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1
MANAGING COMPENSATION
IN EMPLOYED PHYSICIAN
GROUPS Jeff Moffatt, CPA/ABV/CITP, CVA
Manager – Healthcare Valuation and Strategy
One American Square, Suite 2200
Indianapolis, IN 46282
317.275.7405
jmoffatt@blueandco.com
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Disclaimer
This presentation has been designed to provide illustrative information with respect to
the subject matter covered. The presentation itself, and views expressed within, do not
establish standards or authoritative guidance within the practice area, nor do they
represent the professional opinions or positions that the presenters would take in an
actual assignment. The material was prepared by the presenters and has not been
considered or acted upon by regulatory or technical committees within the industry and
does not represent an official opinion of any such group or individual. It is provided with
the understanding that the presenters have prepared such material for educational
purposes and such presenters are not engaged in rendering any legal, accounting, or
other professional service.
Further, the views presented within this presentation are fact/circumstance sensitive,
and are subject to different interpretation under various circumstances. If legal advice or
other expert assistance is required, the services of a competent professional person
should be sought. The presenters make no representations, warranties, or guarantees
about, and assume no responsibility for, the content or application of the material
contained herein and expressly disclaim all liability for any damages arising out of the
use of, reference to, or reliance on such material.
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Initiatives Most Influential in Physician
Compensation Structure
Karen Minich-Pourshadi. “Physician Compensation: Shifting Incentives.” HealthLeaders Intelligence, HealthLeaders Media, October 2011.
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Setting Physician Compensation
DELIVERY SYSTEM
REIMBURSEMENT
METHODOLOGY
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Federal Regulations and Guidelines
• Stark law
• Physician referrals under Medicare and Medicaid
• Anti-kickback statute
• Payment for referrals
• Anyone engaging in business with a federal
healthcare program
• Civil monetary penalties
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Two “Standards” of Value
Commercially Reasonable
Hypothetical willing buyer and
willing seller
Price current in any recognized
market at the time of the transaction
Conforms to common
practices for dealers in the
type of asset/agreement
Fair Market Value
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Commercially Reasonable…
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Commercially Reasonable – Stark
• In the usual manner on any recognized market;
• At the price current in any recognized market at the
time of the transaction; or
• Otherwise in conformity with reasonable commercial
practices among dealers in the type of
asset/agreement/service, etc. that was the subject of
the transaction.
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Factors to Consider
• Practice staff • Medical specialty
• Skill set
• Performance
• Years in practice
• Practice location • Geographic location
• Metropolitan versus rural
• Market conditions • Competitive environment
• Under served area
• Saturated
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Example: Benchmarking
Compensation – Family Practitioner
Example physician data
• Solo family practitioner
• In practice for 35 years
• Consistent annual revenues of approximately $500,000
• Historical owner’s compensation between $150,000 and $180,000
Survey says…
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Sources Of Benchmark Data: The
Usual Suspects…
Salary.com
“Salary.com is a leading
provider of on-demand human
resources software that helps
businesses and individuals
manage pay and performance.”
www.salary.com/aboutus/Facts.asp
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Healthcare Industry Benchmark Data
Medical Group Management
Association (MGMA)
MGMA surveys have been recognized both within the healthcare industry and by the federal government as one of the acceptable resources to be used in determining the fair market value of physician compensation and are frequently used to benchmark healthcare organizations operational performance.
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Healthcare Industry Benchmark Data
Sullivan, Cotter and
Associates
(Sullivan)
Sullivan also publishes survey
data summarizing physician
compensation and production
information and is an
additional authoritative source
of healthcare industry
benchmark data.
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Healthcare Industry Benchmark Data
American Medical Group Association
(AMGA)
The American Medical Group Association (AMGA) represents medical groups and organized systems of care, providing research, benchmarking and other advocacy services. The AMGA publishes various reports and surveys that allow medical groups to benchmark their performance against other groups on both a national and regional level.
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Healthcare Industry Benchmark Data
Hospital and Healthcare
Compensation Service (HHCS)
Hospital & Healthcare Compensation
Service (HHCS) specializes in
healthcare salary and benefits
research. As a publisher of annual
salary & benefits reports, HHCS
conducts an extensive program of
ongoing compensation research in
areas of healthcare such as
hospitals, physician practices,
nursing homes, etc.
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Healthcare Industry Benchmark Data
Other medical specialty groups
• American Academy of Family Practitioners
• American College of Cardiology
• American Academy of Orthopedic Surgeons
Other industry associations
• American Medical Association
• MGMA state chapters
• Healthcare Finance Management Association (HFMA)
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Historical Physician Compensation
• Good starting point for what the market will support
• Adjusted to match compensation as defined by
benchmark source
• Per instructions to the MGMA survey questionnaire: • Total compensation: State the amount reported as direct compensation on a
W2, 1099, or K1 (for partnerships) plus all voluntary salary reductions such as
401(k), 403(b), Section 125 Tax Savings Plan, and Medical Savings Plan. The
amount reported should include salary, bonus and/or incentive payments,
research stipends, honoraria, and distribution of profits.
• Do not include: The dollar value of expense reimbursements, fringe benefits
paid by the medical practice such as retirement plan contributions, life and
health insurance, automobile allowances, or any employer contributions to a
401(k), 403(b), or Keogh Plan.
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Primary Considerations
Setting physician compensation is a benchmarking exercise
• Historical compensation
• Productivity
• Charges
• Collections for professional charges
• wRVUs
Other forms of compensation
• Medical directorship
• On-call pay
• Ancillary income
• Ambulatory Surgery Center (ASC), imaging, etc.
