HFMA Joint Spring Conference 2017

Trends and Innovative Approaches to Compensation Design

Thursday, May 18

Agenda

I. Market Imperatives

II. Best Practice

III. Innovative Compensation Approaches

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I. Market Imperatives

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I. Market ImperativesSummary

There are four imperatives driving organizations to evaluate and redesign provider

compensation structures:

Imperative One: Financial Sustainability

Imperative Two: Reimbursement Changes

(Volume to Value)

Imperative Three: Organizational

Reconfiguration

Imperative Four: Legal

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I. Market ImperativesImperative One: Financial Sustainability

It can be challenging to derive consistent investment per physician benchmarks

because of operating and accounting differences across organizations. However, the

benchmarks can be useful to provide a directional comparison. As such, the

investment per physician has been increasing over the last six years.

Integrated Health System Investment per Physician

Source: ECG 2011 to 2016 Physician Compensation Surveys.

Factors Impacting Metric:

» Payor mix

» Specialty mix

» Accounting practices

» Allocation of overhead

» Relocation of ancillary

services

» Billing status (freestanding

or hospital outpatient

department)

DO NOT

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I. Market ImperativesImperative One: Financial Sustainability (continued)

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30

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WRVU Percentile

Current Modeled

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107

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DO NOT

Many organizations seek to develop a tight correlation (slope) between

compensation and production using only benchmark data to inform their financial

calibrations.

I. Market ImperativesImperative One: Financial Sustainability (continued)

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FINANCIAL

PERFORMANCE

EVALUATIONOBJECTIVE MARKET

SURVEYS

I n t e r na l S t a n da rds E x t e r n a l S t a n d a rd s

HYBRID MARKET

DEFINITION

» In this approach, the amount

allocated to physician

compensation is based

entirely on the financial

performance of the system.

» This approach may be

applied at the group,

specialty/site, or individual

level.

» The hybrid approach

involves the use of external

market benchmarks and an

economic adjustment factor.

» Raw market benchmarks

are adjusted using a

transparent formula that ties

to group economics.

» With the market survey

approach, the amount

allocated to physician

compensation is tied directly

to external surveys.

» Potential survey sources

include MGMA; AMGA; ECG;

Sullivan, Cotter and

Associates; and specialty-

specific sources (e.g.,

AAARAD, AAAP).

Organizations need to balance objective market survey data with the realities of the

system’s underlying economic performance.

Traditional Value-Based

Segmented leadership is

based on the provider type

and care setting.

There is cross-continuum

leadership and consideration.

Patient care is siloed

and focused on purely

clinical issues.

Multidisciplinary teams

coordinate patient care and

address nonclinical

needs.

The network is specialist

focused.

The network is primary

care focused.

Predominantly fee-for-service

arrangements encourage

volume-based business

models.

The addition of P4P, shared

savings, and risk-based

arrangements creates

incentives for PHM.

Systems are decentralized

and paper-based.

Systems are standardized,

centralized, and electronic.

Organizational

Foundation

Care

Delivery

Provider

Network

Clinical and

Business

Informatics

Payment

Models

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Industry changes are forcing all healthcare organizations to adapt to new realities.

Disruption

I. Market ImperativesImperative Two: Reimbursement Changes (Volume to Value)

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Quality payments still represent a small portion of overall compensation, but the

amounts are growing and the range is expanding.

Market Average1

Specialty Category

Percentage of Total

Compensation

Dependent on Quality

Clinical Quality

Compensation

per FTE

PCPs 5.7% $12,260

Medical Physicians 6.0% $18,179

Surgical Physicians 4.7% $21,083

Hospital-Based Physicians 4.1% $12,479

Quality Compensation by Specialty Type

1 ECG 2016 Physician Compensation Survey.

I. Market ImperativesImperative Two: Reimbursement Changes (Volume to Value) (continued)

Healthcare organizations are increasingly seeking to develop more consistency not

only with compensation but also with governance and operations.

