The Challenges of the Comp Plan: How Physician/Provider Compensation Plans Might Hamper Strategy for Integrated Health Systems in Markets Ahead. What Can be Done.
With accelerating acquisition and integration of physician practices by hospitals and hospital-based health systems comes the pressing and overarching question, “Now how do we pay them?”
Many health system executives have concluded, “Let’s pay them based upon the model they’re accustomed to: Productivity.” This conclusion and resultant compensation models have set in motion a pathway for physician work-effort that some might say is netting exactly what they were designed to produce; the good and the bad.
The prevailing productivity-based physician compensation model is one based upon Work Relative Value Units (WRVU) produced. There is an internal value established per WRVU by clinical specialty. Cash compensation earned is derived with simple arithmetic; number of WRVUs generated multiplied by the internal value per-WRVU payment rate established.
The model sounds good on the surface and it is often pitched to all stakeholders as one that is easy and reliable to administer.
Key questions relating to the existing and emerging problems derivative of the model are:
- What is a useful and effectively operational definition of productivity in the context of an integrated health system?
- Does the model effectively align internal incentives?
- Where/how can the model be counter-productive?
Before examining these questions in light of perspectives on the identified results, lets re-examine the rationale for the WRVU-based productivity model of physician compensation in Integrated Health Systems (IHS)—a rationale often, but not always, developed by non-physician managers for an IHS:
- all productivity is good productivity. If the physicians stay busy, all other operating economics of the health system take care of themselves;
- a production-based model manages itself. Physicians will want to optimize income through a direct production-based compensation model; and
- the work relative value unit is a standardized measure of a unit of physician effort. It was sanctioned by the federal government and reimbursement for professional services reimbursement runs on this track.
With these rationale as a foundational platform for the production-based WRVU model for physician compensation, let’s examine how it is working and how it may work in a reforming healthcare marketplace based upon relevant applied research and opinions of IHS leaders and employed physicians.
The model has decided advantages. Many are cited above. Beyond these, the model insulates physicians from the vagaries of payer contracts and related contractual adjustment rates that physicians don’t control and physicians are usually not accountable for related operating expense structures, direct or indirect, attendant to the work they perform.
Physicians report “working to the plan.” Their ability to optimize their productivity (and cash compensation) may not be optimally productive for the IHS. For example: physicians (within specific clinical specialties) can generate WRVUs that are beneficial to themselves, but are more or less productive for the IHS. “Downstream” financial productivity is variably productive for the IHS with little or no effect on individual physicians WRVU productivity and derivative cash compensation.
When physicians work inter-professionally with advance practice nurses, for example (especially in the primary care specialties) there is evidence of the potential for the total universe of clinical activity to be shared in-common at high proportions, meaning for a significant percentage of the total work physicians and APNs are interchangeable, with the observation that the more complex visits may be attended by APNs. When this observation was shared with Executive MHA physician students in a class session the response was,
“We work our compensation plan. I can do three .5 WRVU visits in the time it takes for me to do one, 1.0 WRVU visit. If my APN needs consulting for more complex visits, I am available. Care doesn’t suffer.”
As a component of one applied research effort physicians were asked, “What is your reaction to the concept of “working to the top of your license?” Many responded with, “If that means I must deal with the more complex medical issues each day, I’m not interested.” The point being, many physicians are not interested in spending each day of productivity with the most complex clinical issues and as highlighted above, production-based compensation plans may not support such a strategy anyway.
An interview with a manager of a large, subspecialized cardiology practice observes that a disproportionately high number of visit slots for some of the cardiologists are consumed by follow-up visits rather than new patient visits. Physicians defending this scheduling practice will often respond with, “My patients only want to see me.” And while the assertion may have validity, the overall productivity potential of the practice becomes limited by physicians devising their preferred model of practice versus one that enhances the productivity of the practice overall. Individualized practice pattern designs may, at the end of the day, be as or more productive for physicians given the design of their compensation model (i.e., every WRVU is of the same value for the physician but not, necessarily for the practice or the IHS overall).
