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Hot Topics in Physician Compensation

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PYA Principal Carol Carden and Senior Manager Angie Caldwell presented “Hot Topics in Physician Compensation” at the Kentucky Society of CPAs (KY CPA) Health Care Conference, May 18, 2016. The presentation explored the latest developments in physician compensation structure, as well as considerations related to stacking compensation elements, the role and impact of quality incentives, the latest in affiliation models, and population health initiatives.

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Hot Topics in Physician Compensation

  1. 1. CAROL CARDEN, CPA/ABV, ASA, CFE ANGIE CALDWELL, CPA, MBA Pershing Yoakley & Associates May 18, 2016 Hot Topics in Physician Compensation
  2. 2. Prepared for Kentucky Society of CPAs Page 1 #AICPAhealth Agenda Valuation Overview Stacking Considerations The Role of Quality Incentives Affiliation Models Population Health Initiatives
  3. 3. Prepared for Kentucky Society of CPAs Page 2 #AICPAhealth Valuation Overview 2
  4. 4. Prepared for Kentucky Society of CPAs Page 3 #AICPAhealth What is Value, Valuation, and Compensation Valuation?  What is value?  The amount of money that something is worth. The price or cost of something.1  What is valuation?  An independent, unbiased opinion to determine the worth of products and services alike, that are or will be, provided or received by a seller or buyer.  Compensation Valuation  An independent, unbiased opinion determining the worth of the services provided to a willing buyer from a willing seller. 1 Merriam-Webster Dictionary
  5. 5. Prepared for Kentucky Society of CPAs Page 4 #AICPAhealth Why are Compensation Valuations Performed? Hospital Needs Assessments Medical Directorship Agreements Educational Services Agreements Supervision Agreements On-Call Agreements Employment Agreements Consulting Agreements Professional Clinical Services Quality Incentive Programs Recruitment Incentive Programs
  6. 6. Prepared for Kentucky Society of CPAs Page 5 #AICPAhealth How Is Compensation Valued? 5-Step Approach 1. Identify background, relevant facts, and key assumptions surrounding arrangement. 2. Utilize benchmark compensation surveys to analyze the specific physician/hospital relationship.1 3. Identify all factors and circumstances pertaining to compensation between the hospital and physician. 1 Federal Register / Vol. 72, No. 171/ Wednesday, September 5, 2007/ Rules and Regulations states, “Reference to multiple, objective, independently published salary surveys remains a prudent practice for evaluating fair market value.”
  7. 7. Prepared for Kentucky Society of CPAs Page 6 #AICPAhealth How Does One Value Compensation? 5-Step Approach 4. Identify one or more approaches to determine compensation valuation:  Income Approach: Forward-looking premise of value based on the assumption that the value of a service is equal to the sum of present values of the expected future benefits of providing a service.  Cost Approach: The cost of what it would be to replace the services the physician provides.  Market Approach: Comparing comparable market data for the services being provided in a similar environment. 5. Reconcile various approaches and document your valuation in writing.
  8. 8. Prepared for Kentucky Society of CPAs Page 7 #AICPAhealth Fair Market Value  Hypothetical willing buyer  Hypothetical willing seller  Reasonable knowledge of the relevant facts by both parties  Neither party is under compulsion to buy or sell  Arms-length transaction in an open and unrestricted market  Presumed ownership transfer as of a specific date
  9. 9. Prepared for Kentucky Society of CPAs Page 8 #AICPAhealth FMV Compensation  Required for any transactions in which a financial relationship exists between parties with the ability to refer patients  Not very prescriptive  Use of multiple, objective compensation surveys  Attributed clinical compensation rates for clinical services and administrative compensation rates for administrative duties  Relationship with commercial reasonableness (to be discussed later)
  10. 10. Prepared for Kentucky Society of CPAs Page 9 #AICPAhealth Healthcare Fair Market Value Key Concepts  Determined from the perspective of hypothetical buyers and sellers without the ability to refer business to one another.  No consideration for post-transaction buyer synergies. However, such synergies often exist!  The financial terms of the transaction must make economic sense based on the assets being sold/received.  Post-transaction compensation must be taken into consideration.
  11. 11. Prepared for Kentucky Society of CPAs Page 10 #AICPAhealth Compensation Stacking
  12. 12. Prepared for Kentucky Society of CPAs Page 11 #AICPAhealth Employment Models Common elements include:  Base compensation  Productivity threshold – many times based on work relative value unit (wRVU) level  Incentive compensation for productivity  Incentive compensation for quality outcomes  Sign on or retention bonus  Compensation for excess call coverage  Compensation for supervision or teaching services  Administrative compensation Hospitals and other organizations continue to utilize complex compensation models, often with multiple layers of compensation for multiple services sometimes referred to as “stacking.”
