VHA CENTRAL ATLANTIC COMPENSATION PLAN REDESIGN. Karin Chernoff Kaplan, AVA, Director, DGA Partners. January 5, 2012

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1 VHA CENTRAL ATLANTIC COMPENSATION PLAN REDESIGN Karin Chernoff Kaplan, AVA, Director, DGA Partners January 5, 2012

2 AGENDA > Introduction and Trends in Physician Compensation > Compensation Plan Design > Development Process and Implementation > Case Studies

3 INTRODUCTION AND TRENDS IN PHYSICIAN COMPENSATION 3

4 INTRODUCTION AND TRENDS LESSONS LEARNED: Get compensation right! > Be clear about goals and expectations > Engage physicians > Incent physicians to achieve desired behaviors > Commit sufficient management talent and resources > Invest in capabilities to measure, monitor, and manage > Understand strategic benefits accept defined losses on physician enterprise as long as financial health of system remains strong 4

5 INTRODUCTION AND TRENDS CURRENT INDUSTRY ENVIRONMENT From Fragmented care Volume-based payments Only treating individuals Payer-driven managed care To Coordinated/ Integrated care Value-based payments Caring for a population Provider-driven accountable care EMERGING DISCONNECT BETWEEN VOLUME INCENTIVES AND QUALITY INCENTIVES 5

6 INTRODUCTION AND TRENDS EMERGING PAYMENT MODELS WILL DRIVE CHANGES IN PHYSICIAN COMPENSATION > ACOs Medicare and Commercial > Bundled Payments o Bundled professional and facility o Bundled payments for care of chronic illnesses > Advanced pay for performance initiatives o Evolving from traditional process metrics i.e. vaccination rates to efficiency oriented metrics that ultimately result in lower resource utilization i.e. generic prescribing rates 6

7 INTRODUCTION AND TRENDS Biggest challenge will be to align compensation models with emerging value-based contracting terms Volume Based Incentives Value Based Incentives 7

8 INTRODUCTION AND TRENDS PHYSICIAN COMPENSATION TRENDS > Compensation is increasingly at risk and tied to more sophisticated incentives > Sullivan, Cotter and Associates 2011 survey finds that the average mix for physician compensation is 81% salary (base) and 19% incentives 1 > Incentive compensation is more often tied to quality; over half of physicians have quality metrics included as part of their incentive compensations 2 1) Becker s Hospital Review, Where are Physician Salaries Heading? 5 Current Trends September 15, ) Merritt Hawkins, Trends in Incentive-Based Physician Compensation: An Examination of How Physician Compensation is Evolving from Volume to Value Based Metrics

9 INTRODUCTION AND TRENDS COMPENSATION FOR SELECT SPECIALTIES Total Cash Compensation (Thousands) $450 MGMA Median Physician Compensation $400 $350 $300 $250 $200 $150 $ Year Cardiology - Noninvasive General Surgery Obstetrics/Gynecology Internal Medicine Source: Medical Group Management Association s Physician Compensation and Production Surveys 9

10 COMPENSATION PLAN DESIGN 10

11 COMPENSATION PLAN DESIGN COMPENSATION MODEL GOALS The compensation plan should strive to be a FEAST: > Flexible system that can evolve over time > Equitable distribution of income and overhead > Promote Accountability and responsibility and for productivity and quality > Simple, understandable, and easy to administer > Transparent, objective and sustainable 11

12 COMPENSATION PLAN DESIGN GENERAL COMPENSATION MODELS > Fixed Salary > Net Economic Contribution Model OR Production Incentive Model > Multiple Incentive Model SHIFT TO INCLUDE QUALITY 12

13 COMPENSATION PLAN DESIGN INCENTIVIZING DESIRED PHYSICIAN BEHAVIOR Compensation Model Productivity Payer Mix Billing and Collections Practice Expenses Quality Fixed Salary RVUs / Visits Collections Net Income Multiple Incentive - Physician Has Incentive to Manage - Physician May Have Incentive to Manage - Physician Has No Incentive to Manage 13

14 COMPENSATION PLAN DESIGN COMPENSATION DESIGN > Compensation models typically consist of some or all of the following elements: o Base Guaranteed Compensation o Productivity Incentive o Quality and Performance Incentive o Care management Group and/or Individual o Expense Management Incentive o Compensation for Administration, Supervision, and Teaching (AS&T) 14