Potential employment arrangements must be considered in
compensation projections
• Fair market value requirement
• Test for “commercial reasonableness”
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Example: Benchmarking Compensation –
Family Practitioner
Example physician data
• Solo family practitioner
• In practice for 35 years
• Consistent annual revenues of approximately $500,000
• Historical compensation between $150,000 and $180,000
Benchmark compensation data
Initial conclusion Physician compensation set based upon the average of the median data,
$180,000…but we need to take a longer look at this.
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Volume and Complexity of Services
Provided
• Higher volumes = greater production
• Measured using the Centers for Medicare and Medicaid Services (CMS) Resource Based Relative Value Scale (RBRVS)
• Unit of measure = Relative Value Units (RVUs)
• Removes effects that payor contracts, payor mix, accounts receivable management, bad debt, etc. have on collections
• Allows apples-to-apples comparison
of productivity
• Complex services receive a greater
weight
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Current Procedural Terminology (CPT)
Codes
• Issued by the American Medical Association • Subset of the Healthcare Common Procedural Coding System
(HCPCS)
• Referred to as HCPCS Level I
• Five digit codes • Two character modifiers
• Grouped by type • Medicine = 9xxxx
• Surgery = 1xxxx-6xxxx
• Radiology = 7xxxx
• Subject to change
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Billing / CPT Code Utilization Reports
• Often generated by a
medical billing system
• May be produced
through a component
of an Electronic
Medical Records
(EMR) system
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Relative Value Units (RVUs)
• Primarily used as a
component of the
Medicare reimbursement
formula
• Assigned by CMS
• Also used as a proxy for
determining physician
productivity
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• Malpractice Relative Value Unit (mpRVU)
• Practice Expense Relative Value Unit (peRVU)
• Work Relative Value Unit (wRVU)
• Designed to reflect the work effort and intensity required of the
physician in providing the service
Relative Value Unit Components
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Obtain CPT code reports on a per
physician basis
• Annual summary
• Consider looking at multiple years
• Apply PFS data to CPT code
summary
• Total results
Calculating wRVUs
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Example: Benchmarking Compensation –
Family Practitioner
Example physician data
• Solo family practitioner
• In practice for 35 years
• Consistent annual revenues of approximately $500,000
• Historical physician compensation between $150,000 and $180,000
• Annual Work Relative Units production of approximately 6,500
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Sample Annual wRVU Totals by Specialty
• Cardiology (non-invasive)
• 6,000 – 9,000
• Orthopedic surgery
• 7,000 – 10,000
• Family practice
• 4,000 – 5,000
• Gastroenterology
• 6,000 – 9,000
• General surgery
• 5,000 – 8,000
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Coding and Documentation
Review of documentation of
medical services
• Evaluation of services provided
• Determines completeness of
billing for services provided
• Have all services provided
been billed for?
• Is documentation adequate
to bill for services?
• Requires specialized
knowledge
• Performed by a Certified
Professional Coder (CPC)
or similar
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Based upon national Medicare data
• Evaluation and management codes
• New patient codes: 99201-99205
• Established patient codes: 99211-99215
• Consultation codes
• Discontinued by CMS January 1, 2010
• 99241-99245
• 99251-99255
Bell curve
• Source of bell curve data
• MGMA
• CMS
• Results of benchmarking
• Over-coding
• Under-coding
• Severity dependent
Benchmarking Coding Patterns
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Example: Coding – Family Practice
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Example: Coding – Family Practice
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Example: Coding – Family Practice
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OIG E&M Coding Study
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OIG E&M Coding Study
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Example: Benchmarking Compensation –
Family Practitioner
Conclusion
• Production seems to have outpaced compensation
• Historical compensation sets a precedent for benchmarked compensation
• Physician compensation set at $200,000
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“Physician Alignment: Integration Over Independence”,
Health Leaders Media, September 2012
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• Productivity based
• Gross charges
• Net receipts
• Work Relative Value Units (wRVUs)
• Management of bottom
line
• Staff management
• Operational management
• Financial management
• Quality
• Patient satisfaction scores
• On-time starts
• Turn-around time
Physician Compensation Modeling
Productivity Based Compensation
• $34 per wRVU
• 40% of net receipts
• 25% of gross charges
Practice Management
• +/- 10% of practice operating budget
• Sharing of net profit of practice profits/loss
• > 95% outstanding patient satisfaction
• > 90% first patient seen on time Quality
Incentive Alignment
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Incentive Baseline Target Weight $ @ Risk Earn Contribution
Quality of Care 20% $20,000
01. Measure A TBD TBD 10% $10,000 50% $5,000
02. Measure B TBD TBD 10% $10,000 50% $5,000
Operational Efficiency 20% $20,000
03. Measure C TBD TBD 10% $10,000 50% $5,000
04. Measure D TBD TBD 10% $10,000 50% $5,000
Market Expansion 20% $20,000
05. Measure E TBD TBD 10% $10,000 50% $5,000
06. Measure F TBD TBD 10% $10,000 50% $5,000
Financial Performance 20% $20,000
07. Measure G TBD TBD 10% $10,000 50% $5,000
08. Measure H TBD TBD 10% $10,000 50% $5,000
Alignment 20% $20,000
09. Measure I TBD TBD 10% $10,000 50% $5,000
10. Measure J TBD TBD 10% $10,000 50% $5,000
Total 100% $100,000 50% $50,000
Incentive Pool and Payments Example
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Summary
• Stark and AKS
• Commercial reasonableness
• Physician benchmarking
• Ancillary services
• Non-production based compensation
Recommended