New physician payment trends reward productivity

Managed care salary debate heats up

You have an established practice. The physician owners work well together and have long seen equal sharing of profits as the best way to divide income. But things are changing. Managed care is making inroads in your market, revenue is being squeezed, and you have to find ways of providing high quality of care for less money. Is it still fair for the physicians to divide revenue equally?

Yes, say the experts, as long as the physicians think it is fair. "If it ain’t broke, don’t fix it," says Andrew Radoszewski, MBA, MPH, a consultant in Orlando, FL.

But when the request comes, a practice has to be ready to make hard decisions related to changing compensation plans, he says.

Productivity demands reward

If you have to change your plan, make sure you include an element of productivity in your calculations, saysNicholas Giampetro, JD, a lawyer at the Towson, MD firm of Giampetro/ Levin. With reimbursement continually falling, it is unfair to connect pay to practice income. "You have to reward for reality, which is that productivity and efficiency are more valuable than ever."

Even in an uncapitated market, you should pay physicians for developing efficiencies that help the practice, says Jonathan Edelson, MD, chairman and chief executive officer of Advanced Health Corporation in Tarrytown, NY.

Managed care has changed the goals of medicine, Edelson says, and those changes necessitate changed behavior from physicians. "Even if you are not operating in a capitated market, changing your pay structure to something that rewards efficient, quality medicine can pay off."

There are more rewards to such a system than just physicians who are happier with their salaries, he notes. "If you do it right, this not only looks good from the inside, but also from the outside. As you move into a managed care market — and you will — you will find HMOs appreciate that you have put a program in place that rewards the kind of behavior they want you to have."

The problem is that there are as many potential compensation plans as there are practices.

Jeff Milburn, senior vice president at 60-physician Colorado Springs (CO) Health Partners, recommends that you limit the number of plans you present to physicians to two or three. Milburn’s practice, which operates in a fairly mature managed care market, recently spent two years reworking its physician compensation program.

Run numbers after you educate

First, he says, educate the doctors about the choices and outline the pros and cons of each. For instance, straight salary is very easy to administer, but does not reward productivity. Using a system based on relative value units (RVUs) is extremely complex and requires a lot of agreement on how many RVUs non-clinical work is worth.

Only after that initial education should you run some numbers using historical data, says Milburn. This allows the physicians to see how a new system will change what they earn without making the administrator have to present a dozen spreadsheets.

Among the more popular plans are these three:

1. Partial guarantee.

In these cases, a portion of the salary pool is split equally, with physicians guaranteed a minimum salary. The rest of the pot is then split depending on how much each physician contributed to the practice as a whole.

For example, Radoszewski administered a 10-physician cardiology practice where 75% of the pool was split equally, and the other quarter was divided according to productivity. If there was a $2 million compensation pool, then $1.5 million would be divided equally among the 10 physicians, and the last half-million dollars would be divided based on productivity. If one physician brought in 20% of the revenue, then 20% of that $500,000, or $100,000, would be added to the portion of the guaranteed salary. (See chart on p. 88 for example.) The year after that, half the pool was divided equally, and the other half was based on productivity.

Radoszewski says this formula works very well for practices in emerging managed care markets where there is increasing reliance on capitation, such as the one his practice operated in. "It allows for incremental changes in the proportion based on productivity," he notes.

2. RVU system.

This can be very complex, says Giampetro. It involves a guaranteed proportion of income based on a physician delivering a specific number of RVUs to the practice. The RVUs are based on the medical work the physician does.

"I’ve only seen this done with practices that have been purchased by hospitals," he says. "Then, you have the hospital guaranteeing a certain income to the physicians based on their delivering the same number of RVUs as prior to the acquisition."

More RVUs means more money

Another example of this type of system involves an anesthesiology practice with which Giampetro works. "They predicate income division based on American Society of Anesthesiology [ASA] units a physician completes." Specific procedures each have a different number of ASA units assigned to them, he notes.

Under an RVU system, additional RVUs bring additional money to the doctor and may be awarded for non-clinical work, such as service on an administrative committee. What is hard about this system, says Radoszewski, is getting physicians to agree on how many RVUs certain things are worth.

If you want to reward physicians for other work they do, such as representing your practice on a hospital committee or with a particular payer, then you can also choose to do that via an administrative stipend that is not based on RVUs, says Radoszewski. "But you will still have arguments about that amount."

3. Base plus productivity and quality bonus.

This is the latest trend, says Edelson. Physicians earn a base salary plus some proportional reward for productivity. But they are also paid if they meet certain peer and patient satisfaction criteria. "It might be based on points for those things, with each point garnering a certain amount of money, or it might be a flat rate for meeting certain goals," he says.

The general proportions used, Edelson says, are dividing 70% of the available salary pool as base salary; disbursing 18% based on productivity; and disbursing 12% based on meeting satisfaction criteria.

Defining fair’

There are always arguments during compensation discussions, and you have to be ready for them, says Milburn. Issues arise between surgeons and other physicians, as well as doctors with high patient volumes and those who deal with more difficult cases. There are also disagreements between doctors who earn money outside the practice — for being on call, for example — and those who do not.

Although Milburn and Radoszewski contend that someone always feels as if they lost out, Edelson maintains that a properly structured plan yields only winners. "Once doctors understand the goals you are trying to meet, and you figure out a way to reward them for reaching those goals, then you have the makings of a good plan."

That doesn’t mean you have to build a complex plan that rewards every single positive behavior, Edelson warns. "The core message that you have to concentrate on is the appropriateness of every test and treatment, on whether something will help the patient. You have to get the physician to pause and ask himself, What is the goal?’"