15 COMPENSATION PLAN DESIGN BASE GUARANTEED COMPENSATION > Physician is guaranteed a certain compensation level regardless of productivity > Base compensation may be set relative to benchmarks or historical compensation > Base compensation may shift from year to year o Physician s base may be set at 80% of previous year s total compensation (with all incentives) o Added incentive to boost productivity 15

16 COMPENSATION PLAN DESIGN PRODUCTIVITY INCENTIVE > A variety of measures can be used > Measure selection will depend on goals and priorities > Data source availability and reliability should be considered wrvus Professional Collections Charges Patient Encounters Size of Patient Panel Payer neutral Benchmarks or improvement Not payer neutral Benchmarks or improvement May be arbitrary Can be based on charge benchmarks May be based on visits or surgeries Can be based on visit benchmarks Types of Visit, i.e. number of new patients May adjust by patient severity Patient attribution and data source issues 16

17 COMPENSATION PLAN DESIGN PRODUCTIVITY MEASURES 70% Percentage of Providers Using Productivity Measure in Compensation Methodology 60% 50% 40% 30% 20% 10% 0% Work WRVUs Professional Collections Gross Charges Adjusted Charges Total WRVUs Number of Patient Encounters Size of Physicians Patient Panel Source: Medical Group Management Association, Physician Compensation and Production Survey: 2011 Report Based on 2010 Data, Table

18 COMPENSATION PLAN DESIGN QUALITY & PERFORMANCE INCENTIVE > EHRs are enabling access to data > Data supported protocols can improve quality and reduce resource utilization > Quality pool dollars must be meaningful relative to other compensation components > Must align internal and external payment mechanisms 18

19 COMPENSATION PLAN DESIGN QUALITY & PERFORMANCE INCENTIVES > A variety of measures can be used > Measure selection will depend on goals and priorities > Data source availability and reliability should be considered Clinical Quality Service Excellence Strategic and Programmatic Goals Coding and Charting HEDIS indicators Readmission rates Disease specific quality goals Patient satisfaction Booking hours Peer Review MD recruitment Program Throughput Development of new service Administration/ Governance Coding accuracy Medical record completion 19

20 COMPENSATION PLAN DESIGN QUALITY INCENTIVE PAYOUT METHODS Several methods to pay quality incentives Improvement in quality scores Each physician scored against his/her previous performance Absolute quality scores Fixed dollar amount per quality measure or for overall score within a specified range Comparison to Peers Compensate based on percentile group compared to peers 20

21 COMPENSATION PLAN DESIGN CARE MANAGEMENT INCENTIVE > Recognizes the shift towards accountable care > Reward physicians for care management activities such as team meetings and phone calls with patients > These activities may not currently be compensated by payers > CMS does not currently pay for these services, but does specify activities and wrvus 21

22 COMPENSATION PLAN DESIGN CARE MANAGEMENT ACTIVITIES > Medicare does not currently pay for these CPT codes, but wrvu values have been assigned Example Care Management Activities and wrvus CPT Description wrvus / Unit Phone Calls Phone e/m by phys 5-10 min Phone e/m by phys min Phone e/m by phys min 0.75 Care Coordination Team conf w/o pat by phys 1.10 Prolonged Case Work Non-face to face time mins Non-face to face for every 30 mins over 60 mins 1.00 Care Plan Oversight mins of care plan oversight >30 mins care plan oversight

23 COMPENSATION PLAN DESIGN RESOURCE MANAGEMENT > A variety of measures can be used > Data source availability and reliability should be considered Variable Cost per wrvu Actual versus budget Usually includes staffing and supply costs Hospital Costs Supply costs Admits per thousand Can be based on prior year Practice Patterns Drug prescribing ER visits Radiology Laboratory 23

24 COMPENSATION PLAN DESIGN CONSIDERATIONS AND PRIORITIES Complexity of Plan Compensation Plan 24

25 DEVELOPMENT PROCESS AND IMPLEMENTATION 25

26 PROCESS AND IMPLEMENTATION BUILDING A NEW MODEL Steering Committee Assessment of Current Situation Design and Modeling Transition to New Model Include a wide range physicians Develop Guiding Principles Meet periodically as plan evolves Inventory unaligned incentives Understand current compensation methodology Review compensation and productivity levels Understand priorities and desired physician behavior Develop options and obtain feedback Simulate compensation to assess impact of selected model Develop implementation timeline Explain new model to physicians and compensation estimates Develop strategies to accommodate special situations 26

