physician compensation models medical group management association may 5, 2011 susan b. orr, esquire...

Physician Compensation ModelsMedical Group Management

Association

May 5, 2011

Susan B. Orr, EsquireTsoules, Sweeney, Martin & Orr, LLC

29 Dowlin Forge RoadExton, PA 19341

Tel.: (610) 423-4200Fax: (610) 423-4201

E-mail: [email protected]

Outline of Presentation

Marketplace Trends in Physician Compensation

Regulatory Requirements

Overview and Analysis of Popular Compensation Models

Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC2

Trends in Physician Compensation

Performance Based Incentive Plans are on the rise* 92% of Groups offer incentive plans 63% of Hospitals 67% of Integrated Health Systems

Increase with payouts tied to quality Accountable Care Organizations Patient Centered Medical Home

Productivity remains the most common* Hay Group, 2010 Physician Compensation Survey


Regulatory Framework for Analysis of Physician Compensation

Anti-kickback Statute

Physician Anti-referral (Stark Law)

False Claims Act

Tax-exempt Organization Law


Anti-Kickback Statute

Criminal offense to knowingly and willfully solicit, receive, offer, or pay any remuneration to induce referrals of items or services paid for by a federal health care program

Government must prove intent to induce referrals The Statute is violated even if one purpose of

remuneration paid under a business arrangement is to induce referrals

Violation of Anti-kickback = violation of False Claims Act

Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

5

Anti-Kickback Statute Safe Harbors

Statute contains certain “safe harbor” exceptions

Protect certain payment and business practices from prosecution if all elements of a particular safe harbor are met

Transactions that do not fit within a safe harbor are not necessarily illegal, depends upon particular facts and circumstances


Bona Fide Employment Safe Harbor

Any amount paid by an employer to an employee (who has a bona fide employment relationship with such employer) for employment in the provision of covered items or services is not considered remuneration

What is “bona fide employment”? W-2 employee for tax purposes

No FMV required


Personal Services Safe Harbor

Applicable to Independent Contractors

Written Agreement for at least one (1) year

Specifies services to be provided

FMV compensation


Stark Law

Prohibits a physician from making referrals for “designated health services” to an entity with which physician (or immediate family member) has a direct or indirect financial relationship, unless a specific statutory exception applies Also prohibits entity and physician from billing for

services provided pursuant to a prohibited referral Any violation of Stark, even unintentional, results in

liability


Stark Law

What is a Financial Relationship? Broadly defined to include any direct or

indirect ownership or investment in an entity furnishing DHS

Or compensation arrangement with an entity furnishing DHS

Financial arrangement is protected if activity falls within an exception


Bona Fide Employment Exception

Employment is for identifiable services; Amount of compensation is consistent

with fair market value for the services; Compensation is not determined in a

manner that takes into account (directly or indirectly) the volume or value of any referrals by referring physician; and

Agreement is commercially reasonable (even if no referrals)


How to Determine Fair Market Value?

Identify comparable data that reflects the services performed

CMS states: “Reference to multiple, objective, independently published salary surveys remains a prudent practice for evaluating FMV.”


In-Office Ancillary Services Exception

Physicians Must qualify as a “Group Practice” Must meet Performance, Location and Billing

Requirements

Solo practitioners can refer and receive compensation from in-office ancillaries

Physicians can refer DHS within their “Group Practice” (even if group is Hospital-owned) and can receive compensation indirectly related to DHS under certain specified criteria


Federally Tax Exempt Organizations

No Private Inurement No part of net earnings or other charitable assets of a Section

501(c)(3) organization may inure to the benefit of any private shareholder or individual

No “de minimis” exception for private inurement May pay “reasonable” compensation for services Total compensation package for physician services must be

reasonable for the geographic market and physician specialty Total Compensation = salary, bonus, fringe benefits, deferred

compensation and other forms of compensation Benchmark physician compensation using comparable

information


Third Party Surveys*

Sullivan, Cotter & Associates, Inc. – Physician Compensation and Productivity Survey http://www.sullivancotter.com

Hay Group – Physicians Compensation Survey www.haygroup.com

Hospital and Healthcare Compensation Service – Physician Salary Survey Report www.hhcsinc.com

Medical Group Management Association – Physician Compensation and Productivity Survey www.mgma.org

ECS Watson Wyatt – Hospital and Health Care Management Compensation Report www.watsonwyatt.com

William M. Mercer – Integrated Health Networks Compensation Survey www.mercerhr.com

*Cited in March 26, 2004 Federal Register as data sources for determining physician compensation


Compensation Models


Goals of Compensation Arrangements

Comply with complex regulatory requirements Comply with strategic business decisions Be Competitive based on physician labor

market Physician satisfaction Incentivize/Motivate Physicians Match compensation with services provided


