This presentation defined the disconnect between productivity-based physician compensation models and the demands of value-based payment models; identified and evaluated alternative physician compensation models; addressed the challenges in transitioning from volume-based to value-based compensation; studied how current fraud and abuse laws conflict with strategies related to value-based compensation, and exploree potential solutions.

1. August 26-29, 2018
Presented by:
Martie Ross
Principal
Aligning Incentives: Value-Based
Physician Compensation Models
ASSOCIATION OF HEALTHCARE INTERNAL AUDITOR’S
37TH ANNUAL CONFERENCE

2. Page 1
Fewer Owners, More Employees
American Medical Association, Policy Research Perspectives (2017)
53.10%
47.10%
40%
45%
50%
55%
2012 2016
% Physicians
with Practice Ownership

3. Page 2
Agenda
Compliance
Considerations
Productivity-
Based
Compensation
Pay for
Performance
Gainsharing
Alternative
Payment
Models

4. 1. Compliance Considerations

5. Page 4
Stark Law
Anti-Kickback Statute
Tax Exemption
Fair Market Value
Commercial
Reasonableness
Not Taking Referrals
into Account

6. Page 5
FMV vs. CR
Fair Market
Value
• Bona fide bargaining between well-informed parties not
otherwise positioned to generate business for other
party
Commercial
Reasonableness
• Reasonable and necessary for arrangement’s legitimate
business purposes

7. Page 6
Demonstrating FMV and CR
Step 1: Facts
• Ascertain key facts surrounding arrangement
Step 2: Other Factors
• Identify circumstances potentially relevant to FMV/CR
Step 3: Benchmarking
• Identify multiple objective data for benchmarking
• MGMA, AMGA, Sullivan Cotter, TW, others
Step 4: Approach
• Identify proper approach for determining FMV
Step 5: Conclusion
• Reconcile approaches and prepare written report

8. 2. Productivity-Based Compensation

9. Page 8
Two Ends of the Spectrum
 Fixed salary
 Retire in place
 Small # of “prestige” organizations
 Eat what you kill
 Revenue minus expenses
 Percentage of revenue
 Productivity
 Work Relative Value Units (wRVUs) x conversion factor

10. Page 9
Comp > Revenue
 MGMA: on average, hospitals lose $190,000/year/employed
physician
 Salary, bonus, overhead, insurance
 Qui tam cases
 Tuomey - $72.4 million
 North Broward Hospital District - $69.5 million
 Citizens Medical Center - $21.8 million
 Memorial Health - $9.8 million
 “Secret” contribution margin reports
 Share cost data with physicians?
 Physicians as defendants

11. Page 10
Administrative Duties
 Demonstrable organizational need/benefit
 At initiation and subsequent review
 Defined scope of physician responsibilities
 Hourly rate of pay
 Typically less than clinical time
 Documentation of time
 “Stacking”
 Impact on total compensation

12. 3. Pay For Performance

13. Page 12
MGMA: P4P Trends
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2012 2015
100% Salary 15% 8%
100% Productivity2 47% 16%
Salary + Incentive 19% 31%
Production + Incentive 16% 42%

14. Page 13
Best Practices?
 No comprehensive survey on incentive structures or metrics; rely on
anecdotal information
 Period of experimentation
 Sparse research on incentives’ impact on physician behavior
 MSSP results
 General principles of behavioral economics

15. Page 14
Willingness To Change
…physicians reported that they would be willing to
accept sizeable proportions of compensation at risk, if required to.
The median reported proportion is
15 percent, meaning one-half of surveyed physicians would put
more than 15 percent of compensation at risk and the other half
would accept less than 15 percent.
Deloitte 2016 Physician Survey – Value-Based Care
“
”

16. Page 15
P4P Metrics
• HEDIS
• NQF
• PQRS/QPP
Quality
• CG-CAHPS
• Net promoter score
Patient
Experience
• Extended practice hours
• Care team supervision (PCHM)
Access to
Care
• Committee/initiative participation
• Referral loop
Good
Citizenship

17. Page 16
Merit-Based Incentive Payment System
Quality Cost
Improvement
Activities
Advancing Care
Information
− Report quality
measures
− Scored based on
relative
performance
(historic
benchmarks)
− Practice
transformation
− Patient-
centeredness
− Promote expanded
adoption of EHRs
− Improve utilization
and sharing of
electronic health
information
− Drive efficient care
− Providers forced to
accept risk
60%
0%
15%
25%
60%15%
25%
2017 Performance Year 2018 Performance Year
Impacts 2019 Payments Impacts 2020 Payments

