Amid a Perfect Storm in Healthcare, a Cautioned Approach to Physician Compensation Surveys is Warranted

Several changes to the healthcare industry are coming to a head at the same time, creating a perfect storm for physician compensation professionals. One question for these individuals looms large: have market physician compensation and productivity surveys lost their luster?

The impacts of the novel coronavirus (“COVID-19” or “COVID”), significant proposed changes to the 2021 Centers for Medicare and Medicaid Services (“CMS”) physician fee schedule, the industry’s continued move from volume to value-based care, and the shortcomings of the surveys themselves call into question whether a strict reliance on surveys to set physician compensation levels is warranted headed into 2021.

COVID-19’s Impact on Compensation in 2020 and 2021

With the country still in the midst of a worsening pandemic heading into winter (and flu season), it is clear that the effects of COVID will be felt well into 2021, even with a vaccine on the horizon[1]. At the outset of the pandemic in the United States, many states shut down elective procedures for several weeks, with some hospitals remaining shut down for all but COVID patients for several months. Several hospitals are considering new bans on elective procedures as COVID surges across the county[2]. Outpatient clinics were similarly impacted, though to a lesser degree than inpatients[3]. While many patients seamlessly transitioned from in-person to telemedicine visits, many non-urgent visits were cancelled by patients who were not comfortable going into a clinic to see their provider.

The net effect is that work relative value units (“wRVUs”) and collections in the 2021 survey editions (based on 2020 data) will likely be lower, and perhaps significantly lower, than in 2020. At the same time, many organizations provided some level of compensation guarantees or other protections to their physicians in 2020, allowing physician compensation levels to remain the same or moderately reduced for significantly reduced production.

Based on these two trends, the 2021 surveys will likely report slightly reduced compensation levels, but the compensation per wRVU and compensation to collections ratios that many organizations use to set rates in their compensation models for the next year may see sizeable increases that exceed the 1-3% typical annual growth in these metrics.

Using these inflated rates for 2022 could result in organizations overpaying their physicians relative to their levels of work effort, especially considering the proposed changes to the CMS fee schedule that will take effect in 2021.

In 2021, Significantly More wRVUs for the Same Level of Work Effort

In August, CMS proposed changes to the 2021 physician fee schedule that include significant increases to the evaluation and management (“E&M”) codes physicians use for new and established patient visits. VMG has written more detail about this previously[4], but the bottom line is that physicians will report about 10% more wRVUs on average using the 2021 fee schedule for the same work effort under the 2020 fee schedule, with no meaningful change to revenue in the aggregate.

Most organizations pay physicians at least in part on the number of wRVUs they generate[5], and the surveys used to set these rates will not include wRVU values based on the 2021 fee schedule until the 2022 editions, which publish in the summer of 2022. That means that organizations cannot fully rely on surveys to set compensation per wRVU rates until the 2023 compensation plans at the earliest.

Even then, the surveys may continue to be a blend of 2020 and 2021 physician fee schedule values, as the surveys rely on self-reported data from participants. Many organizations are deciding to use the 2020 fee schedule to calculate 2021 wRVUs for providers on productivity-based compensation plans to avoid overcompensating their physicians. Unless these organizations remember to report wRVU values using the 2021 fee schedule in the 2022 surveys, the 2022 surveys will likely be a mix of 2020 and 2021 values.

Even if all organizations report 2021 wRVU values using the 2021 fee schedule, the 2022 surveys will not be published in time to use until 2023. By 2023, the continued move in the healthcare industry from volume to value-based care may further call into question how relevant surveys will be in setting provider compensation levels going forward.

The Continued Move from Volume to Value-Based Payor Contracts Will Impact the Industry

Over the last several years, the industry has seen more health care dollars move away from pure fee for service basis and toward a new model of care that includes a combination of fee for service, pay for performance (“P4P”, such as quality and patient satisfaction metrics), and shared savings bonuses for achieving appropriate levels of utilization[6].