  13. 13. Prepared for Kentucky Society of CPAs Page 12 #AICPAhealth Regulatory Guidance Stark II Phase III specifies that you can pay for both clinical and administrative services, but the rate paid for clinical services should be appropriate and the rate paid for administrative services should be appropriate. These may or may not be the same rates of pay.
  14. 14. Prepared for Kentucky Society of CPAs Page 13 #AICPAhealth Assessing the Risk • More moving parts • Higher total compensation • Ensuring the correct benchmarks are considered • Assessing each part and the whole package How risky is this agreement? =
  15. 15. Prepared for Kentucky Society of CPAs Page 14 #AICPAhealth Sources of Data MGMA: Compensation, medical director, and call surveys Sullivan Cotter: Compensation, administrative compensation, and call surveys AMGA: Compensation and administrative compensation HHCS: Compensation and administrative compensation Towers Watson: Compensation and administrative compensation Niche surveys like anesthesia, trauma, cardiology, neurosciences, and academic compensation And others…..choices galore!
  16. 16. Prepared for Kentucky Society of CPAs Page 15 #AICPAhealth Commercial Reasonableness  Department of Health and Human Services Definition1  An arrangement which appears to be “a sensible, prudent business agreement, from the perspective of the particular parties involved, even in the absence of any potential referrals.”  Stark Definition2  “An arrangement will be considered ‘commercially reasonable’ in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty, even if there were no potential designated health services (DHS) referrals.”  OIG Threshold3  Compensation arrangements with physicians should be “reasonable and necessary.” 1 63 Fed. Reg. 1700 (Jan. 9, 1998). 2 69 Fed. Reg. 16093 (March 26, 2004). 3 “OIG Compliance Program For Individual and Small Group Physician Practices,” Notice, 65 Fed. Reg. 59434 (Oct. 5, 2000); OIG Advisory Opinion No. 07-10, September 20, 2007, pg. 6, 10; “OIG Supplemental Compliance Program Guidance for Hospitals,” Notice, 70 Fed. Reg. 4858 (Jan. 31, 2005).
  17. 17. Prepared for Kentucky Society of CPAs Page 16 #AICPAhealth Factors in Determining CR Business Purpose Provider Analysis Facility Analysis Resource Analysis Independence & Oversight Commercial Reasonableness Determination
  18. 18. Prepared for Kentucky Society of CPAs Page 17 #AICPAhealth Quality Incentives
  19. 19. Prepared for Kentucky Society of CPAs Page 18 #AICPAhealth What Models Are Being Used? 21% 12% 10% 11% 14% 32% 0% 1%-24% 25%-49% 50%-74% 75%-99% 100% PercentatRisk Percent Employed Physician Staff with Portion of Compensation at Risk? Source: HealthLeaders Media Physician Alignment Survey 2014 Old Models: • Straight Production (wRVUs) • Guaranteed Salary New Models: • Quality Incentives • Panel Management
  20. 20. Prepared for Kentucky Society of CPAs Page 19 #AICPAhealth Clear Trend: Some Portion of Physician Compensation “At-Risk” Health Leaders Media, Physician Alignment: New Leadership Models for Integration, September 2014 57% of respondents currently have at least 50% of their employed physicians with some portion of compensation at-risk 81% of respondents expect to have at least 50% of their employed physicians with some portion of compensation at-risk within three years
  21. 21. Prepared for Kentucky Society of CPAs Page 20 #AICPAhealth Organizations’ Dominant Physician Compensation Model HealthLeaders Media, Physician Alignment: New Leadership Models for Integration, September 2014 Of Note… • PYA’s experience and observations mirror the shift indicated in these findings. • PYA also observed a shift from models that only incorporate these elements as a “bonus” to standard pay, to those that place these components at-risk (possible withhold), offset by the upside potential to earn above historical compensation levels. 58% Respondents using wRVU plus incentive 25% Respondents using wRVU only
  22. 22. Prepared for Kentucky Society of CPAs Page 21 #AICPAhealth Physician Incentive Payment Survey What does your organization use to guide the payment of physician incentives? HealthLeaders Media, Physician Compensation: Shifting Incentives, October 2011 4% 23% 7% 50% 57% 75% 0% 10% 20% 30% 40% 50% 60% 70% 80% Referrals Chart Completion Participation in Administrative Duties Patient Satisfaction Scores Quality Metrics Productivity Measures
