Case Study on Physician Compensation Planning

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  • 1. Case Study on Physician Compensation Planning in a Changing Environment
  • 2. Case Study Medical Group: Mason Multispecialty Group
    • Multi-specialty group
    • Approximately 140 providers
    • Commitment to services excellence
    • Referral center
    • Integrated delivery system
  • 3. Elements of Engagement Approach
    • Phase I: Information Gathering
    • Phase II: Data Analysis
    • Phase III: Formulate Models
    • Phase IV: Final Report and Recommendations
  • 4. 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?
  • 5. Interlocking Interrelationships Clinical Excellence Market Characteristics Compensation Systems Strategic Management
  • 6. 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
  • 7. 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.
  • 8. 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
  • 9. The Key to Maximizing Physician Compensation is Maximizing Clinical Profitability
  • 10. 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
  • 11. 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
  • 12. 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
  • 13. 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
  • 14. Principles Underlying a Compensation Strategy
    • Appropriateness
    • Fairness
  • 15. 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
  • 16. Fairness
    • Plan distributes compensation equitably
      • Rewards MD effort and contribution
      • Consistent with clinic's revenue stream
      • Considers built in biases, constraints and flexibility
      • Simple to understand
      • Based on reliable and timely data
  • 17. Trends in Physician Compensation
  • 18. Changing Development in Health Care Risk to Provider Revenue Compensation Low High FFS Managed Care Production Salary
  • 19.
    • 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?
  • 20. Formula Factors
  • 21. 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
  • 22. What we heard in the interviews Current compensation system Lack of understanding Too complex No reliable data Too many special deals
  • 23. Mason Multispecialty Average 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 Mason Multispecialty Peers outside of Mason Multispecialtyc Total Responses Primary Care Physicians Specialty Physicians Very Unfair Very Fair
  • 24.  
  • 25.  
  • 26. 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
  • 27. 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
  • 28. 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
  • 29. 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)
  • 30. 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?
  • 31. Presentation of Alternative Compensation Scenarios
    • Alternative scenarios
    • Discuss how various scenarios meet the needs of Mason
  • 32.  
  • 33.  
  • 34.  
  • 35.  
  • 36. 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
  • 37. 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
  • 38.
    • Questions and comments