DRAFT 1 Physician Compensation Strategies Avoiding the Pitfall of "Accidental Employment" 1 Becker’s Hospital Review: Annual Meeting Chicago, Illinois May 2011 BJ Millar, Director Physician Services Group 2 Employing Physicians Does not have to feel like this! 3 . . . or like this!
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DRAFT
1
Physician Compensation Strategies
Avoiding the Pitfall of "Accidental Employment"
1
Becker’s Hospital Review: Annual Meeting
Chicago, Illinois
May 2011
BJ Millar, Director
Physician Services Group
2
Employing Physicians Does not have to feel like this!
3
. . . or like this!
DRAFT
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. . . or like this!
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Our session today
Employment
Objectives
Compensation
Model
Appendix
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Our session today
Employment
Objectives
Compensation
Model
Appendix
The Physician-Hospital Enterprise
Personal & Organizational Objectives
Physician Leaders: “Catalysts”
DRAFT
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A Physician-Hospital Enterprise requires a new focus, a new culture, and a new organization to put the pieces together
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Starting with a clear definition enables focus and purpose
en·ter·prise Pronunciation: \en-tə(r)-prīz\
Function: noun
Etymology: Middle English, from Anglo-French, from entreprendre to undertake, from entre- inter- + prendre to take — more at prize
1: a project or undertaking that is especially difficult, complicated, or risky
2: readiness to engage in daring or difficult action
Salary 320,000$ Guarantee set at MGMA National Median, with no adjustments
Benefits % 16.5%
Benefits 52,800$
Total Comp & Benefits 372,800$
Benefits:
Straight Salary plans can be valuable when recruiting candidates for high demand, specialty positions, or for areas where collections are not sufficient to meet salary requirements.
Challenges:
Can create a disincentive for physicians to be productive and offers no remedy to address under production on a regular or formula-driven basis.
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2. Guaranteed Base plus Production (Charges)
Physician Compensation Scenario: 2. Base Salary plus Production Incentive (Charges)
Specialty: General Surgery Notes:
Base Salary 320,000$ Negotiated at time of contract and defined in the agreement
Expected GPC 1,161,000$ Expected level of Gross Patient Charges defined in the agreement
Bonus Multiplier 32.5% Negotiated at time of contract and defined in the agreement
Example:
Annual GPC 1,300,000$
GPC over Expected 139,000$ Equal to Actual GPC minus Expected GPC
Production Bonus 45,175$ Bonus Multiplier times GPB over Expected
Base Salary 320,000$
Production Bonus 45,175$
Benefits 52,800$ Usually set at a fixed amount calculated from hospital benefits
package and MGMA Median Compensation
Total Comp & Benefits 417,975$
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2. Guaranteed Base plus Production (Charges)
Benefits:
Using Gross Charges as the basis for physician compensation addresses the candidate’s concerns regarding the hospital’s ability to collect at rates similar to those achieved by private practices. This is particularly the case with specialty services and where hospital collection policies differ from those used in private practice.
Challenges:
Gross Patient Charges can be inflated by regular Fee Schedule increases and may not reflect the hospital’s ability to collect on those charges. If the majority of managed care contracts are paid on a Percent-of-Charges basis, the risk is lower; but where payments are determined by an Approved-Fee or Allowable-Amount, the level of collections will not match the physician compensation.
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3. Guaranteed Base plus Production (WRVU)
Physician Compensation Scenario: 3. Base Salary plus Production Incentive (WRVUs)
Specialty: General Surgery Notes:
Base Salary 320,000$ Negotiated at time of contract and defined in the agreement
Expected WRVUs 6,895 Expected level of WRVUs defined in the agreement
Bonus Multiplier* 34.81$ Negotiated at time of contract and defined in the agreement
for this example 75% of Median was used.
(*Risk adjusted to reflect level of guaranteed base salary)
Example:
Annual WRVUs 8,358
WRVUs over Expected 1,463 Equal to Actual WRVUs minus Expected WRVUs
Production Bonus 50,927$ Bonus Multiplier times WRVUs over Expected
Base Salary 320,000$
Production Bonus 50,927$
Benefits 52,800$ Usually set at a fixed amount calculated from hospital benefits
package and MGMA Median Compensation
Total Comp & Benefits 423,727$
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3. Guaranteed Base plus Production (WRVU)
Benefits:
The most significant benefit to the WRVU methodology is that it takes into account the severity and acuity of the work being performed by the physician and provides a sound basis for measuring true clinical production. This method works equally well across specialties and provides a foundation for calculating production-based compensation that is comparable to national benchmarks as well as local market data.
Challenges:
One challenge in using this method is the possible exposure to the hospital to changes in RVU valuations for certain procedures and/or dramatic shifts in reimbursement per RVU from government and private payers. Contracts based on WRVU production calculations should also have a clause that allow the hospital to renegotiate the expected levels of production and the WRVU multiplier if significant regulatory or reimbursement changes take place.