18. Page 17
MIPS Payment Adjustments
2019 2022+2020 2021
+4%
-4%
+5%
-5%
+7%
-7%
+9%
-9%
Performance
Threshold
• Upside scaling factor up to 3x stated amount
• Top performers share $500 million bonus pool (not to exceed 10% of Part B charges)

19. Page 18
Individual patients
Employment/acquisitions
Provider networks
Medical staff credentialing
Professional liability insurance
Broader Impact

20. Page 19
P4P Comp Models
 Bonus only
 At-risk compensation
 Earn back withhold + bonus
 Adjustment to wRVUs (subsequent to performance year)
 Risk adjustments (HCCs)

21. Page 20
FMV Considerations
Real work vs. busy work
• Physician (vs. staff) effort
• Relevance to practice, value to organization
• Benchmarks
Bonus percentage
• Limited market data
• Use MIPS as a guide
“Stacking” – impact on total compensation
• Same issue as administrative duties

22. Page 21
Q:
Must physician compensation
take into consideration
quality, outcomes, patient
experience, and/or efficiency?
Commercially Reasonable?

23. 3. Gainsharing

24. Page 23
Co-Management and Gainsharing
 Incentivize physician behavior that reduces hospital operating
costs or improves performance
 Reduce readmission/HAI rates
 Improve patient satisfaction scores
 Lower supply costs
 Enhance efficiency
 Reduce LOS

25. Page 24
Civil Money Penalties
 SSA Section 1128A(b): Hospital cannot incentivize physician
“to reduce or limit services”
 OIG: any reduction or limitation, regardless of medical necessity
 Numerous gainsharing advisory opinions
 October 2014 proposed rule: not an enforcement priority, provided
sufficient safeguards
 MACRA revisions: “to reduce or limit medically necessary
services”
 No implementing regulations from OIG

26. Page 25
Necessary Safeguards
 Cost-saving measures based on evidence and clinical
outcomes
 External fair market valuation for incentives
 Third-party review of performance and payments
 Patient safety standards
 Stinting on care
 Cherry-picking and lemon-dropping
 Accelerating discharges
 Impact on referrals
 Contribution margin issues

27. 4. Alternative Payment Models

28. Page 27
APM Framework

29. Page 28
Progress to Date
One-quarter of commercial plan payments
now flow through Category 3/4 APMs.*
*Health Care Payment Learning & Action Network 2016 Commercial
Payer Survey. Respondents represent over 128-million covered lives, or
nearly 44% of the combined commercial, Medicare Advantage, and Medicaid
markets.

30. Page 29
Cultural Shift
Incentives Measures Regulators Providers Patients Risk
FFS
Model
 Maximize
Patients
 Maximize
Services
 DRGs and
APCs
 CPTs
 Fraud and
Abuse Laws
 Reimbursement
Rules
 Silos
 Competitors
 Unmanaged
chronic
conditions
 Uninvolved
with care
 Resides
with payer
 Increasing
costs
Incentives Measures Regulators Providers Patients Risk
APMs
and
Value-
Based
 Manage
patient
population
 Coordinate
continuum
of care
 Quality
 Efficiency
 Network
participation
 Continuum
of care
 Collaborate
 Educated
 Engaged
 Moves to
providers

31. Page 30
APMs and Fraud & Abuse Laws
 Medicare program waivers
 Broad for MSSP; more limited for episodic payments
 If comply with specific requirements, DOJ/OIG will not pursue
enforcement action
 “Automatic” protection for MSSP shared savings distributions
 Broader issue?
 CMS study: current rules hinder APM participation

32. Page 31
Shared Savings Distributions
 Providers’ hesitancy to rely on Medicare waivers
 Waivers are relatively untested; may be revised at any time
 For non-profits, commercial reasonableness concerns remain
 Commercial arrangements not protected by distribution waivers

33. Page 32
Principles for APM Valuation

34. PYA, P.C.
800.270.9629 | www.pyapc.com
Martie Ross
Consulting Principal
(800) 270-9629
mross@pyapc.com