I. Market ImperativesImperative Three: Organizational Configuration

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PARTIAL INTEGRATIONCONFEDERATION FULL INTEGRATION

Dept. A

Dept. B

Dept. C

Dept. D

Dept. F

Dept. E

Dept. G

Limited

Common

Elements

Dept.

A

Dept.

B

Dept.

C

Dept.

D

Dept.

E

Dept.

F

Dept.

G

Shared

Elements

Dept.

A

Dept.

B

Dept.

CDept.

D

Dept.

E

Dept.

F

Dept.

G

Consistent

Elements

Centrally

Defined

GOVERNANCE AND DECISION MAKING

FUNDS FLOW AND COMPENSATION

CLINICAL OPERATIONS

I. Market ImperativesImperative Three: Organizational Configuration (continued)

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Individual Attribution

» Revenue less

expense

» Productivity-based

plan

Partial Integration

» Shared overhead

Progressive

Approach

» Organizational

objective–driven

plan

» Team-based and

delivery of care–

oriented approach

Practice-Centric

Approach

» Implementation

of operational

standards

» Regional financial

reporting

» Common

operational

principles

Full Coordination

» Centralized billing

» Centralized financial

and performance

reporting

» Common EHR/PM

platform

Operations Governance Compensation

Coordinated Decisions

» Governance execution

» Centralized payor

contracting

Integrated Decisions

» Common governance

structure

» Centralized provider

recruiting and contract

management

LE

VE

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F I

NT

EG

RA

TIO

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I. Market ImperativesImperative Four: Legal

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FMVCommercial

Reasonableness

» Is required for

compliance with the

IRS, Stark law, and Anti-

Kickback Statute (AKS)

» Is generally assessed

through a quantitative

approach using market

data

» Is based on hypothetical

buyer and seller

arrangement

» Is required for

compliance with Stark

law and AKS

» Is highly subjective with

limited guidance on how

to meet it

» Requires employer to

have a rationale for the

transaction that does

not hinge on referral

considerations

Reasonable

Compensation

» Is a term derived from

the IRS

» Is based on a large set

of qualitative factors

relevant to a specific

physician and employer

» Is commonly invoked

when evaluating both

FMV and commercial

reasonableness

Scrutiny toward physician compensation arrangements is increasing. Because of

this, organizations are focusing on ensuring that the following key regulatory

concepts are in place:

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II. Best Practice

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At its best, compensation is a strategic enabler

of an organization’s mission, vision, and

values. At its worst, it can present significant

cultural, economic, and legal risks.

Compensation is not a “Swiss Army Knife” or a panacea. It cannot solve

organizational problems in isolation.

II. Best PracticeKeeping Perspective

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PHYSICIAN

LEADERSHIP/

GOVERNANCE

COMPENSATION

REVENUE

CYCLE

PERFORMANCE

PERFORMANCE

MONITORING

(DATA-

DRIVEN)

PRACTICE

MANAGEMENT

PATIENT

ACCESS

AND

SCHEDULING

IT

(E.G., EHR)

CLINICAL

INTEGRATION

INTEGRATED

PHYSICIAN

NETWORK

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II. Best PracticeSupports and Drives

Compensation should support an organization’s strategy and care model and drive

that organization’s operations.

CARE MODELSTRATEGY

Compensation

OPERATIONS

» Mission, vision, and

values

» Strategic priorities/

goals (e.g., access,

recruitment, alignment

with payor incentives)

» Patient centered

» Integrated

» Multidisciplinary

» Inclusive of advanced

practice providers

(APPs) and/or care

coordinators/

navigators

» Revenue cycle work flow (scheduling, registration, charge capture, etc.)

» Adequacy and capabilities of support staff (front- and back-office)

» Use of existing technologies

» Tools for measuring and reporting performance

» Adequacy and utilization of space

Drives

Supports Supports

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II. Best PracticeCompensation Elements

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Comprehensive and highly evolved compensation plans exhibit excellence across

seven key components as illustrated in the pyramid below.

