Physician Employment in a Health Care Reform Era San Diego, California D. Louis Glaser, J.D. Partner Katten Muchin Rosenman, LLP. Chicago, Illinois [email protected]Craig E. Holm, FACHE Senior Vice President Health Strategies & Solutions, Inc. Philadelphia, Pennsylvania [email protected]
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Physician Employment in a Health Care Reform Era€¦ · Influences on Employment in a Health Care Reform Era (continued) Employment particularly challenging for primary care specialties:
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hospitals and physicians• Now, desire of physicians for security• Soured relationships between physicians and
hospitals• Regulations constrain the options for formal
business relationships other than employment• New categories of employment
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Influences on Employment in a Health Care Reform Era (continued)
• The rush to employ by your competitors• In some markets, virtually all physicians are
employed by hospitals or large practices• Most large employed physician networks are able to
negotiate premium reimbursement rates• While industry average subsidy is >$150,000
annually, best practice is $35,000 to $40,000• In some markets, global risk
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Influences in your market?Influences in your market?
Influences on Employment in a Health Care Reform Era (continued)
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The 2010 Review shows that 51% of Merritt Hawkins’ 2009/2010 physician search assignments were for settings featuring hospital employment of the
physician, up from 45% last year and up from 23% in 2005/2006
The 2010 Review shows that 51% of Merritt Hawkins’ 2009/2010 physician search assignments were for settings featuring hospital employment of the
physician, up from 45% last year and up from 23% in 2005/2006Source: 2010 Merritt Hawkins review of physician recruiting incentives survey.
Influences on Employment in a Health Care Reform Era (continued)
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Philadelphia,PA
Cincinnati,OH
Washington ,
DC
Phoenix,AZ
Milwaukee,WI
High Point,
NC
Professional Fees as %of MC Fee Schedule
A Varying Reimbursement Environment
Philadelphia, PA Cincinnati, OH Washington, DC Phoenix, AZ Milwaukee, WI High Point, NC
Source: HS&S client data.
Influences on Employment in a Health Care Reform Era (continued)
Employment particularly challenging for primary care specialties:
•Since 2008, medical student interest in primary care has ranged from 14% to 20%; recent uptick
•If uninsured population becomes insured, an additional 122,000 PCPs are needed
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1960
50% physicians in primary care(1)
1978
PCPs equal 36% of total through 2002
2008
PCPs equal 32% of physicians
(1) Primary care includes general practice, family practice, general internists, and general pediatricians.Source: COGME 20th Report: Advancing Primary Care, January 2011.
Influences on Employment in a Health Care Reform Era (continued)
Interest in generalist careers has fluctuated and declined:
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Note: Generalist careers include family medicine, general internal medicine, and general pediatrics.Source: AAMC Graduation Questionnaire
Influences on Employment in a Health Care Reform Era (continued)
Traditional role of the primary care physician:
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Influences on Employment in a Health Care Reform Era (continued)
Tomorrow’s role of the primary care physician:
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Physician Employment: The Research Says…
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“Physician employment historically has had mixed effects on clinical integration.” - Rob Burns, Ph.D., Wharton School of Business, University of Pennsylvania
“Physician employment historically has had mixed effects on clinical integration.” - Rob Burns, Ph.D., Wharton School of Business, University of Pennsylvania
Employment Versus Other Alignment Approaches
Employment Versus Other Alignment Approaches
• Employment is just one approach for hospital physician alignment
• Employment is typically for a minority of medical staff
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Employment Versus Other Alignment Approaches (continued)
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Selectively grow
Improve performanceEmployed
Strong referral relationships
Strong referral relationships
Strong PCP base, supplemented with hard-to-recruit or hard-to- gain-coverage specialties
Tolerable deficits
Strong PCP base, supplemented with hard-to-recruit or hard-to- gain-coverage specialties
Tolerable deficits
Selective business partnerships tailored to practice needs and hospital strategic priorities
Market growth
Selective business partnerships tailored to practice needs and hospital strategic priorities
Market growth
Systematic process to evaluate and develop formal business partnerships
Independent, but potential
partners
Proactive, comprehensive outreach
Optimal hospital operations and systems, quality demonstration
Independent
Physician Alignment Categories Approach Common Objectives
The Continuum of Alignment Models
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LOW
Cha
lleng
eH
IGH
HIGH
Equity Joint VentureInformation System Assistance
Recruitment AssistanceAcquisition w/o Employment
Real Estate Partnerships
Clinical Leadership Councils
Degree of Alignment
Selling/Contracting Outpatient Services
Joint Operating Agreement
Medical Directorship
Management Services Organization
Physician Employment w/o Acquisition
Medical Foundation
Co-management Agreement
Medical Home
Accountable Care Organization
EVOLVING MODELS
Prevalence Key:
High
Low Moderate
Target Group Key:
Any
Independent PhysiciansEmployed Physicians
New PhysiciansRetiring PhysiciansOffice-Based and Hospital- Based Physicians
