Indiana Medical Group Management Association … and...Best Practices for Aligning Staff Incentives Conclusions Comments/Questions Agenda 3 ksmcpa.com Accounting and consulting firm

© 2014 KSM Business Services, Inc.

Friday May 8, 2015

Indiana Medical Group Management Association2015 Practice Management Conference

Strategies for Setting Compensation and Performance Standards

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▪ Introduction▪ Why This Topic?▪ Fundamental Shift in Reimbursement Methodology▪ Medical Practice Financial and Productivity Challenges▪ Impact of ACA on Physician Practices▪ Foundations for Salary and Incentive Compensation Management▪ Benchmarking and Creating a Salary Administration Guide▪ Keys to Managing Employee Compensation▪ Keys to Managing Incentive Compensation▪ Best Practices for Aligning Staff Incentives▪ Conclusions▪ Comments/Questions

Agenda

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▪ Accounting and consulting firm based in Indianapolis; Offices in Fort Wayne and NYC

▪ 34 partners, 270+ employees▪ Founded in 1942▪ We are:

▫ Largest accounting firm based in Indianapolis (Indianapolis Business Journal, 2013)▫ Top 100 largest accounting firm in nation (INSIDE Public Accounting, 2013)▫ A Top 100 Firm (Accounting Today, 2013)▫ “Best of the Best” Firm: 2013, 2012, 2010, 2009, 2008 (INSIDE Public Accounting)▫ Best Places to Work in Indiana: 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013

(Indiana Chamber of Commerce)

About Katz, Sapper & Miller

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About UsLisa Curry▪ Director, Healthcare Resources▪ Public accounting in healthcare

since 2001▪ 14 years in healthcare industry

providing tax, accounting and consulting services.▫ Tax planning▫ Tax compliance▫ Financial statement analysis▫ Buy-in and buy-out calculations

John Martin▪ Managing Director, Healthcare

Consulting▪ Healthcare industry since 1986▪ 29 years in healthcare industry;

▫ Financial Planning▫ Strategic Planning and Market

Assessment▫ Physician/Hospital Alignment▫ Hospital and Medical Practice

Operations and Management

Hospital and Physician Integration and Alignment

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KSM Healthcare ServicesHealth Systems/Hospitals▪ Strategy development

▫ Strategic planning▫ Market assessment▫ Business development

▪ Financial services▫ Revenue cycle perf. improvement▫ Chargemaster/fee schedule review

Physicians/Practices▪ Strategy guidance and counsel▪ Tax, financial planning▪ Acquisition guidance

▫ Due diligence▪ Financial operations

▫ Receivables/collecting process▫ Cash flow, expense management

Integration▫ Employment ▫PSA ▫ Lease ▫Management Company ▫ASC/Joint Ventures

Valuation▫Benchmarking ▫FMV/CR Opinions ▫Transaction support ▫Compliance

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Salaries & benefits are typically among the three largest expense items on the medical practice income statement. Successful practices must strategically evaluate staffing levels,

compensation structures, and staff incentives. This is especially true in light of reimbursement and patient/procedure changes brought about by healthcare reform.

In this session you will gain an understanding of:1. The impact of healthcare reform on group practices and hospitals2. How reform is changing compensation discussions3. Salary benchmarking and setting a salary administration guide4. Best practices for aligning staff incentives5. Developing strategies for setting performance based incentives

Session Description/Learning Objective


Why This Topic?

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▪ The federal government, think tanks, and private payers have put increasing pressure on providers to document and improve the value of the care delivered

▪ Providers, hospitals and physicians alike, are being asked to develop strategies for delivering higher value care

▪ Additional patients taking advantage of the government system with a reduction in the aggregate spend on healthcare services

How Did We Get Here?

Challenges:• Can we reconstruct our practice’s to be profitable at Medicare

rates?• Are we prepared to participate in alternative reimbursement

models?

