The Changing Landscape of Primary Care Compensation

Over the past few years, changes in the way primary care doctors are reimbursed (by Medicare and others) are impacting pay models for family doctors and internists. Whether the doctor is an employee or a partner in a physician owned medical group, these reimbursement modifications are having a real impact. Additionally, gainsharing and enhancements paid by insurers are also influencing the discussion about physician compensation. More and more, the shift is toward paying for patient outcomes (i.e. think pay-for-performance in the corporate world) and cost and revenue sharing. I am not attempting to justify the merits of these shifts, but rather provide insights on how to effectively navigate the changes in physician compensation over the coming months and years.

Recently, I have had the opportunity to team up with a physician owned medical group and advise them on different types of compensation approaches. This article identifies steps for having a productive dialogue about alternatives in primary care physician pay models, particularly within a partnership setting.

1. Create a committee with a clearly defined Charter
2. Establish a review framework
3. Review current pay practices
4. Identify areas that may need to change
5. Model impact of any proposed changes
6. Devise an implementation plan

Create a Committee

The first step is to create a committee to include:

• Physician representatives who can effectively represent their own as well as their peer’s interests
• Non-physician administrators, who are currently involved in calculating physician pay in the organization
• Individuals who will be active participants and contribute meaningfully to the discussions

A schedule of meetings should be agreed to up front (i.e. one meeting/month, etc.) as should the Committee Charter, which outlines the committee’s purpose and responsibilities. Some organizations benefit by retaining an outside resource to serve as a subject matter expert and to help facilitate the discussions about physician compensation at these meetings.

Establish Review Framework

Create an operating framework that strives for new approaches and methodologies that are:

• Fair: Are the changes being considered equitable to all physicians?
• Measurable: Are there systems to measure, track and report the metrics that will impact pay?
• Simple: Will the changes be easily understood?
• Flexible: Does the new pay model allow for future changes?

With this framework in place, the discussions about possible changes to compensation becomes more transparent.

Review Current Pay Practices

A review of current external pay practices should be provided to ensure that committee members understand the competitive landscape in terms of compensation and the various pay models that exist. Also, all current internal practices impacting physician pay should be included in this review process. In a partnership setting, this typically includes how revenues and expenses are allocated. In addition to current pay practices, a review of past pay practices may be useful so all committee members understand why certain policies exist presently and how the pay model has evolved over time.

Identify Changes

During the review process, ask questions to help pinpoint areas that need further review and possible refinement. While these questions may not apply in all circumstances, this will give you a general idea of the types of questions to explore.

• How is revenue (income) allocated?
• How are expenses allocated – Corporate vs. Practice/Division vs. Individual?
• Are there differences in expense allocations for fixed versus variable expenses?
• Are there any expenses that are capped?
• Are there differences in allocation methods for employed versus partner physicians?
• How are gainsharing or enhancement payments distributed
• Do gainsharing or enhancement payments go to non-partner providers or provider extenders?

These questions should be looked at in the context of current practices, but also with an eye to the future. Will there be changes, such as participation in CPC+ or other programs, that would warrant modifications to the physician pay model? With respect to gainsharing, there may be additional things to consider, such as:

• Who saved the money – was it a group effort, a practice(s) or an individual?
• Are there individuals who contribute to the savings effort that do not get rewarded?
• Is achieving the savings contingent on meeting quality standards?
• What happens if the organization achieves the quality standard, but an individual provider does not?
• Who has oversight for determining if quality standards are met?
• What are the quality metrics, and can they be tracked and attributed to a provider?

Model Impact of Proposed Changes

Modeling is a best practice to understand the financial impact of the proposed changes to each physician. It is ideal to model the proposed changes using actual data from the most recently completed fiscal year. Sometimes assumptions will need to be made to complete the modeling, so it is important that these are documented when reviewing with the impacted physicians. At a minimum, year to year changes in revenue (income) and expenses should be reviewed so the impacts are understood. There may be other metrics that you wish to review and compare depending on the methods used for allocating income and expenses within your practice.

Devise an Implementation Plan

In a partnership setting, a majority (or in some cases a super majority) will be needed for the changes to become effective. Notwithstanding the votes needed to make a change, the communication efforts start with the establishment of the Compensation Committee. Typically, Compensation Committee members will be asked to follow up with their peers after each meeting to review topics covered and solicit feedback to be shared at the next meeting. Practically speaking, no physician would vote for changes to compensation without knowing the full impact. Therefore, as part of the modeling, all physicians should receive an impact statement highlighting the changes from the current plan to the proposed plan.

Is your organization contemplating changes to its physician pay models? Have you started assessing the impact of changes in Medicare reimbursements to physician compensation? Are the changing dynamics in primary care medicine in terms of reimbursements (i.e., more cost and revenue sharing) prompting you to rethink your physician pay programs? Contact Beacon HR Advisors and we can help your organization explore the possibilities for your physician compensation arrangements.