(20,000.00)
2010 2011 2012 2013 2014 2015
Investment Per Physician Percentage of Net Collections
IV. Process Considerations Overview
14 0100.015\364700(pptx)-E2 DD 6-17-16
We believe successful compensation redesign initiatives are a factor of both process
and product.
PROCESS PRODUCT
IV. Process Considerations Our Typical Planning Approach
15 0100.015\364700(pptx)-E2 DD 6-17-16
» Overarching
Framework
» Application to Specialty
Areas
» Plan Features and
Elements
» Value-Based
Components
Articulation of
Philosophy and
Design Principles
Design Compensation
Elements and Mechanisms
Financial Analysis
and Model
Refinement
Transition Method and Length
Infrastructure Requirements
Governance and Management
Provider Communication Plan
Phase I Assessment and Design Criteria
Phase II Conceptual Design and Refinement
Phase III Implementation Planning
45 to 90 Days 2 to 4-Plus Months 2 to 3 Months
Market
Analysis
Internal
Assessment
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
IV. Process Considerations Group Development
16 0100.015\364700(pptx)-E2 DD 6-17-16
INTEGRATED
Dept.
A
Dept.
B
Dept.
C
Dept.
D
Dept.
E
Dept.
F
Dept.
G
FEDERATED
Dept. A
Dept. B
Dept. C
Dept. D
Dept. F
Dept. E
Dept. G
MULTISPECIALTY
COMMON GOVERNANCE,
MANAGEMENT, AND FINANCES
Dept.
A
Dept.
B
Dept.
C Dept.
D
Dept.
E
Dept.
F
Dept.
G
Centrally Controlled Policies and Finances
STRONG CENTRAL GOVERNANCE
AND MANAGEMENT
LIMITED CENTRAL GOVERNANCE
AND MANAGEMENT
Limited
Common
Governance
and Shared
Services
Shared
Governance
and
Services
A successful compensation redesign process should consider a group’s current and
aspirational positioning along the following structural continuum:
How would you characterize the current
positioning of your organization?
IV. Process Considerations Typical Work Structures
17 0100.015\364700(pptx)-E2 DD 6-17-16
Estimated Meeting Frequency: Monthly
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
S T E E R I N G C O M M I T T E E
Estimated Meeting Frequency: Biweekly
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
S M A L L W O R K G R O U P
IV. Process Considerations Physician Engagement
18 0100.015\364700(pptx)-E2 DD 6-17-16
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.
Selection Considerations
Active physician participation and leadership is
critical to a successful redesign process.
NO YES
IV. Process Considerations Data Analytics
19 0100.015\364700(pptx)-E2 DD 6-17-16
Advanced analytics help ensure data-driven decision making and are an essential
ingredient in effective compensation redesign.
Current State Straw Model #2 Variance % Variance
Total FTEs 58.0 58.0 - 0%
Total WRVUs 332,437 332,437 - 0%
WRVUs Per FTE 5,735 5,735 - 0%
Average WRVU Percentile Rank 52 52 - 0%
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 53 57
Physicians Increased 37 Avg. % Increase 23.2%
Physicians Decreased 24 Avg. % Decrease -17.2%
Impact: System Wide
IV. Process Considerations Pre-Implementation Planning
20 0100.015\364700(pptx)-E2 DD 6-17-16
Transition Mechanism and Length
Infrastructure Requirements
Governance and Management Processes
Plan Document
Market Data
Provider Communication Plan
Pre-Implementation Checklist
V. Aspirational Plan Characteristics Overview
COMPREHENSIVE
Plan elements should be inclusive of all
relevant mission areas (“CARTS”): Clinical,
Administrative, Research, Teaching, and
Strategic.
PERFORMANCE-DRIVEN
Compensation levels should be
commensurate with a provider’s work
efforts and holistic performance.
TRANSPARENT
Compensation mechanisms
should be easily understood,
with clear rules for adjudicating
exceptions.
SUSTAINABLE
Compensation levels should be affordable
and aligned with the organization’s
fundamental practice economics.
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.
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.
21 0100.015\364700(pptx)-E2 DD 6-17-16
V. Aspirational Plan Characteristics Patient-Centered Compensation
22 0100.015\364700(pptx)-E2 DD 6-17-16
Increasingly, organizations are seeking to remove financial disincentives that may
impede their ability to deliver patient-centered care.
A cardiology practice pooled
WRVUs in order to maintain
appropriate levels of patient
access to noninvasive services.
Cardiology
Example
A gastroenterology practice
pooled compensation in order to
increase access to chronic
disease management services
(IBD, Crohn’s, etc.).
