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Colorado Springs Health Partners, a 60-doctor multispecialty practice, was growing fast in 1995. That January, Jeff Milburn, MBA, CMPE, senior vice president of the practice, had overseen the addition of 21 family practitioners through a merger. There was also a growing shift in payer mix, with about 60% of revenue coming from at-risk managed care patients. One result of these changes: a re-examination of the physician compensation plan.
"We knew we had to recalculate our cost center allocations to take into account that some of the new physicians weren’t using central medical records," he says. "We didn’t think they should be charged for something they weren’t using."
Another issue was how to add a managed care component to the formula so that those who managed more of the risk gained or lost depending on their performance.
Lastly, Milburn says some of the physicians were earning outside income either from hospital trauma calls or other moonlighting assignments. "We had to address whether that was going to go back through the pay formula or whether it would all go directly to the physician."
The old compensation formula tracked gross charges for each physician. It was adjusted to account for contractual adjustments and bad debt, giving a net revenue figure for each physician or each profit center. "This encouraged production and kept them in tune with seeing patients from plans where we made a profit, not a loss."
Costs were also allocated to physicians and cost centers, says Milburn. Those costs were divided according to the number of patient visits, gross revenue, the number of employees, and the number of physicians in a cost center. This gave a profit figure both for physicians and for each cost center.
"The advantage to this was it encouraged the docs to control expenses," he says. These profits were then shared, with up to 20% (depending on the year and the performance of the practice) put into a pot for equal division among partners. "This shifted the profit from surgeons to primary care physicians. The surgeons didn’t really like this, but I knew I would never have fairness, just equal unfairness," Milburn explains.
Once that part of the pool was divided, then there was an equal share added to each physician’s package based on the profit or loss of ancillary services, such as lab, pharmacy, or ambulatory surgical center.
Past changes in compensation had proceeded smoothly, and Milburn says he had no reason to suspect this discussion would be any different. But it was. He first gathered a committee of five physicians. He outlined the possible formulae they could use and noted the pros and cons of each. (For more on different compensation formulae, see related story, p. 89.)
Milburn also made sure he had a lot of benchmarking data on hand so that whatever plan was being discussed, he had a way of comparing the resulting compensation figures to like practices from his region and from around the country.
Such information is available from the Medical Group Management Association in Englewood, Co, (see source information, p. 88) or from compensation consultants in your area.
After a year of meetings with this committee, the group came up with a recommendation which was then presented to shareholders. "It’s a good idea to do this either with a physician or to let a physician make the presentation," Milburn says.
After the meeting, one of the physicians expressed dissatisfaction. He then asked the other doctors if any of them were happy with the proposed mode. "No one was," Milburn says. At that point, he suggested bringing in a consultant. At the end of 1996, the consultant presented a solution. "I don’t want to demean what they did, but it was very close to the package we had already," says Milburn. "I guess it was easier accepting it from a stranger."
The biggest change to compensation was adding an element of risk to the primary care practitioners. The capitation payments and patient co-pays are put into a pot. All referral costs both internal referrals and external referrals are paid from this pot, says Milburn. What is left is for the primary care providers. Half of this is divided according to their contribution to the capitation pool.
The other half is divided among the three primary care groups family practice, pediatrics, and internal medicine based on their expenses. If a group makes a lot of referrals, then they get less money. "Some people say that is a step toward individual capitation and is unfair, but I don’t agree," says Milburn. "We are capitating pods of doctors and educating them about managing utilization as we go."
There was also a change in the way expenses were allocated to better reflect who used what resources. Practices that were not using a particular resource were not charged for it. And the practice added a bonus scheme that took into account meeting utilization management goals and peer and patient satisfaction targets.
"If they score at a certain level, they get extra money," Milburn explains. "That rewards good practice." This part of the program is still being worked on, he adds, but physicians like the idea.
There is also a minimum salary guarantee in the new program, which is based on MGMA compensation benchmarks. "If someone gets sick, they will have an income. But if they want to live well, they will have to produce and control expenses."
Perhaps the biggest difficulty was the complexity of the program, says Milburn. "We are trying to please too many people, too many groups." He adds that there are issues between surgeons and other practitioners, between those who deal with difficult patients who use a lot of services and those who don’t, and between physicians with outside income and those without.
"But most of all, I resent the time we had to spend on this," he says. "If we had spent all that time trying to expand the income pie, not divide it, it would have been far more profitable."
The next time he goes through the same experience, Milburn says he will set a strict time line and will have a smaller committee of handpicked physicians.
He also thinks early involvement of a neutral third party whether a consultant, corporate counsel, or an outside accounting firm might have smoothed things over and cut the time needed to come up with the plan. But he has learned from his mistakes. "I think before we do this again, we will talk about what went wrong and how to avoid that situation."
• Jonathan Edelson, MD, Chairman and CEO, Advanced Health, Tarrytown, NY. Telephone: (914) 332-6688.
• Nicholas Giampetro, Esq., Partner, Giampetro/Levin, Towson, MD. Telephone: (410) 339-7466.
• Jeff Milburn, MBA, CMPE, Senior Vice President, Colorado Springs (CO) Health Partners. Telephone: (719) 475-7700.
• Andrew Radoszewski, MBA, MPH, Consultant, Orlando, FL. Telephone: (407) 682-3585.