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4. Draw plus Pure Production (WRVU)
Physician Compensation Scenario: 4. Pure Production - Base Salary Draw Against Production Incentive (WRVUs)
Specialty: General Surgery Notes:
Salary Draw 240,000$ Monthly Draw of $20,000 based on 80% of median as defined in the
agreement
Expected WRVUs 6,895 Expected level of WRVUs defined in the agreement
Production Multiplier 46.41$ Negotiated at time of contract and defined in the agreement at full
risk generally assumed to be 100% of MGMA Median
Example:
Annual WRVUs 9,100
Production Multiplier 46 Equal to Actual WRVUs minus Expected WRVUs
Production Compensation 422,335$ Bonus Multiplier times WRVUs over Expected
Salary Draw 240,000$
Reconciliation 182,335$
Benefits 52,800$ Usually set at a fixed amount calculated from hospital benefits
package and MGMA Median Compensation
Total Comp & Benefits 475,135$
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4. Draw plus Pure Production (WRVU)
Benefits:
The primary benefit of this model to the hospital is the shared risk of the physician relative to his or her production. For the provider, the benefit is a higher WRVU multiplier and full control over the his or her ability to increase earnings.
Challenges:
This is a difficult model to use to recruit and retain physicians. The provider has no guaranteed minimum salary and takes almost as much risk as he or she would in a private practice setting.
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5. Tiered Production
Physician Compensation Scenario: 5. Tiered Production (WRVU, Charges)
Specialty: General Surgery Notes:
Base Salary 256,000$ Negotiated at time of contract and defined in the agreement
(example is 80% of MGMA median)
Expected WRVUs 5,519 Expected level of Gross Patient Charges defined in the agreement
0 to 5,519 WRVUs* 46.39$ Negotiated at time of contract and defined in the agreement
(*Risk adjusted to reflect level of guaranteed base salary)
Production Tiers
5,520 to 6,519 WRVUs 48.70$ Negotiate at time of contract (example 105% of median)
6,520 to 7,519 WRVUs 51.02$ Negotiate at time of contract (example 110% of median)
7,520 or more WRVUs 53.34$ Negotiate at time of contract (example 115% of median)
Example:
Annual WRVUs 8,358
Base Compensation 256,000$ Equals 5,519 WRVUs x $46.39 per
Tier 1 Compensation 48,700$ Equals 1,000 WRVUs x $48.70 per
Tier 2 Compensation 51,020$ Equals 1,000 WRVUs x $51.02 per
Teir 3 Compensation 44,752$ Equals 839 WRVUs x $53.34 per
Base Compensation 256,000$
Combined Tier Comp 144,472$
Benefits 52,800$ Usually set at a fixed amount calculated from hospital benefits
package and MGMA Median Compensation
Total Comp & Benefits 453,272$
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5. Tiered Production
Benefits:
The clear benefit of this type of plan is the incentive it provides for a physician to be highly productive. Under this model, a provider becomes very focused on the activities that yield increased productivity and the hospital benefits from motivated and focused employed physician.
Challenges:
Tiered models are subject to the same risks as the Base Salary plus Production Bonus and the Pure-Production models. They may be impacted by changes in RVU reimbursement methodologies and they also may place the physicians at risks similar to private practice with no guaranteed salary.
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6. Direct Linkage to Market Data
Physician Compensation Scenario: 6. Direct Linkage to Market Data
Specialty: General Surgery Notes:
WRVU Production 8,358 Actual production calculated from physician billing data
MGMA percentiles by Specialty
Comp per WRVU
RatioWRVUs
25th %tile 41.13 5,565
30th %tile 42.83 5,902
35th %tile 44.72 6,217
40th %tile 46.15 6,469
45th %tile 48.00 6,729
50th %tile 49.25 6,893
55th %tile 51.02 7,206
60th %tile 52.47 7,525
65th %tile 54.46 7,859
70th %tile 56.67 8,202
75th %tile 59.94 8,703
Direct Link Salary 473,631$ WRVU Production times 70th percentile ratio - $56.67
Benefits 52,800$ Usually set at a fixed amount calculated from hospital benefits
package and MGMA Median Compensation
Total Comp & Benefits 526,431$
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6. Direct Linkage to Market Data
Benefits:
This type of plan is easily explained and readily executed based on national survey data. It provides a model in which providers can measure their performance directly against their peers and model their practice patterns accordingly.
Challenges:
The biggest challenge with this model (actually a WARNING), is that compensation and production do not directly correlate in the survey. In other words, median compensation per unit is not necessarily equal to median production divided by median compensation. Therefore, systems using the Direct Linkage method to compensation per unit ratios, may in fact end up paying more than median compensation for median production. Instead of directly linking to the compensation per unit values, a system would be much better off to calculate the dollar amount per work value from the survey components themselves.
See handout for example of “calculated” dollar per WRVU ratios