Case Study on Physician Compensation Planning
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Transcript of Case Study on Physician Compensation Planning
Case Study on Physician Compensation Planning in a
Changing Environment
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Case Study Medical Group:
Mason Multispecialty Group
• Multi-specialty group• Approximately 140 providers• Commitment to services
excellence• Referral center• Integrated delivery system
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Elements of Engagement Approach
• Phase I: Information Gathering• Phase II: Data Analysis• Phase III: Formulate Models• Phase IV: Final Report and
Recommendations
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Harsh Realities
• Economic
– Market Change: “gross” to “net” is widening
– It costs more to do business: “overhead”– There is no single “magic pill”
compensation plan• There is only ongoing refinement
• Service & Quality
– Public Expectation is insatiable– The challenge of doing more with less– Celebrations (?) Do we talk Clinical
Excellence anymore?
Interlocking Interrelationships
Clinical Excellence
MarketCharacteristics
Compensation Systems
Strategic Management
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The Questions
• Compensation: Dividing “the pie”…. (“intra” pointing)• Mutual Accountability• Group Values:
• Economic• Service/quality• Clinical excellence
• Group Successes: “Growing the Pie” • Competition• Growth
• Group Philosophy / Culture• Individualism• Departmentalization• Confederation• Collegial
Strategic Plan
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Assumption About the Market and Its
Impact on Physician Compensation
As the costs of providing health care services continue to increase and revenues continue to decrease, medical groups and clinics must search for creative ways to compensate and motivate providers.
Physician compensation directly impacts our ability to recruit and retain our physician this in turn impacts our viability as an organization.
There is no perfect compensation plan and physician will do what they are incented to do.
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Compensation Planning Overview
• No perfect plan– ongoing, dynamic process supported by
active provider involvement
• "Perfect plan" would encourage:– maximum net income generation– minimum overhead– efficient practice– quality medical care and services– appropriate utilization– fair distribution of income– harmony
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The Key to Maximizing Physician Compensation is
Maximizing Clinical Profitability
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Key Components in Determining Physician Compensation
• Market Place– Geographic
• National• State• Local
• Fringe Benefits• Practice
Philosophy• Quality
• The Seniority Debate
• Productivity– Dollars Billed– Dollars Collected– Patient Visits– Panel Size– RBRVUs
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Key Components in Determining Physician Compensation
• Cost-Effectiveness– Resource Consumption– Control of
Unnecessary Utilization
• Quality of Services– Peer Reviews– Patient Satisfaction– Outcome Based Data
• Services to the Group– Administration– Research– Teaching– Lecturing– Membership– Community
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What Physician Compensation Plans Do and Do Not Accomplish
• Compensation plans do:– supports organizational goals– motivate– influence behavior
• Compensation plans do not:– replace organizational goals– manage behavior– manage budgets– make administrative decisions– make everyone happy– grow the pie
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Desired Features of Compensation Plan
• Supports organization's mission, vision & values
• Considers constraints & maximizes flexibility of current systems
• Competitive based on comparable market analysis
• Perceived as "fair" by physicians• Represents sound business
principles
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Principles Underlying a Compensation Strategy
• Appropriateness• Fairness
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Appropriateness
Enhances clinic's ability to achieve long term goals Financial viability Harmony within group; "fits" culture Reflects competitive market
environment Ensures clinic's can recruit and retain
MD's Promotes efficient and effective practice MD's involved and understand plan
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Fairness
Plan distributes compensation equitablyRewards MD effort and contribution Consistent with clinic's revenue
streamConsiders built in biases, constraints
and flexibilitySimple to understand Based on reliable and timely data
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Trends in Physician Compensation
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Changing Development in Health Care
Risk to Provider
Revenue
Compensation
Low High
FFS Managed Care
Production Salary
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Does the group size impact physician compensation?
Does the amount of capitated revenue impact physician compensation?