Gastroenterology
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.
OB/GYN
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.
Primary Care
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.
Multispecialty
Example 5 4
2 1 3
V. Aspirational Plan Characteristics Flexible Compensation Mechanisms
23 0100.015\364700(pptx)-E2 DD 6-17-16
The intrinsic variability between different specialty types and work environments
typically precludes a “one size fits all” approach to compensation.
Primary Care
Medical
Specialists
Surgical
Specialists
Specialty A
Specialty B
Specialty C
Specialty D
Specialty E
Specialty F
Specialty G
Specialty H
Enterprise
Standard:
No plan
specialization
Low High
Specialty Groupings:
Plans based on the
categorization of specialties,
such as the examples
provided above
Specialty-Specific Plans Physician-Specific
Plans
Coverage-Based
Specialists
V. Aspirational Plan Characteristics Flexible Compensation Mechanisms (continued)
24
PRIMARY CARE
Base/Fixed
Component Base/Fixed
Component
Base/Fixed or
Shift Component
Base/Fixed
Component
Clinical Activities
Component
Value-Based
Component
MEDICAL OR
OFFICE-BASED
SPECIALTIES
Clinical Activities
Component
Value-Based
Component
COVERAGE-
BASED SPECIALTIES
Value-Based
Component Clinical Activities
Component
Value-Based
Component
SURGICAL OR
PROCEDURAL-BASED
SPECIALTIES
In an effort to increase plan consistencies, many organizations are framing core
clinical compensation elements in terms of broader specialty groupings.
0100.015\364700(pptx)-E2 DD 6-17-16
V. Aspirational Plan Characteristics Sustainability
25 0100.015\364700(pptx)-E2 DD 6-17-16
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).
Many organizations are paying exclusively from market benchmarks,
regardless of their underlying group financials.
Salary guarantees for new recruits are often significantly higher than the
average earnings for existing physicians.
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.
V. Aspirational Plan Characteristics Sustainability (continued)
26 0100.015\364700(pptx)-E2 DD 6-17-16
FINANCIAL
PERFORMANCE
EVALUATION
OBJECTIVE
MARKET SURVEYS
I n t e r n a l S t a n d a r d s E x t e r n a l S t a n d a r d s
HYBRID MARKET
DEFINITION
» 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).
A “hybrid” market definition may help physician organizations keep in touch with the
realities of their group’s underlying economic performance.
V. Aspirational Plan Characteristics Comprehensive
27 0100.015\364700(pptx)-E2 DD 6-17-16
In response to changing market dynamics, some organizations have begun to employ
a more progressive payment structure that segments compensation elements by
mission area.
To t a l C o m p e n s a t i o n
Clinical Admin. Teaching Strategic Research
Value-Based
Compensation
Base
Compensation
Volume-Based
Compensation
Base
Compensation
Base
Compensation Base
Compensation
Performance
Incentive
Base
Compensation
Performance
Incentive
Performance
Incentive
V. Aspirational Plan Characteristics Transparent
0100.015\364700(pptx)-E2 DD 6-17-16
Base/Fixed
Salary
Panel Size
Incentive
WRVU
Incentive
Value
Incentive
APC
Supervision
Specialty-Specific Benchmark × Clinical FTE Status
Number of Attributed Risk-Adjusted Patients × Panel Size
Payment Rate × Value-Based Modifier
Number of Personally Performed WRVUs Above Performance
Threshold × WRVU Payment Rate × Value-Based Modifier
Value-Based Performance × Value-Based Funding
APC Supervisory Stipend × Attributed APC FTEs
A lack of transparency and predictability is the most common complaint among
physicians who are surveyed as part of our compensation engagements.
Tota
l C
linic
al C
om
pensation
28
V. Aspirational Plan Characteristics Performance-Driven
Physicians will maintain a defined number
of open slots daily for new patients.
Physicians will work a minimum of 47
weeks per year.
PCPs will work either 9 sessions (if they
follow patients in the hospital) or 10
sessions (if they use hospitalists) each
week.
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
WRVU
PRODUCTION
ADMINISTRATIVE
PARTICIPATION
ACCESS REQUIREMENTS CLINIC HOURS WEEKS WORKED PER YEAR
NOTE: One session = 4 clinic hours.
Example Employment Obligations (Primary Care)
The use of explicit employment obligations and physician compacts supports a
performance-driven culture, even as base/fixed salary levels continue to increase.
29 0100.015\364700(pptx)-E2 DD 6-17-16 29
0100.015\364700(pptx)-E2 DD 6-17-16
Tom Methvin
210-845-5754
Questions & Discussion
VI. Questions and Discussion
30