Industry surveys continue to focus on compensation and productivity metrics under the assumption that compensation and productivity levels must always be perfectly aligned. But with more revenue being tied to things like management of diabetes or chronic kidney disease, other process or outcomes based quality metrics, and utilization, does maintaining a pure focus on compensation per wRVU or compensation as a percent of collections continue to make sense?

As reimbursement models become more and more complex and tied to multiple income streams, the surveys’ continued reliance on compensation relative to wRVUs and collections will make it so that health systems need to be more mindful when determining how to structure their employed physician compensation plans to incentivize quality, patient experience, panel management, cost of care and other metrics beyond just productivity.

To do so, health system leaders will need to understand what all is included in survey benchmarks (and what is not), and even understanding that can prove to be a complex undertaking.

Understanding the Surveys Has Never Been More Important, or More Challenging

To cap this all off, key differences in survey methodologies used by the survey firms require organizations to examine and understand the nuances of their selected surveys to ensure the organization is setting compensation plan rates in a compliant way.

Most survey firms ask organizations to report wRVUs and collections in a consistent manner, including only personally performed services and excluding ancillary services, services performed by an advanced practice provider (“APP”) and so on. The differences emerge in how survey firms ask organizations to report total cash compensation, and how the survey firms then calculate the ratios of total cash compensation per wRVU and total cash compensation to professional collections.

The survey firms consistently include base compensation, productivity-based incentives, and non-productivity incentives for quality, patient experience, and other non-productivity metrics in the calculation of total cash compensation. However, where some survey firms include on-call compensation, others exclude it entirely. Some surveys include administrative compensation, some include only administrative compensation that is not associated with an FTE level, and others exclude it altogether. Differences also exist in the inclusion of retention bonuses, sign-on bonuses, student loan forgiveness payments, and other recruitment-based incentives.

While wRVUs and collections may be measured in a consistent way, with compensation and compensation to productivity ratios measured or calculated differently, organizations must carefully review survey definitions to understand what’s included, and what’s not included, in the surveys they use to set compensation levels. Simply using a survey’s median compensation or compensation to productivity ratios and stacking other compensation components on top of that rate could result in compensation levels that exceed fair market value.

What it All Means

It is a unique and challenging time in the healthcare industry, and the next few years will be some of the most challenging ever faced by professionals who set physician compensation levels.

Surveys will continue to be an important source of information on provider compensation and productivity levels, to be sure, but with the perfect storm of the impacts of the COVID pandemic, proposed changes to the CMS physician fee schedule, the continued move from volume to value-based care, and inherent limitations of the surveys themselves, the ways organizations have historically set compensation rates for physicians and APPs may be due for a change.

Unlike in “normal” years, physician compensation professionals must be diligent in the changes they make to their compensation plans to ensure the resulting compensation levels remain both market competitive and consistent with federal fraud and abuse laws such as the Stark Law and the Anti-Kickback Statute.

VMG Health can help your organization identify the areas in which your organization is exposed to risk and strategize how to use the surveys to set physician compensation levels amid all these changes.

Sources

[1] Johns Hopkins University – COVID-10 Dashboard by the Center for Systems Science and Engineering (CSSE) https://coronavirus.jhu.edu/map.html

[2] 66 Hospitals postponing elective procedures amid the COVID-19 resurgence https://www.beckershospitalreview.com/patient-flow/8-hospitals-postponing-elective-procedures-amid-covid-19-resurgence.html

[3] Hospitals could be facing lower patient volumes for a while due to COVID-19. How are they responding? https://www.fiercehealthcare.com/hospitals/hospitals-could-be-facing-lower-patient-volumes-for-a-while-due-to-covid-19-how-are-they

[4] Changes are coming: Considerations for physician compensation under the proposed 2021 CMS physician fee schedule https://vmghealth.com/blog/considerations-for-physician-compensation-under-the-proposed-2021-cms-physician-fee-schedule/

[5] Physician compensation considerations amid COVID-19: Navigating physician pay and renegotiation https://www.mgma.com/resources/financial-management/physician-compensation-considerations-amid-covid-1

[6] Value-based health insurer contracts growing in number, but not risk adoption https://www.modernhealthcare.com/payment/value-based-health-insurer-contracts-growing-number-not-risk-adoption

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