In Employment or Other Business Relationships, It’s Not the Model, It’s What the Model Does
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Recruitment/Retention Strategies for an Increasingly Competitive Market
• Hospital leaders interact with medical students and residents early
• Alums recruit from programs and use personal connections
• Offer security: employment or large, established groups
• Match lifestyle needs
• Screen for cultural compatibility
• Attend to family needs
• Use techniques to stand out from the pack
• Don’t oversell
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Employment Options
Employment Options: Structure and Compensation
• Structure
– Direct employment
– Foundations
• Compensation methodology
– RVUs
– Guaranteed salary
– Net income
– Percentage of collections
– Citizenship
– Quality, outcomes
• Model and compensation pitfalls
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Compensation Model Example 1: Family Practice
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Base SalaryYears in Specialty
1 to 2 3 to 7 8 to 17 18+MGMA Median (less Bonus potential) $137,724 $148,494 $164,089 $164,741
BonusCategory Bonus
Seniority $5,000Quality Up to $10,000Patient satisfaction Up to $10,000Panel size Up to $5,000Leadership Up to $5,000
A disadvantage of this method is trying to incentivize and reward
behaviors that are both quantitative and qualitative; method also
disregards productivity
Max compensation is equal to MGMA median specific to years in specialtyMax compensation is equal to MGMA median specific to years in specialty
Compensation Model Example 2: Family Practice
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The importance of both group and individual effort towards productivity, efficiency and profitability is reflected by the inclusion of two incentive pools, the individual and site incentive pools
Compensation reflects overall practice performance as well as individual performance on a variety of factors
Compensation Model Example 3: Internal Medicine
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Part 1: Productivity-Based Component (Professional Services)
Tier Range of wRVUs
Bonus per Incremental
wRVUBase
CompensationProductivity
Compensation
Total Productivity-
Based Compensation
1 - 4,700 $40 $180,000 $180,0002 4,701 6,000 $41 $180,000 Up to $53,259 Up to $233,2593 6,001 8,000 $42 $233,259 Up to $83,958 Up to $317,2174 8,001 + $43 $317,217 Up to $177,783 Up to $515,000
Part 2: Other IncentivesCategory Bonus
Quality Up to $10,000Leadership Up to $10,000
Max compensation is $515,000
What characteristics of this compensation model make it
interesting?
Compensation Model Example 4: Internal Medicine
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Part 1: Productivity-Based Component (Professional Services)
Tier Range of wRVUsCompensation Per
wRVUMax Compensation Per
Tier1 - 4,415 $54 $238,4102 4,416 4,995 $64 + $37,120 = $275,5303 4,996 + $73 up to $760,758
Part 2: Other IncentivesCategory Bonus
Quality Up to $10,000Payor Mix Up to $10,000Leadership Up to $100,000
Max compensation is $760,758
Which features of this model would trigger compliance
alerts? Why?
Compensation Model Example 5: Orthopedics
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Overall Practice Expenses
Direct Expenses Shared Expenses
Tracked and allocated to individual physicians
(includes staffing, personal expenses, CME, etc.)
Distribution of overhead expenses based on
percent of individual revenue
Resulting compensation is individual revenue less direct expenses and overhead allocation
Overall Practice Revenue
Allocated to individual physicians based on actual production
Patient Care Revenue
This model can be referred to as the “capitalist” model as you are rewarded for your individual productivity and expense management
This model can be referred to as the “capitalist” model as you are rewarded for your individual productivity and expense management
Compensation Model Example 6: Orthopedics
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Overall Practice Expenses
Equal ($) distribution of practice expenses
All physicians are compensated at the same level based on overall practice performance
Overall Practice Revenue
Equal ($) distribution of practice revenue
Avoiding Excessive Subsidies
Avoiding Excessive Subsidies: The Formation Process
• Careful selection of top-tier, professionally compatible physicians committed to evolving role
• Acquisition costs exclude excessive goodwill• Productivity-based compensation and short-term
contracts• Medical group managed by practice managers,
rather than hospital administrators• Strong focus on adding incremental practices• Some practice deficits are inevitable
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Avoiding Excessive Subsidies: Example Selection (or Divestiture) Criteria
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Category Components Score
Strategic priority
Hospital and community need (specialty-specific)
Precludes competitors
Fit with hospital and health plan initiatives
5
Financial performance targets achieved 4
Other productivity measures achieved
RVUs
NMR3
Growth potential
Historic growth rate
Physician entrepreneurial/practice building qualities2
Fulfills coverage requirements 2
Alienation factor
Future competitive threat 2
Other
Quality indicators
Group practice potential1
Each practice site is reviewed and scored: <10 Points = Divest; 10–13 Points = Probation; 13 Points = Retain
Each practice site is reviewed and scored: <10 Points = Divest; 10–13 Points = Probation; 13 Points = Retain
Avoiding Excessive Subsidies: The Downstream Revenue Rationale
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(In millions)
In 2010, physicians continue to generate approximately $1.5 million of average revenue on behalf of their affiliated hospitals
In 2010, physicians continue to generate approximately $1.5 million of average revenue on behalf of their affiliated hospitals