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Case Study on Physician Compensation Planning in a Changing Environment

Case Study on Physician Compensation Planning

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Page 1: Case Study on Physician Compensation Planning

Case Study on Physician Compensation Planning in a

Changing Environment

Page 2: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

Case Study Medical Group:

Mason Multispecialty Group

• Multi-specialty group• Approximately 140 providers• Commitment to services

excellence• Referral center• Integrated delivery system

Page 3: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

Elements of Engagement Approach

• Phase I: Information Gathering• Phase II: Data Analysis• Phase III: Formulate Models• Phase IV: Final Report and

Recommendations

Page 4: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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?

Page 5: Case Study on Physician Compensation Planning

Interlocking Interrelationships

Clinical Excellence

MarketCharacteristics

Compensation Systems

Strategic Management

Page 6: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 7: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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.

Page 8: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 9: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

The Key to Maximizing Physician Compensation is

Maximizing Clinical Profitability

Page 10: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 11: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 12: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 13: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 14: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

Principles Underlying a Compensation Strategy

• Appropriateness• Fairness

Page 15: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 16: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 17: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

Trends in Physician Compensation

Page 18: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

Changing Development in Health Care

Risk to Provider

Revenue

Compensation

Low High

FFS Managed Care

Production Salary

Page 19: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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?

Page 20: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 21: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 22: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

What we heard in the interviews

Current compensation

system

Lack of understanding

Too complex

No reliable data

Too many special deals

Page 23: Case Study on Physician Compensation Planning

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

Page 24: Case Study on Physician Compensation Planning

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)

Page 25: Case Study on Physician Compensation Planning

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

($)

Page 26: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 27: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 28: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 29: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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)

Page 30: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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?

Page 31: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

Presentation of Alternative Compensation

Scenarios• Alternative scenarios• Discuss how various scenarios

meet the needs of Mason

Page 32: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 33: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 34: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 35: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 36: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 37: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

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

Page 38: Case Study on Physician Compensation Planning

McGladrey Network Round-up ‘01

Questions and comments