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DRAFT
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Physician Compensation Strategies
Avoiding the Pitfall of "Accidental Employment"
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Becker’s Hospital Review: Annual Meeting
Chicago, Illinois
May 2011
BJ Millar, Director
Physician Services Group
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Employing Physicians Does not have to feel like this!
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. . . 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
3: a unit of economic organization or activity
4: a systematic purposeful activity
Source: Merriam-Webster on-line dictionary; http://www.merriam-webster.com/dictionary/enterprise
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Compensation models need to meet personal and organizational objectives
Incentivize provider production
Advance cost management and operational efficiencies
Deliver quality patient care
Improve patient, staff, and provider satisfaction
Empower providers with control over their practices and their incomes
Reward “mission focused” activities: teaching, research, outreach, etc.
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Physician Leaders - the “Catalyst” needed to accelerate the evolution of the Physician-Hospital Enterprise
Employed partner, stewardship mindset, change agent, outcome focus, shared risk, hospital is a strategic partner
Enterprise-minded, cross-trained, change agent, bold with peers and management, IT savvy, patient-focused
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Our session today
Employment
Objectives
Compensation
Model
Appendix
Characteristics
Components
Sustainability
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There are 4 primary characteristics of all good physician compensation models
Clear definition of requirements,
expectations
Understandable calculations, terms, and
methodologies.
Financially sustainable for hospital and
providers
Promotes recruitment and
retention of quality medical
staff
DRAFT
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Physician compensation models must address different areas of performance and expectations
Clinical Production
Quality NPP
Oversight Leadership Citizenship
Physician Compensation Package
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To be sustainable a compensation model must be based on sound financial principles
Considers Market Dynamics (FMV)
Risk-Reward Based
Allows for Renegotiation
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Our session today
Employment
Objectives
Compensation
Model
Appendix
Characteristics
Components
Sustainability
The Physician-Hospital Enterprise
Personal & Organizational Objectives
Physician Leaders: “Catalysts”
DRAFT
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16
Our session today
Employment
Objectives
Compensation
Model
Appendix
Compensation Models
Benchmark Sources
Sample Tools
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Physician Compensation Models
1. Straight Salary
2. Guaranteed Base plus Production Incentive (Charges)
3. Guaranteed Base plus Production Incentive (WRVU)
4. Base Salary Draw plus Production Incentive (Pure Production)
5. Tiered Production (WRVUs, Charges, Net Revenue)
6. Direct linkage to market data
7. Compensation Model with Other Bonus Consideration (Quality, Patient Satisfaction, etc.)
Descriptions and examples of each included in handouts
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1. Straight Salary
Physician Compensation Scenario: 1. Straight Salary
Specialty: General Surgery Notes:
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
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7. “Other” Bonus Considerations
Physician Compensation Scenario: 8. Other Bonus Consideration (Quality, Patient Satisfaction, etc.)
Quality Measures
These areas may be tied directly to Core Measures or based on
marekt/ facility level initiatives
Benchmarks are often times stipulated by Specialty Associations
Each of these areas is negotiated with the provider and included in
the agreement. Fulfimment of each may be determined by survey,
interview, or subjectively.
Program Development
In this example physician is eligible for a bonus of $10,000 based on
Principles of Practice Leadership in four categories
Each of these areas is negotiated with the provider and included in
the agreement. Fulfimment of each may be determined by survey,
interview, or subjectively.
A percentage of base salary or a predetermined amount, such as
$10,000 may be set up to reward high satisfaction scores from both
patients, collegues, and referring physicians
An amount may be identified to reward the achievement of specific
operational goals or imperatives
Areas are defined with the provider and included in the agreement.
These may be short or long-term objectives and may change from
year to year.
Other Quality & Operational Areas
EMR implementation & usage
Documentation & Coding
Mid-level Supervision
Customer Satisfaction (40%)
Cost Control (30%)
Clinical Focus (20%)
Satisfaction: Patient and Peers
Patient Satisfaction
Citizenship (collegue satisfaction)
Referring Physician Satisfaction
Identify area(s) of focus for quality.
Stipulate benchmarks for each quality
measure to receive bonus.
Level of bonus may be tied to
completion of one or all benchmarks and
paid out on a percentage basis.