27 PROCESS AND IMPLEMENTATION DEVELOP AND PRIORITIZE PRINCIPLES TO GUIDE THE PLAN Example Guiding Principles > Simplicity: Transparent compensation calculation > Practice Financial Viability: Practice must breakeven or achieve acceptable loss level > Community Mission: Reasonable compensation for charity care and Medicaid (if collections based productivity incentive) > Recognize Effort: Higher compensation for increased productivity > Reward Accountable Care: Incentivize population health management activities, care coordination, and patient centered medical home activities > Promote Clinical Quality: Recognize and incent high quality care 27

28 PROCESS AND IMPLEMENTATION TRANSITION TO NEW MODEL > Transition Period Options Transition years are weighted blends of compensation under old and new model Protect losers ; winners earn compensation under the model No downside during transition period Corridors for maximum change in a physician s compensation IE No more than 10% change per year in either direction over the transition period Must balance options with budget neutrality considerations > New physicians in start-up mode o Larger portion of compensation is guaranteed base o Smaller opportunity for productivity incentive o Start up period varies by specialty and practice setting 28

29 PROCESS AND IMPLEMENTATION ADDITIONAL CONSIDERATIONS Productivity incentive Is potential compensation consistent with productivity? Individual or group incentives? Limits on compensation Is there a cap on compensation? Will the model generate compensation levels that are FMV? Administrative effort Are AS&T activities reasonable and justified? Is there documentation to support the position and effort? Stacking of duties Common sense: Does Superman really exist? More attention placed on this risk Updating the model How will we keep the model current? Account for inflation? How often will benchmarks and figures used in model be updated? 29

30 PROCESS AND IMPLEMENTATION COMPENSATION WITH FMV STANDARD > Typically Market Approach o Commercial Surveys o Expected effort? > Productivity Adjustments o Given market adjustments Prior compensation levels are not a test of fair market value > Very high compensation o Comfort zone varies o Additional considerations 30

31 CASE STUDIES 31

32 CASE STUDY 1 BACKGROUND AND MODEL Provider: Multi-site community hospital, suburban Mid-Atlantic Practice Settings: Ranging from clinic-like to private practice Physicians: About 150 across all specialties Collections Based Productivity Model > Clinical compensation based on individual collections applied to compensation to collections ratio o o Compensation to collections ratios are specific to specialty group (primary care, proceduralist, medical specialty, etc.) Clinical compensation is guaranteed at 80% of previous year s clinical compensation > AS&T effort is compensated according to appropriate compensation benchmark and FTE 32

33 CASE STUDY 1 SIMULATION > Internal Medicine physician currently paid $250,000 o o $200,000 for clinical effort $50,000 for administrative effort > Department-defined AS&T effort of 0.2 FTE o Physician has significant experience, and is therefore compensated at the 75th percentile for this effort > Compensation to collections ratio for Primary Care is 50% AS&T Base Compensation Clinical Compensation Modeled Compensation Clinical Guarantee Current Year Collections $380,000 Benchmark selected and scaled to AS&T FTE $ 51,600 80% of previous year's clinical compensation 160,000 50% of current year collections less guaranteed clinical compensation 30,000 Clinical Incentive Total Clinical Compensation 190,000 Total Modeled Compensation $ 241,600 Internal Medicine Compensation Benchmarks 2010 Rounded Median $ 204,000 75th Percentile $ 258,000 33

34 CASE STUDY 1 RESULTS Advantages Simple Drives revenue production Recognizes seniority in AS&T compensation Provides a mix of guaranteed and at risk compensation Disadvantages May be unfair to physicians in clinic settings with poor payer mix No focus on anything other than revenue generation (quality, practice management) Categorization of specialties for payout ratios Guarantee of 80% may not be enough Lessons Learned Value of showing how current compensation methodology is inadequate at project initiation Each medical director/chief needs to be heard Use AS&T to balance swings in compensation 34

35 CASE STUDY 2 BACKGROUND AND MODEL Provider: Large suburban health system Practice Settings: Private practice type settings Physicians: 29 cardiologists Multiple Incentive Model with Individual and Group Incentive Physician compensation includes two elements: > General Clinical Compensation Pool o Per WRVU payment; Selected WRVUs paid at higher rate o Pay-out to an individual physician is a blend of total group and individual wrvu production (60/40 split) 35

36 CASE STUDY 2 BACKGROUND AND MODEL (CONTINUED) Multiple Incentive Model with Group Incentive (continued) > Goal Attainment Compensation o 10% of median compensation benchmark multiplied by goal score o Goal attainment score measures include > Timely chart documentation > Patient satisfaction > Coding compliance > Risk management education session attendance 36