Does the competitive market effect compensation Does specialty mix or scope of ancillaries effect
compensation
Important factors to consider in comparing physician compensation?
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Formula Factors
87%
92%29%
49%47%
55%8%
17%10%
12%13%
19%
20%20%
9%13%
7%8%
26%16%
Productivity
Market Surveys
Administrative
Research
Panel Size
Quality of Service
Seniority
Cost Containment
Patient Mix
Other
1999 2000
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Development of Compensation Plan
• Establish compensation committee• Inventory what information is available (make sure
the information can be relied on)• Perform gap analysis (using external benchmark
data)• Compensation committee reviews findings• Determine what methodologies fit in your groups
culture• Design a methodology based on the above• Present new design and obtain physician feedback• Revise plan based on feedback• Educate and communicate new plan
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What we heard in the interviews
Current compensation
system
Lack of understanding
Too complex
No reliable data
Too many special deals
Mason MultispecialtyAverage Rank of Fairnes of Current Compensation Plan
1.00
2.00
3.00
4.00
5.00
Peers within Mason Multispecialty Primary Care vs. Specialty within MasonMultispecialty
Peers outside of Mason Multispecialtyc
Total Responses Primary Care Physicians Specialty Physicians
Very Unfair
Very Fair
Internal Med - Com pensation vs. Work RVUs from 2000 AMGA Salary Survey of 1999 Data
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000
Work RVUs
Co
mp
ensa
tio
n (
$)
AMGA Survey Poly. (AMGA Survey) Poly. (AMGA Minus SD) Poly. (AGMA Plus SD)
Sample Specialty OverviewCompensation & Work RVU Differences from 2000 AMGA Salary Survey of 1999 Data
Medians (Not Mason's Data)
4040
4030
3190
2340
2320
2260
22102170
2150
2100
2090
2050
20202010
1470
1450
1320
1250
1220
1210
1200
1190
1180
1170
1150
1130
1110 1100
1070
1040
1000
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
-200% -150% -100% -50% 0% 50% 100% 150% 200%
Work RVUs
Co
mp
en
sat
ion
($)
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Interpretations of Scatter Diagrams Based on the Existing Compensation Plan
• 7 Specialties representing 15 individual physicians fell outside of one standard deviation from the survey median
– Cardiology – Invasive (3)– Endocrinology (2)– Hematology Oncology (1)– Nephrology (6)– Psychiatry (1)– OB/GYN (1)– Radiology – Invasive (1)
• No primary care fell outside of one standard deviation
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Principals of a New Compensation Plan
• Motivates physicians to work hard (productivity and incentives)• Compensates physicians fairly
– Same formula for all specialties– All specialties paid fairly as compared to market (to the
extent Mason compensation pool allows)– Outside income is handled the same for all physicians
• Rewards All physicians for cost containment (sound business)– Both physicians (departmental level) and administration
(indirect costs) are jointly responsible for cost control• Simple to understand
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What Makes a Compensation Plan Work
• Define foundational issues unique to Mason
– Mason Corporate philosophy in compensation
– Mason Corporate compensation issues• Outside income• Separate plans for specialties• Corporate administration vs. departmentalization• Allocation of costs through corporate budget vs.
individual allocations• Individual exceptions
• Development of priorities for Mason’s compensation program
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Income Distribution Plan Goals
• Distributes income in pace with market• Conforms to group culture• Support business, professional and
personal goals• Considers:
– Where physicians are– Appetite for change– How current plan stacks up to market– Gap analysis (peer comparison, pricing
analysis)
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Key Questions
• What behaviors should the compensation plan motivate? – Quantitative vs. qualitative
• Does the plan reflect revenue streams flowing into the practice?
• Are salaries competitive with other groups?
• Are risk and reward properly balanced?• How are costs monitored and controlled?• How important is alignment and
coordination to group effectiveness?
