Physician Compensation Plan Design: The Basics Make a Difference

The spotlight today in the sphere of physician compensation is on the more exciting things surrounding the intersection of compensation and value-based reimbursement. This emphasis is a positive one and makes sense given where we are headed. However, the reality is that many/most physician compensation arrangements still primarily focus on volume-based models. Thus, while we should always be looking to the future, we should work to improve the present as well.In our work with hospitals and health systems, we find much variability in where compensation plans fall on the “best practice” scale. Meaning, many have perfected the volume-based model (to the extent there is a “perfect” compensation model), while others are still struggling with the basics.

The latter is entirely understandable given the nuances that go along with trying to 1) interpret market data, 2) design a structure that makes sense and meets the needs of the health system, and 3) keep the providers happy. To assist those who are still working toward best practices, while affirming those who are already there, perhaps the list of basics below can help.

• wRVUs are preferred. When viewing the options that exist for measuring productivity, wRVUs, though imperfect, are the best measure. Collections can be problematic, and charges even more so. Encounters/visits are too one-dimensional. Given that wRVUs are part of the backbone of the reimbursement model, they are likely not going away any time soon.
• The calculation of wRVUs can affect fair market value. wRVUs need to be by rendering provider, need to be modifier adjusted, etc. So, wRVU calculations can have just as much of an impact on compliance as can the rate at which wRVUs are being converted to compensation.
• Overreliance on benchmark data is problematic. Benchmark data exists in abundance. While helpful as a starting point, it should not be the end-all/be-all. The data may not reflect economic reality for your situation. Further, building a structure that is completely dependent on the benchmark data can fail over time.
• Follow the order of operations when designing the model. This exercise, though it sounds basic, is critical. When developing a compensation model, the variables need to fit together. We suggest that you first establish the model variables; meaning, the tiers (if it is a multi-tiered model) and the rates per wRVU. Then, establish base compensation. Finally, determine the threshold at which incentives will be earned using the variables mentioned before. Often the model suffers if these three components are set independent of one another. The suffering can be in the form of a model that is not structurally sound, or one that creates compliance concerns.
• Consider all the components. Stacking of compensation can be an issue when developing models. What we mean by this is that benchmark data is reflective of total cash compensation yet is most frequently used to design only the productivity portion of a model. When other components of compensation are then added on top of the model (call pay, sign-on bonuses, value-based incentives, etc.), the model can end up more lucrative than was initially anticipated. Thus, having a holistic view of all components of compensation in the model design process is crucial.
• Models need frequent attention. In today’s changing environment, compensation models need regular evaluation to ensure they still make sense. They do not require constant replacement, just minor tweaks to certify that the model stays relevant. The initial design of the model is important in this regard to ensure that the model structure can be tweaked based on small changes in the market. If the model is not malleable, you may be back to the drawing board soon.

This list of basics is by no means comprehensive, but these are some areas where the basics can have a significant impact. Coker’s expertise in physician compensation is deep. If you need help getting back to basics or affirming that you have the basics covered, we are here to help! Alternatively, if you have the basics covered and are ready for the next step, we can help with that too!