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Survey Says: The Time to Evaluate Your Market-Based Physician Compensation Plan Designs Is Now
With the COVID-19 pandemic impacting compensation and productivity levels in 2020, significant changes to wRVU values in the 2021 Medicare physician fee schedule, and the continued industry move from volume to value-based reimbursement and compensation models, VMG previously recommended a cautioned approach to compensation surveys in 2021, 2022 and potentially beyond. While it is still early in the 2021 survey season, recently published surveys serve as a strong case study as to why caution is the best approach.
Take the example of family medicine in the 2021 Medical Group Management Association (“MGMA”) survey. VMG expected to see a sizeable decrease in the level of reported work relative value units (wRVUs), which went down by 11.1% at the median from 2020 to 2021. What we did not expect was a nearly 4% increase in median compensation for the specialty, resulting in a 15.5% increase in the reported ratio of compensation per wRVU.
In fact, in reviewing some of the most commonly employed specialists in the market, compensation per wRVU ratios increased between 10 and 12% for primary care, medical, and surgical subspecialties. The only specialty group with a typical 2-3% level of increase are hospital-based specialties, which were less susceptible to changes in volume during the pandemic.
A Closer Look at Family Medicine
The MGMA median compensation for Family Medicine in 2020 was $254,665, with median wRVUs of 4,936 and a median compensation per wRVU rate of $51.70. The 2021 median compensation is about $265,000, a nearly 4% increase from 2020.
If it is assumed that wRVUs performed in calendar year 2021 will return to 2019 levels (ignoring, for now, the change in wRVU values in the latest Medicare fee schedule), at a median rate of compensation per wRVU of $59.69 in the latest survey, the calculated compensation for someone producing at the 2019 median wRVU level would be $294,630 (4,936 x $59.69), a 15.7% increase from 2019 median compensation.
Table 1 – Return to Normal Scenario (Family Medicine)
A similar impact would be found for most of the most commonly employed physician specialties, leading to a potentially significant increased spend in physician compensation for organizations with compensation levels tied to wRVU productivity using conversion factors per the latest industry surveys.
Double Whammy: The 2021 CMS Physician Fee Schedule
It would be one thing if the COVID-19 impact was the only issue impacting physician compensation in 2021, however the increased wRVU values in the 2021 Medicare physician fee schedule complicates the issue even further. Based on our analysis of the new fee schedule, VMG expects wRVUs to increase by about 20% for family medicine physicians, from a median of about 5,000 wRVUs per FTE to nearly 6,000 wRVUs per FTE.
If an organization took the approach of using the latest Medicare fee schedule and the median conversion factor from the latest surveys without adjusting for the impact of the fee schedule, that organization would compensate a median-producing physician over $353,000 (5,923 wRVUs x $59.69), $100,000 more than the median compensation in 2020. Even a 20% reduction to the conversion factor would result in compensation of nearly $283,000 (5,923 x $47.75, which is $59.69 x 80%), an 11% increase from the 2020 median compensation level. Reductions would be less and resulting compensation higher for specialties with a smaller Medicare fee schedule impact.
Table 2 – Return to Normal + CMS Changes (Family Medicine)
Potential 2022 Market Data Solutions
While there are many ways organizations can modify their compensation plans in 2022, two potential solutions could help organizations bridge the gap until surveys stabilize over the next few years.
Option 1: A Hybrid Approach
Under the hybrid approach, organizations could use reported compensation levels in the 2021 surveys (e.g., a 4% increase to $265,000 for family medicine) and the 2020 survey median wRVU levels (4,936 for family medicine) to calculate a presumed median ratio of compensation per wRVU of $53.63 to be used for organizations choosing to remain on the 2020 fee schedule in 2022.
Table 3 – Hybrid Approach – 2020 CMS Physician Fee Schedule
For organizations looking to switch to the 2021 fee schedule, an adjusted survey median level of wRVUs (5,923 for family medicine presuming a 20% fee schedule increase) could be used to calculate an adjusted ratio of $44.69 per wRVU.
Table 4 – Hybrid Approach – 2021 CMS Physician Fee Schedule
Under this approach, regardless of the fee schedule utilized by an organization, a physician producing at a median level of wRVUs would earn the median compensation of $265,000, and physicians would be compensated appropriately relative to their level of work effort.
Option 2: Use 2020 Surveys, with Possible Adjustments for the Fee Schedule Changes
Another option available to organizations is to simply use the 2020 surveys (based on 2019 data), with some aging factors to account for changes in compensation and productivity levels to bring the data to the current year. This approach also assumes some return to normalcy post-pandemic and assumes that compensation changes in the 2021 surveys are also unreliable (e.g., some organizations provided hazard pay or additional compensation that would not typically be earned due to the pandemic).
Upon a preliminary view of the American Medical Group Association (AMGA) 2021 Provider Compensation Survey, VMG discovered very similar trends to those seen in the MGMA survey. Specifically, wRVUs for many large specialties declined significantly in 2020, causing the reported compensation rate per wRVU values to sharply increase. VMG will continue to monitor the release of other provider compensation surveys as they are published.
Until surveys more accurately reflect the sustained impacts of the COVID-19 pandemic and the 2021 CMS physician fee schedule, organizations may want to consider an alternative market strategy for provider compensation in 2021 and 2022. While there are many ways to maintain a competitive, financially sustainable, and compliant compensation program going forward, organizations will want to fully understand the impact to providers before incorporating the latest surveys.
VMG Health can help organizations develop a market data strategy as organizations consider compensation plan changes for 2022 and 2023.