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Hot Topics in Physician Compensation
The document addresses complex physician compensation models and trends in the healthcare industry, emphasizing the importance of aligning compensation structures with quality incentives and productivity measures. It discusses the need for 'commercial reasonableness' in compensation arrangements, particularly in the context of new regulatory guidance and emerging payment models such as bundled payments and value-based purchasing. Additionally, it highlights shifts in physician employment models, the prevalence of compensation 'stacking,' and the increasing integration of quality metrics into compensation plans.
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Hot Topics in Physician Compensation
- 1. #AICPAhealth Hot Topics inPhysician Compensation Carol Carden CPA/ABV, ASA, CFE Pershing Yoakley & Associates November 12, 2015
- 2. American Institute ofCPAs #AICPAhealth Bio Slide Carol Carden is a Principal with PYA, and provides business valuation and related consulting services to a wide variety of business organizations, primarily in the healthcare industry. Ms. Carden’s primary areas of expertise are in finance, valuation, and managed care. She has performed appraisals of businesses and securities for a wide variety of purposes such as mergers, acquisitions, joint ventures, management service agreements, and other intangible assets. She is also a nationally recognized speaker and writer on healthcare valuation topics. In addition to being a Certified Public Accountant, she also has earned the Accredited in Business Valuation (ABV) credential from the American Institute of Certified Public Accountants, the Accredited Senior Appraiser (ASA) credential from the American Society of Appraisers, and the Certified Fraud Examiner (CFE) credential from the Association of Certified Fraud Examiners. She is the Chair of the Executive Committee for Forensic and Valuation Services and former Chair of the Business Valuation Committee for the AICPA, was Chair of the 2010 National AICPA Business Valuation Conference, and was on the planning committee for the 2011 AICPA National Healthcare Conference. She was inducted into the Business Valuation Hall of Fame of the AICPA in 2013.
- 3. American Institute ofCPAs #AICPAhealth Agenda Stacking Considerations The Role of Quality Incentives Affiliation Models Population Health Initiatives
- 4. American Institute ofCPAs #AICPAhealth Compensation Stacking
- 5. American Institute ofCPAs #AICPAhealth Employment Models Common elements include: - Base compensation - Productivity threshold – many times based on work relative value unit (“wRVU”) level - Incentive compensation for productivity - Incentive compensation for quality outcomes - Sign on or retention bonus - Compensation for excess call coverage - Compensation for supervision services - Administrative compensation Hospitals and other organizations continue to utilize complex compensation models, often with multiple layers of compensation for multiple services sometimes referred to as “stacking”
- 6. American Institute ofCPAs #AICPAhealth Regulatory Guidance Bear in mind that Stark II Phase III specifies that you can pay for both clinical and administrative services, but the rate paid for clinical services should be appropriate and the rate paid for administrative services should be appropriate. These may or may not be the same rates of pay.
- 7. American Institute ofCPAs #AICPAhealth Assessing the Risk • More moving parts • Higher total compensation • Ensuring the correct benchmarks are considered • Assessing each part and the whole package How risky is this agreement? =
- 8. American Institute ofCPAs #AICPAhealth Sources of Data MGMA, Clinical compensation, medical director & call surveys Sullivan Cotter, Clinical & administrative compensation and call surveys AMGA, Clinical and administrative compensation HHCS, Clinical and administrative compensation Towers Watson, Clinical and administrative compensation Niche surveys like anesthesia, trauma, academic compensation And others…..choices galore!
- 9. American Institute ofCPAs #AICPAhealth Commercial Reasonableness Department of Health and Human Services Definition1 • An arrangement which appears to be “a sensible, prudent business agreement, from the perspective of the particular parties involved, even in the absence of any potential referrals.” Stark Definition2 • “An arrangement will be considered ‘commercially reasonable’ in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty, even if there were no potential designated health services (“DHS”) referrals.” OIG Threshold 3 • Compensation arrangements with physicians should be “reasonable and necessary.” 1 63 Fed. Reg. 1700 (Jan. 9, 1998). 2 69 Fed. Reg. 16093 (March 26, 2004). 3 “OIG Compliance Program For Individual and Small Group Physician Practices,” Notice, 65 Fed. Reg. 59434 (Oct. 5, 2000); OIG Advisory Opinion No. 07-10, September 20, 2007, pg. 6, 10; “OIG Supplemental Compliance Program Guidance for Hospitals,” Notice, 70 Fed. Reg. 4858 (Jan. 31, 2005).