Steps in Designing a Compensation System

1. Articulate what you want the Compensation System to accomplish

2. Look backwards to see how well the prior system accomplished the goals

3. Brainstorm how to better measure behavior that supports new goals

4. Reform the model until all are in agreement

5. Evaluate the effectiveness of the new system


Design Variances

1. Single Specialty Group Most homogenous Spread between producers is narrow

2. Multi-Specialty Group Most challenging/tension among specialties Each specialty must carry its own weight

3. Hospital-owned Practices Trust building Physicians take risk for production

4. Academic settings Issue of non-clinical activities


Compensation Models

Equal Division of Revenue Fixed salary Base Plus Incentive/Bonus Pure Productivity Other responsibilities

Medical Director Managing Partner Supervision of ancillary staff Non-clinical activities


Equal Compensation

Generally found in single specialty practices (radiology, general cardiology)

Applicable to owners

After expenses paid, revenues are allocated equally among owners


Equal Compensation

Pros: Simple Promotes idea of one united group and team

behavior Avoids Stark issues

Cons: High produces not incentivized Low produces allowed to coast Can result in conflicts among physicians – based on

varying volume


Fixed Salary

Income guaranteed regardless of productivity Common for new physicians just out of Residency

How to Determine Salary? Use objective data: salary surveys

Formula: Estimated Gross Revenue, less expenses attributable to Physician and profit margin

(Continued)


Fixed Salary

Pros: Worry free – sense of security for Physicians Simple, easy to understand and administer

Cons: Offers little long-term incentives Encourages minimum work effort Discourages entrepreneurship


Base Salary Plus Incentive

Fixed Base Salary (75% of total Compensation) Based on survey data/historical data May be an advance against total compensation

Incentive tied to: Productivity (Revenues vs. wRVU’s) Non-productivity related measures, i.e., patient

satisfaction, quality meeting evidence based guidelines


Incentive Compensation

To Determine Available $ for Incentive Compensation: Collect Data Expenses

By Physician Expenses Ancillary Overhead allocation

Productivity Information Charges Net collections RVU’s Encounters


Incentive Issues

% as Reserves for future Practice development Allocation between Owners vs. Employed

Physicians Allocation of DHS Revenue

Productivity Bonus based on personally performed DHS services

Ancillary revenue pool to be distributed equally to all physicians

% Equal Distributions % Physician Productivity % Qualitative Factors

Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

27

Physician wRVU

Components: Physician time required for each service Technical skill and physical effort Mental effort and judgment Psychological stress associated with Dr’s concern

about treatment risk to patient

Based on CPT code Fixed compensation rate per wRVU Base future compensation on current RVUs


Productivity Based on Collections(Proportional Overhead)

Dr. A Dr. B Dr. C Dr. D Practice Total

Productivity % 19% 21% 28% 32% 100%

Revenue 475,000 525.000 700,000 800,000 2,500,000

Overhead 242,630 268,170 359,560 408,640 1,279,000

Net Income $232,370 $256,830 $340,440 $391,360 $1,221,000


Productivity Based on Collections(Equal Overhead)


Productivity % 19% 21% 28% 32% 100%

Revenue 475,000 525.000 700,000 800,000 2,500,000

Overhead 319,750 319,750 319,750 319,750 1,279,000

Net Income $155,250 $205,250 $380,250 $480,250 $1,221,000


Productivity Plus Equal Share


Productivity % 19% 21% 28% 32% 100%

Equal Compensation (50%)

152,625 152,625 152,625 152,625 610,500

Productivity (50%)

115,995 128,205 170,940 195,360 610,500

Net Income $268,620 $280,830 $323,565 $347,985 $1,221,000


Non-Productivity Related Measures

Medical Home Model/Accountable Care Organization Reimbursement tied into quality/meeting

certain outcomes

Performance outcomes are more likely to be achieved when: Compensation is tied to the achievement of

those outcomes Programs rolled out gradually, with

considerable education prior to linking measurements with payment


Quality Measures

Participation in quality performance program Adherence to evidence based guidelines, clinical

protocols; reporting performance Clinical outcomes Patients up-to-date for needed services Cost control Use of EHR/CPOE Patient satisfaction Leadership, participation, citizenship Call Coverage Peer Chart Review


Base Salary Plus Incentives

Pros: Rewards for hard work Continues to offer some security Directs behavior Rewards achievements that promote goals/objectives of group

Cons: Can place a large amount of income at risk Cause minimum work standards


Pure Productivity Model

Most complex Range from complex formula for multiple

factors to a simple model based on amount billed, or amount collected for physician services or quantity of RVUs

Goal = enhanced productivity, but can result in competitive work environment

Encourage overutilization of Services


A Good Compensation Plan Must:

Work for the entire group

Clearly understood

Be equitable/fair: define physician’s work

Data and contribution reliability

Promote trust among physicians

Promote Group Incentives/objectives (New Partners/Non-clinical activities)


physician compensation models medical group management association may 5, 2011 susan b. orr, esquire...

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