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Presentation of Alternative Compensation
Scenarios• Alternative scenarios• Discuss how various scenarios
meet the needs of Mason
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Alternative Com pensation Scenarios #1
N et R even u e
O p era tin gE xp en ses
R eta in edE arn in g s
N ew M D C om p en sation
W ork R V UB ased on A M G A
M arke t D a ta
P rod u c tivity1 0 0 %
P rod u c tivity< 7 5 P ercen tile
1 0 0 %
S p ec ia ltyP ro fitab ility
0 %
In cen tive0 %
E q u a l S h are0 %
M D C om p en sa tion P oo l
P h ys ic ian8 0 %
A D C2 0 %
O u ts id eIn com e
P h ys ic ian C om p en sa tion P lanA d m in is tra tion
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Alternative Com pensation Scenarios #2
N et R even u e
O p era tin gE xp en ses
R eta in edE arn in g s
N ew M D C om p en sa tion
W ork R V UB ased on A M G A
M arke t D ata
P rod u c tivity7 5 %
P rod u c tivity< 8 0 P ercen tile
1 0 0 %
S p ec ia ltyP ro fitab ility
0 %
In cen tive1 5 %
E q u a l S h are1 0 %
M D C om p en sa tion P oo l
P h ys ic ian8 0 %
A D C2 0 %
O u ts id eIn com e
P h ys ic ian C om p en sa tion P lanA d m in is tra tion
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Alternative Com pensation Scenarios #3
N et R even u e
O p era tin gE xp en ses
R eta in edE arn in g s
N ew M D C om p en sa tion
W ork R V UB ased on P rop ortion a l
W ork
P rod u c tivity1 0 0 %
P rod u c tivity< 7 5 P ercen tile
0 %
S p ec ia ltyP ro fitab ility
0 %
In cen tive0 %
E q u a l S h are0 %
M D C om p en sa tion P oo l
P h ys ic ian8 0 %
A D C2 0 %
O u ts id eIn com e
P h ys ic ian C om p en sa tion P lanA d m in is tra tion
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Selected M odel Com pensation P lan
N et R even u e
O p era tin gE xp en ses
R eta in edE arn in g s
N ew M D C om p en sa tion
W ork R V UB ased on A M G A
M arke t D a ta
P rod u c tivity7 5 %
$ 9 ,8 1 2 ,0 1 5
P rod u c tivity< M ed ian R V U (A M G A )
3 3 .3 %$ 6 5 4 ,2 4 0
S p ec ia ltyP ro fitab ility
3 3 .3 %$ 6 5 4 ,2 5 0
S p ec ia ltyN et P rod u c tion
3 3 .3 %$ 6 5 4 ,2 5 0
In cen tive1 5 %
$ 1 ,9 6 2 ,4 0 3
E q u a l S h are1 0 %
$ 1 ,3 0 8 ,2 6 9
M D C om p en sa tion P oo l$ 1 3 ,0 8 2 ,6 8 7
P h ys ic ian8 0 %
A D C2 0 %
O u ts id eIn com e
$ 1 ,0 2 1 ,3 0 2
P h ys ic ian C om p en sa tion P lanA d m in is tra t ion
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Summary of Issues Mason Must Decide
• Administration of the compensation plan– Administration of compensation at departmental level– Individual exceptions
• Establishment of physician compensation pool within the context of a budget
• Transition to the new compensation plan– Immediately– Over 2 to 4 years
• Board final approval for distribution of the compensation pool, and weighting the respective priorities (VOTE)
• Methodology for getting approval for the new plan – Presentation to each specialty department
• 80+% Final Approval
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Key Lessons Learned
• Know the "deal breakers" up front• It's best to negotiate based on mutual interests• Physicians must be actively involved• It'll be harder and take longer than you ever imagined• It won't be right the first time• The process will need more data than is available• All stakeholders must be kept informed • You'll come to fully understand the term "nit-picking"• You'll seek spiritual guidance or divine intervention before
it's all over
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Questions and comments