Compensation Rules are Changing

To say that the health care industry is in flux is an understatement.

With all of the pending changes and current unknowns, it is difficult for physicians to make decisions regarding their practices, business processes and staying independent. Physician compensation is one area that should be considered as physicians weigh their options in the marketplace.

Understanding how Accountable Care Organizations (ACOs) and health care systems are determining physician pay will be essential for physicians to make educated decisions regarding their future.

Evaluating Physician Compensation Models

Health care systems and ACOs are transitioning traditional fee-for-service (FFS) compensation systems to value-based, pay-for-performance programs; shared savings and compensation plans; global or bundled payments; episode-of-care reimbursement; and quality compensation plans.

When evaluating a compensation system, physicians should ask the following questions:

1. Does a compensation board or committee govern the compensation program, and is it comprised of 50 percent physicians and 50 percent hospital administration?
2. If separate services are bundled into an episode for a single payment, how will physicians be compensated for their portion?
3. What compensation incentives are present for improved quality, better care coordination and outcomes?
4. Are there withholds or disincentive features?
5. What is the degree of risk that a physician has and how does this affect compensation?
6. What percent of base compensation is based on quality factors?
7. Is compensation based on obtaining all or none of the incentive amount?
8. Is the compensation system based on work relative value units (wRVUs)?

It may be possible for a physician to join an advisory board that helps determine, influence or govern the compensation model used by a health care system or ACO. If that is an available option, then the physician will be able to guide decisions so that compensation is competitive and the model is understandable.

Leveraging a Competitive Compensation Model Based on wRVUs

Many ACOs and health care systems have found that implementing a model based on wRVUs is advantageous to both the system and the physician. A wRVU-based model is closely tied to market rates and allows physicians to easily understand how the model is being applied. In addition, a wRVU-based model provides independent physicians with the ability to compare their current compensation with the compensation offered by an ACO or health care system.

By reviewing current productivity reports and converting them to wRVUs, an independent physician can evaluate how his or her portion of compensation compares to that of a physician within the same specialty working for a health care system.

A wRVU-based model leverages current market data as benchmark data to assess if the compensation offered is competitive in the marketplace. Below are some of the individual data points that are commonly used:

· Average number of wRVUs performed in a year

· Compensation per wRVU

· Median salary amounts

· Median salary growth from the prior year

· Median wRVU’s

· Median gross charges

· Highest offered base salary

· Lowest offered base salary

· Total compensation (including incentives)

· Employed medical director hourly rate

· Independent contracted medical director hourly rate

To enhance the applicability of the data, physicians are grouped by specialty. Current compensation of each physician within these specialty groups is calculated, often by excluding outside sources of income (i.e. board membership stipends). For many organizations this determination of baseline compensation is fairly complicated. Deciding what to include or exclude can have significant ramifications on the complexity of the compensation model. Physicians using or referencing the model will want to know what is included and what is not.

WRVU-based models are structured by specialty and by production tiers. Each model is different, and the number of production tiers can range from as few as two to 10 or more.

Compensation can be determined within the tiers in a couple of ways. One option is to calculate compensation per wRVU separately within each tier, then multiply that by the number of wRVUs in that tier and add each of the sub-totals per tier together to calculate total compensation. Another option is to take the compensation per wRVU that is defined by the tier and then multiply that by the total number of wRVUs performed in the period.

The tiers allow physicians to see how production will impact compensation. This provides a natural incentive to be more productive in order to drive more compensation.

A Moving Target

With all of the variables and potential changes facing the health care industry, compensation models will probably change rapidly over the next two to five years. Physicians will need to stay abreast of the legislative changes, market factors, trends and options that will impact their current and future compensation.

Being knowledgeable about how health care systems are paying physicians will help physicians make educated decisions for their career, practice and potential employment.

Keith Kamperschroer, CPA, CHCC, is the managing director of Health Care Services at Kolb+Co. He can be contacted at kkamperschroer@KolbCo.com. Matt Pluster is an Information Systems Consultant at Kolb+Co., which is located in Brookfield, Wis., (262) 754-9400.

Keith Kamperschroer is a proud member of the National CPA Health Care Advisors Association. The HCAA is a nationwide network of CPA firms devoted to serving the health care industry. Members provide proactive solutions to the accounting needs of physicians and physician groups. For more information contact us at info@hcaa.com.