Secondary analyses of data from a research effort focused on interprofessional team care among physicians working with advance practice nurses (APN’s) demonstrated that for one group of subspecialists within a cardiology practice the wrvu system underestimated actual time spent with patients, while for a different subspecialty within the same practice the wrvu system actually over-estimated actual time spent with patients as much as 70% (the procedural subspecialties).
One could conclude from this one demonstration that unless clinical departments within an IHS are of sufficient size and well-subspecialized, working from a compensation plan that equitably pays physicians across subspecialties within a clinical department, there is potential for considerable misalignment of internal incentives, coupled with a potential reluctance of physicians to collaborate with each other on patient care leading to discord and disharmony between and among providers (resulting from perceived compensation inequities) and sub-optimal patient care and patient experience within the department.
Some might suggest that in a reforming U.S. healthcare marketplace the production-based physician compensation model has lost all utility. Interviews with physician leaders refute the claim. One physician leader of a large integrated health system comments,
“We’ve not figured out the best compensation model as yet. We may operate at least two. For primary care, we may adopt more of a salary-like model with bonus potential based upon some combination of the right productivity, overall, quality and team effectiveness. For the procedural specialties WRVU productivity may remain the driver of compensation providing there is effective peer review and over-sight to ensure that productivity is clinically appropriate and consistent with leadership’s views of what is good for patients and healthy for the system overall.”
As cited above, the compensation plans that operate in many U.S. health systems that employ physicians may be producing results as would be expected from their designs; i.e., incentives favor the production of “units of service.” On the surface this has made (and still makes) sense for a number of health system leaders during a time of rapid consolidation and integration of physicians with community-based health systems.
However, the evidence may support a conclusion that not all physician production is necessarily optimal for the financial health of the health system. Clearly “pure production” physician/provider compensation models offer the potential for:
- dislocation of value, meaning a specific path of productivity for a physician or group of physicians within a specific clinical specialty creates varying downstream productivity profiles for the IHS within a clinical specialty and for the IHS overall;
- prevailing incentives that may cause physicians to pursue work effort profiles that could be undertaken by lesser trained staff working alone or within a team;
- IHS market strategies that may cause competing internal incentives, especially as they relate to the physician compensation plan. An example is when IHS’ assume financial risk for specific insured populations. A physician compensation plan based solely upon WRVU productivity only can cause expected “cost over-runs” on generated professional and related institutional utilization rates and imputed costs; and
- creating internal cognitive dissonance among providers as payers evaluate IHS’ based upon total cost of care performance. Physician compensation plans designed to encourage service units produced can disturb an IHS’ internal behavioral economics gyroscope. i.e., “What do you want me to do, produce more or less?”
So, how will/should IHS address the challenges of the production-based provider comp plans in the road ahead?
The best advice I’ve been able to glean from experienced IHS leaders is:
- accept that large, complex IHS’ may have more than one provider compensation plan operative at any given time;
- as compensation designs move away from “pure production” to models weighted to salary-like designs there is a commensurate need to infuse more physician leadership involvement. Divisional/departmental leaders actively manage provider productivity; i.e. the “right” productivity;
- physician leaders need to have comprehensive, intimate knowledge of how provider productivity in their charge affects/drives overall economics and operating and financial performance according to the IHS strategic plan; and
- physician leaders must become students of the forensics of the finances attributable to the intersection of the internal provider compensation plan with desired operating performance; i.e., learning how to troubleshoot operating incentives and their effects on the operating economics of the operating units and the IHS overall.
Based upon the evidence at-hand, it seems clear that as models and strategies for integrated health systems evolve the need for physician/provider compensation model innovation and transformation is elevated to a higher priority on organizational development and strategic plans and should be on the watch list for physician leaders.