37 CASE STUDY 2 SIMULATION Compensation Framework 9920X, 9921x, 9924, wrvu's 46,143 All other wrvu's 181,196 Total Group WRVUs 227,338 wrvu baseline target (3) 8,136 Compensation Model 50% RVU rate = mean/baselinewrvu's $55.52 = $ 10,060,574 75% RVU rate = 75th %Tile/baseline $70.56 wrvu's $ = 3,255,975 Citizenship.Quality = 10% of 50th Percentile per FTE= $45,171 $1,156,379 Group Compensation Pool $ 14,472,928 > 60% of pool divided evenly (based on FTE) > 40% of the pool being distributed based on the proportional productivity > Goal Attainment Compensation based on individual goal attainment score 37

38 CASE STUDY 2 SIMULATION Simulation Dr. A Dr. A Group Total wrvus less New Patient wrvus 8, ,338 Physician wrvus as Percentage of Group 4% Compensation Pool $13,316,549 Portion of Pool Split Equally Among Group 60% Pool to Split Equally Among Group $7,989,929 Compensation for Group Productivity $307,305 Portion of Pool Based on Individual Productivity 40% Pool to Split According to Individual Contribution $5,326,620 Compensation for Individual Productivity $187,443 Clinical Compensation $494,748 Maximum Goal Attainment Compensation $45,200 Quality Score 70% Compensation $31,640 Total Compensation $526,388 38

39 CASE STUDY 2 SIMULATION Proposed Compensation Actual WRVUs 227,338 Total Comp $14,684,856 Estimated FTE 29.3 FMV Analysis Total WRVU per FTE 7,761 Slightly under 50th Comp per FTE $501,332 Between 50th and 75th Comp per WRVU $65 ~75th percentile > Compensation should be consistent with productivity levels 39

40 CASE STUDY 2 RESULTS Advantages Promotes wrvu productivity Fosters teamwork within the group while maintaining individual accountability Focuses on need to attract new patients Rewards activities, such as chart completion, crucial to the practice s success Disadvantages Complex Does not account for payer mix, which may be needed Clinical quality is not included Does not address practice financial viability Lessons Learned Deal heat produced higher compensation levels, Practice financials compromised FMV questions raised Can transition to quality 40

41 CASE STUDY 3 BACKGROUND AND MODEL Provider: Large academic medical center, urban northeast Practice Settings: Ranging from clinic-like to private practice Physicians: About 100 primary care physicians Multiple Incentive Model with Quality and Care Management Components > Compensation includes three components for clinical effort o o o Compensation per wrvu based on discounted specialty specific compensation per wrvu benchmark wrvus for care management CPT codes are compensated $10 each (piloting) Quality incentive based on performance among peers > Administrative effort based on FTE and appropriate benchmark 41

42 CASE STUDY 3 SIMULATION Regular Clinical wrvus 4,500 Compensation per wrvu $35 Compensation for Regular Clinical Effort $157,500 Care Management wrvus 300 Compensation per Care Management wrvu $10 Compensation for Care Management Activities $3,000 Quality Performance Ranking Family Practice Physician > Physician s wrvu production is below the median 2nd Quartile Quality Bonus $13,000 Total Compensation $173,500 Family Practice Compensation Benchmarks 2010 Rounded Median $ 192,000 75th Percentile $ 239,000 > Compensation per wrvu is discounted 20% from specialty benchmark to reserve dollars for other components > Physician s quality score places him in the 2 nd quartile group among peers; compensation for that group is $13,000 per physician 42

43 CASE STUDY 3 RESULTS Advantages Drives wrvu productivity Incents care management activities important to accountable care initiatives Payer neutral Promotes continuous quality improvement Disadvantages Incentive for activities that do not currently generate revenue; may result in losses Potential for small differences in quality to result in large differences in quality bonus Lessons Learned Understand side deals and gain consensus on reason for their elimination Must balance focus on long term priorities with short term revenue generation Importance of coding compliance; may require physician education 43

44 SUMMARY NEW LESSONS Takes time to understand current misaligned incentives Incentives should be ultimately aligned with overall organizational objectives may need a transition period The best models achieve top line and bottom line improvements Models need to be data driven both in terms of payer and provider data 44

45 QUESTIONS? COMMENTS? Karin Chernoff Kaplan, AVA 45