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IHI Triple Aim Initiative

Institute for Healthcare Improvement

Improve Population

Health

Reduced Per Capita

Cost of Care

Improve Patient

Experience

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Healthcare Reform is:Driving Systemic Change in Reimbursement Models Shift from Volume to Value based reimbursement Quality and Satisfaction based components of compensation

Driving Systemic Change in How Physician’s are Measured Improvements in Quality of Patient Care Improvements in Patient Experience Reduced Cost of Care Delivery

Placing Increasing Pressure on Medical Practice Income Intense Downward Pressure on practice income Mounting overhead (meaningful use, EMR, etc…)

Driving New Staff Compensation and Incentive Strategies Develop New Non-Physician Staff Standards and Expectations Reward High Performing Staff Reward Staff Participation in Quality Initiatives Discourage Under Performance

Overview


Fundamental Shift in Reimbursement Methodology

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PAYMENT FOR

VOLUME

PAYMENT FOR

VALUE

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Blended Compensation Models a Priority to CMS

Source: CMS Press Release, “Fact sheets: Better Care. Smarter Spending. Healthier People: Paying Providers for Value, Not Volume”, 1/26/15

HHS has set a goal to have 30% of Medicare payments in alternative payment models by the end of 2016 and 50% by the end of 2018.

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▪ As we continue along the healthcare reform continuum, physician practice revenue will be increasingly tied to alternative reimbursement models including:▫ Shared savings programs▫ Bundled payments▫ Value based reimbursement▫ Quality outcomes and Cost efficiency

▪ To prepare for the changing reimbursement models, many practices are looking at physician compensation plan revisions

Healthcare Reform Impact on Reimbursement

Physician compensation plans are beginning to include measures based on patient satisfaction and clinical quality


Medical Practice Financial and Productivity Challenges

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▪ As the reimbursement model(s) shift from volume to value, medical practices must reinvent the way in which they deliver care

▪ Over the past several years▫ Reimbursement has continued to decline▫ Operating expenses have continued to increase▫ Non-physician compensation continues to grow

Medical Practice Financial ChallengesMedical practices are facing intense pressure on practice net income and physician/shareholder value

The shift to value based reimbursement is likely to have the greatest impact on procedure dependent practices (i.e. specialists), materially changing their revenue structure

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▪ In addition to being compensated for the volume of work and number of patients, physicians are also being compensated on:▫ Improvement in care delivery▫ Documentation of care delivered (MU)▫ Improvement in the quality of the care received by the patient▫ Appropriate reductions in operating expenses

▪ Physician compensation plans are being modified to reflect this new emphasis on value driven patient care

▪ Many physician groups and hospitals are now participating in service line co-management agreements, centers of excellence and specialty specific institutes▫ Critical to long term practice viability▫ One side effect: reduced physician productivity due to lost clinic time

Physician Productivity“Productivity” is taking on a new meaning


Impact of ACA on Physician Practices

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▪ The ACA is causing medical group practices to completely redesign how care is delivered

▪ New reimbursement models reward:▫ Quality▫ Satisfaction ▫ Cost reduction

▪ Less emphasis placed on volume of procedures performed or number of patients treated

▪ Physicians and hospitals are now being asked to work together to manage “populations of patients”

Impact of ACA on Physician Practices

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▪ Expectations of physicians are changing rapidly:▫ New emphasis on improvement in care delivery▫ New means of being compensated (i.e. – service line co-management agreements, etc…)▫ Adjustments to compensation plans to reflect these changes

▪ Medical practices find themselves increasingly focused on:▫ Internal process improvement▫ Improvement in patient and physician satisfaction scores▫ Cost reduction initiatives▫ Participation with hospitals in new care management models

Shifting Practice PrioritiesPhysician measurement and compensation dynamics are changing, non-physician staff measurement and compensation dynamics should change as well

• We need to begin rewarding non-physician staff for these same behaviors• Non-physician compensation and incentives should be linked to these new

metrics

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▪ There is continuing pressure on medical practices to:

▫ Improve overall practice financial performance

▫ Preserve Shareholder/Physician income and value

▫ Improve staff productivity and optimize clinic staffing models

▫ Integrate information technology into the practice: improve physician and staff productivity; right-size staff levels

▪ Places an even greater priority on finding and keeping the right mix of staff

▪ Employee selection and retention are critical now more than ever

Focus on StaffingMedical practices find it very challenging to manage the increasing demands being placed on non-physician staff while simultaneously carrying the minimum number of FTEs required for clinic efficiency

Greater emphasis is being placed on identification and retention of top performers!!!