Compensation

Segmentation

Performance

Standards

FTE

Definition

Production

Component

Value

Component

Financially

Sustainable Funding

Legal Compliance

Team

Incentives

Results in

compensation

levels that are:

Market

competitive

Economically

sustainable

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III. Innovative Compensation Approaches

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WR

VU

Rate

Individual Production Units

Track One: Solo Provider

Track Two: Team of Physicians

100% of Median

90% of Median

80% of Median

Not Eligible

90% of 75th Percentile

80% of 75th Percentile

Care

Model

Tracks

Key

Inputs

» Clinical compensation is paid out as a draw based on each physician’s WRVUs.

» There is a tier step function that determines the compensation per WRVU rate based on panel size,

WRVU volume, and team performance.

» There is a payment if value-based metrics are met.

Value Component

Tier One

WRVUs: <X

or

Panel Size: <XX

or

Value Measures: <X

Tier Two:

Solo Physician or Team

WRVUs: X to Y

and

Panel Size: XX to YY

or

Value Measures: X

Value Component

Tier Three:

Teams Only

WRVUs: >Y

and

Panel Size: >YY

or

Value Measures: >X

Value Component

III. Innovative Compensation ApproachesVolume-to-Value Transitional Model

Track Three: Team of Physicians

and APPs

Adjustable Based upon Achievement

of Performance Standards

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NOTE: Graphic is for illustrative purposes only and does not represent actual proportions of compensation.

Key

Inputs

» Physicians receive fixed compensation that can be adjusted based on achievement of performance standards.

» There is a tier step function that determines the incremental compensation earned based on panel

size and the achievement of value measures (individual or team).

» There is a production component available if the physicians achieve tier three of the step function.

III. Innovative Compensation ApproachesAccess- and Value-Focused Model

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Fixed

Component

Tier Three Panel Size or Value Measures (Individual or Team)

Production

Component

(Only Eligible if

Tier Three Achieved)

Value

ComponentTier Two Panel Size or Value Measures (Individual or Team)

Tier One Panel Size or Value Measures (Individual or Team)

Production Units

Threshold to Be Eligible

for Production

Component

Adjustable Based upon Achievement

of Performance Standards

III. Innovative Compensation ApproachesPooled Performance: Example

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» The purpose of the model is to incentivize

individual productivity while supporting the

evolution toward a value- and outcome-based

care model.

» Stipends are passed through directly to the

individual physician.

» Productivity and APP funding are combined into

one clinical pool for distribution.

› A portion of the clinical funding is allocated

to each distribution pool.

› The portions may change over time as

reimbursement models evolve.

» Performance relative to the dashboard is paid

based on individual and group metrics in the

four domains of quality, access, cost, and

citizenship.

» All funds are distributed completely under this

model via an internal point system.

A large, 400-physician group was seeking to develop a compensation plan that

incorporated increased productivity and value-based elements.

FUNDING

BALANCED DASHBOARD

CostCitizenship

Quality Access

DISTRIBUTION STREAMS

70%

10%5%

15%Individual

Group

APP

Dashboard

Physician

Productivity

APP

SupervisionStipends

DO NOT

III. Innovative Compensation ApproachesPooled Performance: Example (continued)

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Area Metric

Maximum

Points Performance

Quality

CG-CAHPS: Likelihood to Recommend 3

1 Point: >79th Percentile

2 Points: >85th Percentile

3 Points: >94th Percentile

Payor Incentives 3

1 Point: >60% of Measures Obtained

2 Points: >69% of Measures Obtained

3 Points: >79% of Measures Obtained

Citizenship

Education/Research 1 1 Point: Yes

PMPP Testing Completed Every Six

Months1 1 Point: Yes

Cost

Extended-Hours Participation 1 1 Point: Yes

Epic Chart Closure (95% at Five Days) 2 2 Points: Yes

Budget Performance 21 Point: Budget Met

2 Points: Budget Exceeded by 5%

AccessOpen to All Payors or Exceeds 125% of

the Specialty-Specific Median Panel Size3 3 Points: One of the Criteria Met

Matt Nolan

mnolan@ecgmc.comContact

Information

DQ &QUESTIONS DISCUSSION

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