Practice Leadership
Collaboration/Leadership (10%)
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Benchmarks are the starting point
Benchmark and Survey Sources:
MGMA Physician Compensation and Productivity (annual)
MGMA Cost Survey (annual)
AMGA Medical Group Compensation and Financial (annual)
Sullivan Cotter Physician Compensation and Production (annual)
Merritt-Hawkins Profiles
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QHR Benchmark Tools (MGMA)
MGMA Specialty Profile
Internal Medicine: General <----Use Drop Down Menu
2009 Data / 2010 Survey Report
MGMA Physician Compensation & Production Survey 2010 - Per Physician FTE
Internal Medicine: General Mean 25th %tile Median 75th %tile 90th %tile
Weeks Worked per Year 46.83 46.00 47.00 48.00 48.00
Ambulatory Encounters 3,533.24 2,590.00 3,414.00 4,344.00 5,304.80
Hospital Encounters 665.87 134.00 463.50 933.75 1,624.90
Physician Work RVUs (CMS RBRVS Method) 5,042.39 3,878.37 4,805.79 5,843.81 7,213.50
Physician Total RVUs (CMS RBRVS Method) 9,262.91 7,050.31 8,857.25 10,724.61 13,391.55
Gross Charges (TC/NPP) excluded $636,948.48 $451,679.65 $594,410.98 $766,493.75 $960,361.63
Physician Collection for Professional Charges (TC/NPP) excluded $388,080.33 $286,241.21 $366,622.14 $468,382.54 $575,809.40
Compensation (Over 1 Year in Specialty) $214,905.78 $160,731.25 $197,079.50 $250,000.00 $316,038.00
Physician Compensation per Total RVU (CMS RBVS Method) $25.45 $19.95 $23.89 $28.60 $35.52
Physician Compensation per Total RVU (Calculated) $23.20 $22.80 $22.25 $23.31 $23.60
Physician Compensation per Work RVU (Calculated $42.62 $41.44 $41.01 $42.78 $43.81
Physician Work RVUs to Total Encounters Ratio (CMS RBRVS Method)(NPP Excluded) 1.42 1.17 1.30 1.47 1.76
Physician Work RVUs to Total Encounters Ratio (Calculated)(NPP Excluded) 1.20 1.42 1.24 1.11 1.04
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QHR Placement Salary Survey Tool (MGMA)
Specialty Neurology
First-Year Post-Residency or
Fellowshipweight Median Comp Weighted Comp
Table_1 All Respondents 35.0% 6 $218,334 $76,417 2 82
Table_2 Single Specialty 0.0% 5 $200,000 $0 2 3
Table_3 Hospital/ISD Owned 25.0% 5 $240,000 $60,000 2 26
Table_4 Southern Region 15.0% 7 $242,500 $36,375 6 20
Table_5 HHS Region 4 0.0% 9 $218,500 $0 8 16
Table_6 Non-metropolitan 15.0% 3 $223,200 $33,480 2 12
Table_7 Years of experience 10.0% 3 * 2 4
Table_8 AMG 0.0% 3 $225,000 $0 2 50
Table_8 IMG 0.0% 5 $211,000 $0 4 20
Table_9 Male 0.0% 3 $225,000 $0 2 58
Table_9 Female 0.0% 5 $211,000 $0 4 24
100% $206,272
2010 Report Based on 2009 Data, Medical Group Management Association.
First-Year Post-Residency or
Fellowshipweight Benefits
Weighted
Benefits
Table_10 Signing Bonus 100.0% 6 $20,000 $20,000 2 35
Table_11 Paid Relocation 100.0% 6 $10,000 $10,000 2 36
Table_12 Paid Vacation (in weeks) 0.0% 6 5.00 2 51
Table_13 Paid Time for CME (in weeks) 0.0% 6 2.00 2 47
$30,000
2010 Report Based on 2009 Data, Medical Group Management Association.
All Physicians First-Year Compensation in a New Practice Estimate: Using MGMA 2010 Physician
Placement Starting Salary Survey
Survey
Participants
Survey
Participants
QHR Physician Compensation Model development tool
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NMC 3-Tier Physician Compensation Modeling Tool - Production BasedNotes: MGMA Specialty (Prod & Comp Survey 2010)
Provider Name: Beattie, Robert Orthopedic Surgery: General
Specialty Orthopedic Surgery: General If MGMA Specilaty box is RED
Year Employed 2011 Please select correct specialty
FTE Status 1.0
Base Comp 675,000
Annualized WRVUs -
Base Comp / Annualized WRVUs -
FULL Guarantee - No Physician Risk
Specialty: Orthopedic Surgery: General Notes: Model Variables
Guaranteed Base Source:
Base Salary 675,000 Guaranteed minimum of first-years salary Percent of Base Source: 100%
Expected WRVUs 13,610 Expected level of WRVUs at MGMA Comp/Median
WRVU x Market Dynamic Variable of 85%Market Dynamic Variable: 85%
Bonus Multiplier* 24.80 Risk Adjusted Multiplier = 50% of Market Adjusted
Comp per WRVU. Multiplier Percentage 50%
WRVU Source:
Annual WRVUs 8,120 100% of MGMA 50th Percentile Percent of WRVU Source 100%
WRVUs over Expected (5,490) Equal to Actual WRVUs minus Expected WRVUs
Production Bonus - Bonus Multiplier times WRVUs over Expected
Base Salary 675,000
Production Bonus -
142% of MGMA 2010 Median Compensation MGMA Median Compensation 473,770
Total Salary & Bonus 675,000 135% of AMGA 2010 Median Compensation AMGA Median Compensation 500,672
152% of Sullivan Cotter 2010 Median Compensation Sullivan Cotter Median Comp 443,990
Prior Year's Base Comp
MGMA 50th Percentile
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B.J. Millar, Director Physician Services Group
Cell phone: (801) 455-6092
Contact Information