Foundations for Salary and Incentive Compensation Management

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Administratorso Need to lead their physicians and board in a rational approach to

establishing salary guides/ranges and incentives for high performersPhysicians

o Work with administrators to provide input and gain an understanding of compensation process AND

o Advocate for rational and consistent approach to staff compensation to promote retention

Governing body (Shareholders, Board of Directors, Executive Committees, etc.)

o Review, challenge, and approve recommendations of administrators and physicians with respect to establishing staff salary guides/ranges and performance standards

Critical Administrative DutiesAll levels of a medical practice must be actively involved in compensation management

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▪ Most practices maintain an FTE listing or current staff roster

▪ The FTE schedule is the basic tool in our effort to adequately manage compensation and incentive bonuses

▪ FTE schedules should be organized by departments and positions within each department

▪ These staff classifications should follow the general practices of MGMA or other industry organizations

Organize the FTE Schedule

Proper diligence in setting up the FTE schedule is critical to adequately managing human resources, payroll costs, and compensation benchmarking


Benchmarking and Creating a Salary Administration Guide

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Use a Salary Administration Guide

Initial salary administration guide :1. Create uniform corporate

departments2. Create job classifications3. Assign each employee to a job

classification4. Benchmark pay ranges5. Consider unique market factors6. Industry and internal benchmarks7. Annually measure salary ranges

against these benchmarks8. Set high, mid, and low ranges for

each job classification

Continuing (annual?) tasks of salary administration guide

1. Periodic global updates2. Department specific market

adjustments as necessary

Adhere to the Guide

If your practice does not have a current salary administration guide, then one should be developed to manage costs and employee expectations:

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Use multiple sourcesComparable staff position information

Provides broader range of salaries from which to compareDevelop more accurate salary ranges for your group

Salary Benchmarking

Regional differences existMake sure you set benchmarks for your particular region

Sources▪ MGMA▪ AMGMA▪ Sullivan Cotter▪ Industry Specific

Societies

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▪ Salary ranges should be set by position within each department using the benchmarking process described on the previous slide

▪ At a minimum, the salary administration guide should have values for low, middle, and high earning points creating the “salary range” within each job classification

▪ Each employee within a particular job classification should be compensated within the lower and upper bounds of the salary range for that position

▪ The salary administration guide may be adjusted periodically for:▫ One time changes in market conditions by position, or▫ Adjustments to keep up with inflation and cost of living

▪ Before making annual or market updates to the salary administration guide, make sure changes are supported by position specific benchmarking

Developing a Salary Administration Guide

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▪ Developing a salary administration guide does not have to be complex, in fact is should be simple and straight forward – one example:

Sample Salary Administration Guide

Department/Position Low Point (2) Mid Point (1) High Point (2)

Administration

Chief Executive Officer $ 80,000 $ 100,000 $ 120,000

Chief Financial Officer $ 64,000 $ 80,000 $ 96,000

Patient Accounts

Manager of Patient Accounts $32,000 $ 40,000 $48,000

Billing Representative $ 24,000 $ 30,000 $ 36,000

(1) = Based on MGMA or other industry benchmark(2) = Measured from the Mid Point: -20% to +20%


Keys to Managing Employee Compensation

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Keys to Managing Employee CompensationPosition

Classification Compensation Set Salary Ranges

When the salary administration guide is first set:• Certain employees may be earning above the maximum for their

position• Each situation is handled individuallyTop of pay class:• Compensation is maxed• Annual raises may take the form of an annual payment• Additional raises may be earned if the employee transitions into a job

classification with a higher pay scale

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Increased clinic standardization leads to: Improved staff efficiency

Ability to “right-size” number of practice FTEsBetter payroll cost control

• Salary administration guide established and approved• Set job specific productivity standards and expectations• Can the practice:

• Flex staffing to match clinic volume peaks and valleys• Set clinical efficiency standards practice-wide• “Direct expense” physicians for inefficiencies which lead to staff

overtime

Productivity Standards and Strategies

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Physician productivity standards (if any) will be set: • As part of any revisions to the physician compensation

plan• By physicians and administrators working together to

set meaningful standardsStaff productivity standards will be set based on

• Input from the executive leadership• Department directors and managers• Board of Directors

Productivity Standards and Strategies (Cont’d)

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Department level productivity and performance standards should be set annually (takes time) Executive leadership team should work with department managers to

set stretch goals for the coming year Productivity standards are set and recommended to the board For board approval Consistent monitoring by management Status reported to the board at least quarterly

Department managers will utilize the same criteria to evaluate their staff

Productivity Standards and Strategies (Cont’d)

It is critical that productivity standards and performance goals be set that support the group’s overall strategic and

operating plans for the coming year


Keys to Managing Incentive Compensation

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1. Board reviews budget and establishes a specific amount for staff raises and bonuses

2. Allocate the staff raise/bonus amount to each department based on Department FTE’s as a Percent of Total FTE’s

3. Each department head allocates the raise/bonus amounts to individual staff based on performance relative to others in their department