- 10. American Institute ofCPAs #AICPAhealth Factors in Determining CR Business Purpose Provider Analysis Facility Analysis Resource Analysis Independence & Oversight Commercial Reasonableness Determination
- 11. American Institute ofCPAs #AICPAhealth Quality Incentives
- 12. American Institute ofCPAs #AICPAhealth What Models Are Being Used? 21% 12% 10% 11% 14% 32% 0% 1%-24% 25%-49% 50%-74% 75%-99% 100% PercentatRisk Percent Employed Physician Staff with Portion of Compensation at Risk? Source: HealthLeaders Media Physician Alignment Survey 2014 Old Models: • Straight Production (wRVUs) • Guaranteed Salary New Models: • Quality Incentives • Panel Management
- 13. American Institute ofCPAs #AICPAhealth Clear Trend: Some Portion of Physician Compensation “At Risk” HealthLeaders Media, Physician Alignment: New Leadership Models for Integration, September 2014 57% of respondents currently have at least 50% of their employed physicians with some portion of compensation at risk 81% of respondents expect to have at least 50% of their employed physicians with some portion of compensation at risk within 3 years
- 14. American Institute ofCPAs #AICPAhealth Organizations’ Dominant Physician Compensation Model HealthLeaders Media, Physician Alignment: New Leadership Models for Integration, September 2014 Of Note… • PYA’s experience and observations mirror the shift indicated in these findings. • PYA also observed a shift from models that only incorporate these elements as a “bonus” to standard pay, to those that place these components at risk (possible withhold) offset by the upside potential to earn above historical compensation levels. 58% Respondents using work RVU plus incentive 25% Respondents using work RVU only
- 15. American Institute ofCPAs #AICPAhealth Physician Incentive Payment Survey What does your organization use to guide the payment of physician incentives? HealthLeaders Media, Physician Compensation: Shifting Incentives, October 2011 4% 23% 7% 50% 57% 75% 0% 10% 20% 30% 40% 50% 60% 70% 80% Referrals Chart Completion Participation in Administrative Duties Patient Satisfaction Scores Quality Metrics Productivity Measures
- 16. American Institute ofCPAs #AICPAhealth Inclusion of Quality Incentives Source: Sullivan, Cotter and Associates, Inc. 2012 Physician Compensation and Productivity Survey. About one-half (49%) of organizations incorporate non-productivity measures in incentive compensation plans. 60% 30% 23% 83% 39% 35% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Patient Satisfaction Patient Safety Care Coordination PercentageofOrganizationsUsingTypeof QualityIncentive Primary Care Providers Specialists
- 17. American Institute ofCPAs #AICPAhealth $180 $160 $120 $25 $85 $20 $25 $35 Quality Incentive Capitation or Episode Based Productivity- based CURRENT NEAR TERM LONGER TERM A Balancing Act Compensation Stacking (in 000’s) Compensation only increases if quality improves
- 18. American Institute ofCPAs #AICPAhealth Physician Value Modifier – 2017 Quality Tiering Low Quality Average Quality High Quality Low Cost 0.0% +2.0x* +4.0x* Average Cost -2.0% 0.0% +2.0x* High Cost -4.0% -2.0% 0.0% *Eligible for an additional +1.0x if reporting clinical data for quality measures and average beneficiary risk score in the top 25% of all beneficiary risk scores. Based on 2015 Performance
- 19. American Institute ofCPAs #AICPAhealth Here to Stay “Our goal is to have 85% of all Medicare fee-for- service payments tied to quality or value by 2016, and 90% by 2018.” “Our target is to have 30% of Medicare payments tied to quality or value through alternative payment models by the end of 2016, and 50% of payments by the end of 2018.” Source: HHS Secretary Sylvia Burwell (January 30, 2015)
