0MGMA 2015 Financial Management and

Payer Contracting Conference

MGMA 2015 Financial Management and Payer

Contracting Conference

March 1, 2015-March 3, 2015

Compensation Toolbox:

Guidelines for Building an

Effective Compensation Plan

March 3, 2015

Allison P. Wilson, CMPE, PHR, PCMH CCE

Learning Objectives

After this session, you will be able to:

Design a compensation plan based on practice goals

Implement and monitor a physician compensation plan

Assess current operations to determine areas for improvement

Determination of Practice and

Physician Goals

Practice Assessment

Trend patterns in significant areas:

Collection Percentages

• Use Adjusted Collection Rate (Collections/[Charges-

Practice Controlled Adjustments])

• Significant variances between years could indicate

revenue cycle issues or shifts in payer mix

• Significant variances among physicians could indicate

professional courtesy, timely filing issues, etc.

Practice Assessment

Trend patterns in significant areas:

Production

• Two-year analysis of work RVUs, encounters, etc.

• Identify variances in production overall and per

physician.

• Variances may be due to shifts in payer mix, physician

specialty, etc.

• Review payer mix by charges over the same two-year

period and identify any practice or physician shifts.

Practice Assessment

Trend patterns in significant areas:

Overhead

• Two-year analysis of expenses.

• Compare to MGMA categories and benchmark overall

expenses as a percent of overhead.

• Identify and research variances – new physician, new

technology, additional procedures, etc.

Practice Assessment

Trend patterns in significant areas:

Patient Satisfaction

• If no recent survey has been completed, conduct a

survey to determine a baseline.

• Survey should include questions regarding clinical staff,

physician bedside manner, appointment wait time, in-

office wait time, follow-up/practice communications, etc.

• Conduct survey annually or semi-annually and compare

results.

Practice Assessment

Trend patterns in significant areas:

Good Citizenship

• Timely completion of documentation

• Reporting to work/clinic when scheduled

• Participation in required meetings or activities

Practice Assessment

Practice should also assess its position relative to current

or planned initiatives:

• PQRS

• Meaningful Use

• Value-Based Modifier

• ACO

• PCMH $UCCESS

Practice Assessment

Physician Input:

• Prepare a confidential survey or utilize an

independent source to interview physicians

• Purpose of interview is to assess physician

priorities and preferences, thoughts on current

compensation methodology and desired

changes

Modeling Compensation

Key Elements of Successful

Compensation Alignment

Directly linked to practice goals and objectives

Encourage/reward hard work, production and

high quality

Balance individual and team responsibility

Clarify performance expectations

Aligned with reimbursement environment

Key Elements of Successful

Compensation Alignment

Simple, understood and explainable

Clearly defined and consistently applied

Open and transparent

Fiscally responsible

Legally compliant

Considerations

Exit strategy

Quality of life

Increasingly complex regulatory environment

Physicians

Healthcare Reform

Compensation Models…in order of complexity

Model Message• Equity • We’re all equal

• Special duties • We’re equal except for

__________

• Production • Work, work, work!

• Profit center • But watch expenses too

• Discretionary • Focus on intangibles

• Blended • All of the above is

important

Components of Physician Compensation

Physician

Compensation

Philosophy

Base Compensation

Incentive Component

Quality Measures

Good Citizenship

Leadership

Net Profit/Net Income

Base Compensation

Incentive Component

Quality Measures

Good Citizenship

Net Profit/Net Income

Components of Physician Compensation

Employed Models include:

• Straight salary

• Salary plus bonus

• Productivity-based

• Revenue sharing

(partial/equal)

Base Compensation

Components of Physician Compensation

Influenced by:

• Specialty area

• Physician’s experience

and credentials

• Typically tied to historical

compensation and/or

industry benchmarks

• Often has minimum

production thresholds; may

be 100% at risk if pure “eat

what you treat”

Base CompensationBase Compensation

Components of Physician Compensation

• Base compensation with

production floor

Compensation dependent

on minimum collections,

wRVUs, encounters

Note: Ensure floor is set

to cover physician costs.

Base Compensation

with ProductionBase Compensation

with Production

Components of Physician Compensation

• Achievement of quality,

operational efficiency,

patient satisfaction goals

• Baseline levels determined

using the practice’s

historical and clinical data

and/or comparable

national or regional data,

with incentives paid to

reflect incremental

improvement

Incentive Compensation

Components of Physician Compensation

• Can be based on

improvement or

achievement of specific

targets

• Incentives should be

objective, verifiable,

supported by credible

evidence and individually

tracked

Incentive Compensation

Components of Physician Compensation

• Primary approaches for

shareholders

• Components may have

many variations

Net Profit/Net Income

Net Profit Approach

Collections

Minus Operating expenses

Equals Profit

Profit can be divided

Equally

Production

A combination of equal and production

Net Profit Approach

Total Owner A Owner B Owner C

Total Collections 2,750,000$ 900,000$ 1,200,000$ 650,000$

% of Total 33% 44% 24%

Practice Collections 2,750,000$

Less Operating Expenses (1,200,000)

Profit 1,550,000$

Allocation of Profit

5% Equal 77,500$ 25,833$ 25,833$ 25,833$

95% Production 1,472,500 481,909 642,545 348,045

Subtotal 1,550,000 507,742 668,379 373,879

10% Withhold for bonus pool (155,000) (50,727) (67,636) (36,636)

Total Compensation 1,395,000$ 457,015$ 600,742$ 337,242$

Net Profit Approach

• What is definition of production?