Allocation Strategies / Aligning Staff Incentives

• Challenge for most staff is realizing that the “annual bonus” is now based on meeting goals and expectations that are set in advance

• Some goals will require cooperation of other departments and/or the company as a whole

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▪ Group may project growth in net revenue of 5%▪ If group achieves 5%

▫ 100% of that portion of the incentive is earned by each department▪ If the company falls short of the 5% target

▫ That portion of the bonus may be reduced proportionately

Allocation Strategies (Cont’d)

Some measures will be set at the practice level

Critical shift in thinking: Everyone understanding that the “guaranteed” bonus of old has gone away and bonuses will now be based on contributions to practice, department and individual goals

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• To achieve the 5% corporate growth target• Switchboard must answer additional calls

• Without additional staff• Maintaining service levels (no increase in wait time)

• If department hits its call handling goals • Department earns 100% of that portion of the incentive

• If the department falls short of the target • That portion of the bonus may be reduced proportionately


Some measures will be set at the department level

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• Individual goals support practice and department goals• Quality Improvement program participation

• Attaining quality improvement standards set through the practice quality improvement program

• If individual hits his/her individual goals • Individual earns 100% of that portion of the incentive

• If individual falls short of his/her individual goals • That portion of the bonus may be reduced proportionately


Some measures will be set at the individual level

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Historical raise and bonus allocation▫ Some practices allocate raises and bonuses to staff equally▫ Makes the annual evaluation process easier for the manager▫ Downside is that this approach does not reward high

performers▫ In fact, could cause high performers to reduce productivity or

seek employment elsewhere


Where the rubber meets the road: How should incentives be distributed to individual employees?

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Sample future raise and bonus calculation▫ Staff rewarded for meeting group, department and individual

goals- May alter their work/spending habits to help achieve goals

▫ Assuming the group raise pool is 2% and the bonus pool is 5%, - Low performers: 1% / 3%- Average performers: 2% / 5%- High performers: 3% / 7%


Where the rubber meets the road: How should incentives be distributed to individual employees?


Best Practices for Aligning Staff Incentives

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▪ Historically staff incentives have been handed out “across the board” and without regard to relative contribution among employees

▪ One goal of aligning staff incentives is to ensure that staff are working together with physicians and administrators to achieve company goals

▪ Some medical practices have started to allocate bonuses and incentives as follows:▫ 1/3 Personal Accomplishments▫ 1/3 Department Accomplishments▫ 1/3 Corporate Accomplishments

Best Practices for Aligning Staff Incentives

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Sample overall corporate goal allocation:• Quality improvement: 50% • Financial Success: 25% • Program Development: 15% • Patient Satisfaction: 10%

Corporate Goals and ObjectivesAs healthcare evolves from reimbursement based on volume to reimbursement based on value, the group practice should consider setting corporate goals along those lines

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Implement practice-wide quality improvement program▪ Challenges

▫ Physician adoption of physician directed clinical measures

▫ Identifying physician outliers▫ Addressing physician outliers

Quality Improvement ProgramsAs reimbursement moves from volume to value of services, quality improvement programs become critical

A portion of each employee’s potential bonus should be tied to quality improvement program initiatives

Sample operations quality program components

▫ Improve days in accounts receivable

▫ Reduce patient no-show rate▫ Improve call handling▫ Clinic appointment efficiency▫ Clinic runs on-time consistently


Conclusions

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▪ Gone are the days of guaranteed staff raises and bonuses▪ No longer sustainable for staff to receive annual raises and

bonuses while physician income, in some cases, stagnates or even declines

▪ Entire organization needs to be incentivized to improve overall financial performance and care quality of the group

As group, departmental and individual goals are met: ▫ Employees should be rewarded for their contribution▫ Employees who contribute the most stand to gain the most▫ High performers are more likely to stay▫ Low performers are more likely to leave

Conclusions

Result is a more cost efficient group practice!!!

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Comments?

Questions?

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Thank You

Lisa CurryDirector, Healthcare Resources GroupPhone: 317.580.2033Email: [email protected]

John D MartinManaging Director, Healthcare ConsultingPhone: 317.452.1104Email: [email protected]

Katz, Sapper & Miller

mailto:[email protected]

mailto:[email protected]

Indiana Medical Group Management Association … and...Best Practices for Aligning Staff Incentives Conclusions Comments/Questions Agenda 3 ksmcpa.com Accounting and consulting firm

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