- 20. American Institute ofCPAs #AICPAhealth Affiliation Models
- 21. American Institute ofCPAs #AICPAhealth Trends in Merger & Acquisition Activity • Still a fairly active trend • Involves primary care and specialty practices • Generally only paying for tangible assets unless large practice • Post-transaction compensation is a key assumption • Generally involves ancillary service lines like ASCs and imaging • Likelihood of cash distribution is a key driver • Many are structured as pass-through entities, so this becomes an important component of the valuation Hospital Acquisition of Physician Practices Hospital/ Physician Joint Ventures
- 22. Physician Management Agreements Stillsee new and renewed clinical co- management agreements Bundled payment for care improvement (BPCI) is becoming more commonplace and likely to continue expanding if Comprehensive Care for Joint Replacement (CCJR) is approved Increasingly seeing gainsharing arrangements being pursued
- 23. American Institute ofCPAs #AICPAhealth Other Physician Affiliation Models New employment and renewals of existing employment agreements Physician leasing arrangements – not as common Professional Services Agreements (PSA) as an alternative to employment, sometimes referred to as synthetic employment. Popular in states with corporate practice of medicine prohibitions.
- 24. American Institute ofCPAs #AICPAhealth Population Health
- 25. American Institute ofCPAs #AICPAhealth Key Healthcare Reform Provisions Bundled Payments Value-Based Purchasing Accountable Care Organizations Clinically-Integrated Networks
- 26. American Institute ofCPAs #AICPAhealth Levels of Fund Distribution
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- 30. American Institute ofCPAs #AICPAhealth
- 31. American Institute ofCPAs #AICPAhealth Key Assumption The hospital/health system is the Provider of Record on the APM Shared Savings Distribution Considerations Shared Savings for Distribution Infrastructure/ROI to Hospital Operations 0% 100% Increasing Decreasing • Downside/Two-Sided Risk • Total Compensation At Risk • Capitation Reimbursement • Additional Duties Required • Outcomes/Quality Thresholds • Primary Care Physicians • Guaranteed Base Salary • FFS Reimbursement • Process Thresholds GUARDRAIL X% above Compensation per wRVU in a Traditional FFS environment The Risk Continuum: GUIDING PHILOSOPHY Distributions should be proportional to a provider’s effort Physician Providers and Others
- 32. American Institute ofCPAs #AICPAhealth Compensation Guardrail Example Example Compensation per wRVU Using 25% above Traditional FFS Specialty MGMA Median 125% MGMA Median Hospital (Actual) Primary Care Internal Medicine $51.06 $63.83 Family Practice $46.50 $58.13 (Actual Compensation (before Shared Savings Distributions) ÷ Actual wRVUs) x 125% OR
- 33. American Institute ofCPAs #AICPAhealth Shared Savings Plan Design Considerations 0% - 15% 50% - 80% 0% - 25% Participation Outcomes/Quality Efficiency Examples: • Minimum meeting attendance • Minimum reporting requirements • Good citizenship • Plan/contract evaluations All Outcomes/Quality metrics must be achieved Weighted Outcome/Quality metrics with minimum threshold (3 of 5) Equal Weighted Average Outcome/Quality metrics with minimum threshold (3 of 5) Weighted Outcome/Quality metrics with no minimum threshold (1 of 5) Must achieve all Outcome/ Quality metrics to receive Must achieve a portion of Outcome/Quality metrics No efficiency payment if minimum Outcome/Quality metrics not achieved.
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- 35. American Institute ofCPAs #AICPAhealth Contact Information Carol Carden, CPA/ABV, ASA Pershing Yoakley & Associates, P.C. (800) 270-9629 [email protected] http://twitter.com/carolcardenpya