  23. 23. Prepared for Kentucky Society of CPAs Page 22 #AICPAhealth Inclusion of Quality Incentives Source: Sullivan, Cotter and Associates, Inc. 2012 Physician Compensation and Productivity Survey. About one-half (49%) of organizations incorporate non-productivity measures in incentive compensation plans. 60% 30% 23% 83% 39% 35% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Patient Satisfaction Patient Safety Care Coordination PercentageofOrganizationsUsingTypeof QualityIncentive Primary Care Providers Specialists
  24. 24. Prepared for Kentucky Society of CPAs Page 23 #AICPAhealth $180 $160 $120 $25 $85 $20 $25 $35 Quality Incentive Capitation or Episode Based Productivity- based CURRENT NEAR TERM LONGER TERM A Balancing Act Compensation Stacking (in 000’s) Compensation only increases if quality improves
  25. 25. Prepared for Kentucky Society of CPAs Page 24 #AICPAhealth Physician Value Modifier – 2017 Quality Tiering Low Quality Average Quality High Quality Low Cost 0.0% +2.0x* +4.0x* Average Cost -2.0% 0.0% +2.0x* High Cost -4.0% -2.0% 0.0% *Eligible for an additional +1.0x if reporting clinical data for quality measures and average beneficiary risk score in the top 25% of all beneficiary risk scores. Based on 2015 Performance
  26. 26. Prepared for Kentucky Society of CPAs Page 25 #AICPAhealth Here to Stay “Our goal is to have 85% of all Medicare fee- for-service payments tied to quality or value by 2016, and 90% by 2018.” “Our target is to have 30% of Medicare payments tied to quality or value through alternative payment models by the end of 2016, and 50% of payments by the end of 2018.” Source: HHS Secretary Sylvia Burwell (January 30, 2015)
  27. 27. Prepared for Kentucky Society of CPAs Page 26 #AICPAhealth Affiliation Models
  28. 28. Prepared for Kentucky Society of CPAs Page 27 #AICPAhealth Trends in Merger & Acquisition Activity  Still a fairly active trend  Involves primary care and specialty practices  Generally only paying for tangible assets unless large practice  Post-transaction compensation is a key assumption  Generally involves ancillary service lines like ASCs and imaging  Likelihood of cash distribution is a key driver  Many are structured as pass-through entities so this becomes an important component of the valuation Hospital Acquisition of Physician Practices Hospital/ Physician Joint Ventures
  29. 29. Prepared for Kentucky Society of CPAs Page 28 Physician Management Agreements Still see new and renewed clinical co- management agreements Bundled payment for care improvement (BPCI) is becoming more commonplace and expanding in conjunction with Comprehensive Care for Joint Replacement (CCJR) Increasingly seeing gainsharing arrangements being pursued
  30. 30. Prepared for Kentucky Society of CPAs Page 29 #AICPAhealth Other Physician Affiliation Models New employment and renewals of existing employment agreements Physician leasing arrangements – not as common Professional Services Agreements (PSA) as an alternative to employment, sometimes referred to as synthetic employment. Popular in states with corporate practice of medicine prohibitions.
  31. 31. Prepared for Kentucky Society of CPAs Page 30 #AICPAhealth Population Health
  32. 32. Prepared for Kentucky Society of CPAs Page 31 #AICPAhealth Key Healthcare Reform Provisions Bundled Payments Value-Based Purchasing Accountable Care Organizations Clinically Integrated Networks
  33. 33. Prepared for Kentucky Society of CPAs Page 32 #AICPAhealth Levels of Fund Distribution
  34. 34. Prepared for Kentucky Society of CPAs Page 33 #AICPAhealth
  35. 35. Prepared for Kentucky Society of CPAs Page 34 #AICPAhealth
  36. 36. Prepared for Kentucky Society of CPAs Page 35 #AICPAhealth
  37. 37. Prepared for Kentucky Society of CPAs Page 36 #AICPAhealth
  38. 38. Prepared for Kentucky Society of CPAs Page 37 #AICPAhealth
  39. 39. PERSHING YOAKLEY & ASSOCIATES, P.C. 800.270.9629 | www.pyapc.com Carol Carden, CPA/ABV, ASA, CFE Angie Caldwell, CPA, MBA Pershing Yoakley & Associates, P.C. (800) 270-9629 ccarden@pyapc.com acaldwell@pyapc.com

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