• What counts as an “individual” expense versus an operating expense?

• Are there carve outs?

– Management or other special duties

– Specific “lines of business”

• How are profits allocated?

The larger the “equal” portion, the more the high producers pay a greater % of overhead.

Net Income Approach

Dr. 1 Dr. 2 Dr. 3 Collections Collections Collections

Minus Indiv Exp Indiv Exp Indiv Exp

Minus* Alloc Exp Alloc Exp Alloc Exp

Equals Subtotal Subtotal Subtotal

Less Comp paid Comp paid Comp paid

Equals Comp due Comp due Comp due

* Shared expenses can be allocated many different ways

Net Income Approach

Total Owner A Owner B Owner C

Total Collections 2,750,000$ 900,000$ 1,200,000$ 650,000$

% of Total 33% 44% 24%

Less Operating Expenses (30%

production/70% equal) 1,200,000$ 397,818$ 437,091$ 365,091$

Net Income 1,550,000$ 502,182$ 762,909$ 284,909$

Less 10% Withhold for bonus pool (155,000)$ (50,727)$ (67,636)$ (36,636)$

Total Compensation 1,395,000$ 451,455$ 695,273$ 248,273$

Net Income Approach

• What is definition of production?

• What counts as an “individual” expense

versus an operating expense?

• Are there carve outs? – Management or other special duties

– Specific “lines of business”

• How are operating expenses allocated?

Low Producers and Part-timers

• If Net Income Approach, not an issue.

• Minimum productivity threshold or else…

– Switch to Net Income Approach

– Mandatory withdrawal after a “cure” period

Components of Physician Compensation

Examples include standards

related to:

• Chronic disease

management

• PQRS measures

– Percent of patients that

have BMI measured and

documented

– Documentation/verification

of current medications in

the medical record

Quality Measures

Components of Physician Compensation

According to MGMA’s 2014

Value-Based Executive

Summary:

• Nearly half of the

physicians with a quality

component to

compensation had at

least 10% at risk in 2013.

Quality Measures

Quality-Based Incentives

• Carve out bonus pool ____%

• Objective factors

– Compliance

– Patient satisfaction

– Quality outcomes

– On-time starts

– Employee satisfaction

Quality-Based Incentives

• Select two to three quality incentive goals

– Data available

– Data accurate

– Worth the effort to accumulate

• All or nothing may disincentivize physicians. Consider

tiered approach:

– Target 1= 50%

– Target 2= 30%

– Target 3= 20%

Components of Physician Compensation

“Playing nice in the sandbox”

• Complete documentation

within designated

timeframe

• Attendance at requisite

number of meetings,

trainings

• Community involvement

• Supervision of

non-physician providers

Good Citizenship

Components of Physician Compensation

Considerations:

• Identifies expected

behaviors ahead of time.

• Motivates the physician to

care about the details of the

business in addition to

clinical care.

• Paying for that which should

be expected?

Good Citizenship

Components of Physician Compensation

Participation in leadership

roles may take substantial

time and energy and draw

away from clinical care.

• PCMH

• EHR selection and

implementation, champion

• Peer review

• Expansion strategiesLeadershipLeadership

Compensation for “Special”

Services

• Does basic comp formula encourage and

reward physicians for special services?

– Example: Selection and implementation of EHR,

championing PCMH, etc.

• Best to have a policy in place before, not

after, special services are performed.

Physician Phase Out

Does comp formula have provisions for

physician phase out?

- Reduced or no call

- Full or prorated share of expenses

- Defined timeline for phase out

Penalty for “Noncompliance”

Trend to protect the group against adverse

impact of individual’s actions

Must have a policy in place before, not after,

problem arises.

Implementation and Monitoring

Implementation

Revising compensation can be a very

complicated, sensitive process. Managers

must approach the process very

methodically.

Allow enough time for evaluation,

conversation and modeling to ensure

everyone understands the process and

there is complete transparency.

Implementation

Based on practice assessment,

select two to three models that would

best meet the practice and physician

goals.

Model physician compensation for

the prior year to show the potential

net effect of the changes.

Implementation

Discuss the pros and cons of each

model as a group.

Communicate to physicians how data

was accumulated in each

component.

Implementation

Obtain feedback and buy-in.

Make revisions as necessary and

confirm final plan.

Finalize implementation timeline.

Transparency

YOUR TEXT HERE

1

2

Minimize surprises

Prepare a dashboard or summary

report of the various components and

share with physicians monthly

Monitoring

Monitor plan for

effectiveness

Quality metrics should be

revised as appropriate As practice strategic initiatives

shift, the model should be

reviewed and revised as

necessary

46MGMA 2015 Financial Management and

Payer Contracting Conference

MGMA 2015 Financial Management and Payer

Contracting Conference

March 1, 2015-March 3, 2015

Contact Information

Allison P. Wilson, CMPE, PHR, PCMH CCE

Manager

(404) 266-9876

awilson@pyapc.com