In rural Texas, 2 separately owned medical clinics were operating in the same facility. Patients went through the same entrance and checked in at the same desk, but 2 separate sets of staff cared for the patients. Because the competition was so high, there was a lack of willingness to refer patients when one clinic was full or even transfer calls “next door” when patients asked.
The lack of clinical and technological integration, capacity issues and the duplication of staff resources drove financial losses at both clinics.
Because of the changing healthcare environment, it’s no surprise that the 2 clinics had to combine forces and eliminate duplication to remain open. But the merger was further complicated when it was discovered that Clinic A employed its physicians using a compensation model that included a productivity component and Clinic B didn’t.
Let’s take a look at 3 different physician compensation models
Income guarantees are commonly used in areas where physician recruitment is difficult, and a practice and salary must be subsidized in a predetermined amount. Usually, income guarantees are contracted over a short period of time (i.e., 1-2 years), and the salary amount may decline over the life of the contract.
- Physician knows the predetermined salary
- Less sophisticated model
- Doesn’t offer a physician the opportunity to earn more than the predetermined salary
- Doesn’t provide an incentive to grow a patient panel or to see the industry average number of patients
Production-based physician compensation
Production-based physician compensation is the method most commonly used and is based on a productivity measure such as total RVUs (relative value units), work RVUs or patient visits – adjusted by specialty. Typically, the payment incentive is a dollar amount per selected measure above a predetermined threshold.
Work RVUs are preferred for their reflection of varying resources required by the physician to treat varying patients, as opposed to a visit method, which incorrectly assigns an equal weight to each patient visit. However, use of a work RVU productivity method requires an IT infrastructure which allows for the tracking of the patient data by physician to calculate physician productivity.
- Opportunity to earn more than the contracted base salary remains at the sole discretion of the physician
- Agreement transparently details how much the physician can earn by increasing the number of patients served
- Physician compensation is solely based upon volume and does not account for value (i.e., outcomes, quality)
- Could have a negative impact upon the amount of time needed to appropriately care for a patient
Production plus performance physician compensation
Production plus performance physician compensation is used by organizations that have an advanced IT infrastructure to track patient data and physician performance (such as patient outcomes and patient safety). It includes a productivity measure such as total RVU, work RVU or patient visits – adjusted by specialty.
However, there’s also a performance measure, with transparent targets to achieve, which can vary depending upon physician specialty and/or organizational goals. Behaviors to incentivize could include adherence to existing measures such as SCIP or readmission rate or quality measures for which an organization is emphasizing improvement.
- Allows for the most alignment between hospital and physician goals
- Additional burden of reporting and monitoring the additional performance measures
3 things to keep in mind when moving from income guarantee to production-based
Ease the transition
Develop a smooth transition through transparency and minimal financial disruption to physicians in the first year. A good practice is to use a phased approach to target achievement so that incentives are attainable and physicians can transition to the new model slowly over a predetermined time.
Going back to my example of the 2 Texas clinics that had to merge in order to stay open…
The new clinic, due to its rural setting and difficulty recruiting physicians, phased work RVU based targets over the first year. Targets were set at a level where physicians didn’t experience a loss while managing to a new physician compensation model. Although a more aggressive target was planned to begin in year 2, a rebalancing was conducted based on year 1 performance. And the phasing was adjusted to allow physicians another year to get used to the additional work required in developing the new clinical and operational models.
Balance is key
Considering there are many elements out of a physician’s control within a patient panel, a base income may still be contracted. But it should be a relatively small portion of the overall income. However, it cannot be so low as to be non-competitive nor inconsequential to a physician.
At the new clinic, it was clear that individual physicians weren’t motivated by the same incentives. Some valued items such as continuing education, while others wanted to receive a slightly higher amount of paid time off. So these items were negotiated as part of individual physician contracts.
Ensure that both hospital administrators and physician practitioners understand the measure methodology as well as the tracking and monitoring process. Once the decision is made on what the productivity metric will be, make sure to model and share the financial opportunity.
The new clinic set up meetings to answer physician questions and concerns before adopting the new methodology and agreed to distribute productivity reports on a quarterly basis.
Now physicians can see their progress toward an annual payment and make the necessary adjustments in their own practice.
The clinic today
The 2 clinics have merged and are operating well together. The practice is making great strides in adopting PCMH models of care and in moving to a single EHR platform. The new clinic is serving more patients than before and has hired 3 additional physicians. Value-based performance measures (complete coding, core measures and patient experience) were added in year 2 to provide a more comprehensive representation of physician productivity.
Productivity improvements have been achieved and patient visits are up from the prior year. Most importantly, productivity improved enough to significantly lower the projected loss of $1M in year 1. This has allowed the clinic to begin recruiting for 4 more physicians to serve its previously underserved rural community in Texas.