How Hospitals and Health Systems Can Pandemic-Proof their Physician Compensation Agreements

Published by the American Bar Association Health Law Section
 

While the healthcare industry has typically been only minimally affected by economic downturns, the COVID-19 outbreak is different, substantially and broadly impacting the industry. With bans on elective procedures lasting through much of the summer, strains on supply chains and needed resources, and many patients unable to see their doctors for regularly scheduled appointments, overall productivity and average revenue levels for many providers have been impacted.

According to the American Hospital Association (AHA), these revenue declines will be significant. In a report published in late June 2020, the AHA estimates that hospitals and health systems (together, “organizations”) will lose $120.5 billion from July to December 2020, in addition to the $202.6 billion the AHA estimates these organizations already lost between March and June.1

This is consistent with a recent report from the Healthcare Financial Management Association, which found that nearly two-thirds of organizations expect volume and revenue decreases of greater than 15 percent in 2020 compared to 2019.2

Confronted with such large decreases in revenue, organizations are looking for ways to reduce expenses and are increasingly looking at physician compensation as one potential solution.

In June 2020, ThedaCare, Providence Health & Services, University Hospitals in Cleveland, Sentara Healthcare, Loyola Medicine and others revealed that their employed physicians would be taking pay cuts to help offset losses during the pandemic.3 A report from recruiting firm Merritt Hawkins in July concluded that the COVID-19 pandemic had led to recruitment searches dropping by 30 percent for physicians and starting salaries for these physicians decreasing from 2019 levels.4

While not all organizations have taken steps to cut physician compensation during the pandemic, physicians and advanced practice providers (collectively, “physicians”) may still experience significant decreases to their compensation in 2020 and 2021. Most organizations have physician compensation plans that pay physicians based on their personally performed productivity, typically either via the level of work relative value units (wRVUs) or professional revenue a physician generates. With patient volumes down significantly in 2020, these productivity-based compensation plans will translate to smaller paychecks for physicians.