INFOGRAPHIC | 2020 Health Care Staff Compensation Survey

Key considerations for the health care employee workforce during COVID-19 and through 2021 and beyond

Employee compensation programs are shifting to address changing market dynamics and mitigate the financial implications of COVID-19. Considering the current impact of the pandemic, the 2020 survey benchmarks represent the best data reference point for use in the near future.

Organizations have been impacted by the pandemic to varying degrees, so it is important that each organization analyzes their unique circumstances when utilizing this market data. Applying a holistic approach will allow each organization to consider future changes that are the best fit for their situation rather than an industry best practice.

SullivanCotter’s 2020 Health Care Staff Compensation Survey contains data from nearly 1,200 organizations on approximately 1,194,900 individual employees.

The 2021 survey is now open for participation!

DOWNLOAD INFOGRAPHIC


PRESS RELEASE | Annual results from SullivanCotter's Physician Compensation and Productivity Survey

Physician Compensation Programs Shifting to Address Changing Market Dynamics and Mitigate COVID-19 Financial Implications

November 11, 2020 – Chicago – SullivanCotter, the nation’s leading independent consulting firm in the assessment and development of total rewards programs, workforce solutions, and technology and data products for the health care industry and not-for-profit sector, recently released results from the 2020 Physician Compensation and Productivity Surveywhich represents data from more than 800 organizations on nearly 244,000 individual physicians and advanced practice providers. The results reflect calendar year 2019 and, as the last set of benchmark data available prior to the onset of COVID-19, this year’s survey will serve as an important resource for organizations needing pre-pandemic compensation reference points for this critical workforce.

“Although the pandemic has created a great deal of uncertainty – with many organizations making near-term modifications to their physician compensation programs as a result – we’re seeing a slow and steady adjustment to the ‘new normal’ as patient volumes have returned to approximately 90% of pre-COVID-19 levels. In some ways, the fallout from COVID-19 has simply accelerated the forces that were driving physician compensation changes prior to the pandemic, and the 2020 survey data will be very important in helping to determine how organizations are responding to these challenges,” said Tim Stamper, Senior Consultant, SullivanCotter.

Physician Total Cash Compensation (TCC)

While TCC has grown, on average, 2.5% annually since 2012, COVID-19-related reductions in surgical and non-emergent care have impacted the financial condition of many health care organizations nationwide – causing them to implement or consider a number of compensation and benefits-related modifications to help offset significant losses in revenue. According to SullivanCotter’s COVID-19 Physician and Advanced Practice Provider Compensation Practices Survey series, nearly 30% of participants had implemented or were considering pay reductions for front line physicians and nearly 40% of participants were doing the same for non-front line physicians as of May 2020. Median pay cuts were 11% and 15% for front line and non-front line physicians respectively. Other organizations made cuts in physician benefits in response to COVID-19. The most common benefit program changes in 2020 included eliminating or reducing retirement plan contributions, adjustments to PTO policies, and eliminating or reducing CME allowances. The majority of these actions were intended to be temporary and, as patient volumes continue to increase and organizations start to recover financially, many are returning to historical pay and benefits practices.

Due to the financial impact of COVID-19, physician incentive programs have also come under scrutiny in 2020. Among respondents surveyed in May, 16% of organizations reported eliminating or reducing non-productivity incentive compensation in 2020 while an additional 38% were considering this action. Many organizations pay out these incentives at year-end, making these programs an obvious target for cost-reduction.

Physician Productivity

The 2020 Physician Compensation and Productivity Survey results continue to show a trend of flat or even declining median work RVU (wRVU) productivity across all major specialty categories. Since TCC showed modest increases in the 2020 survey, TCC per wRVU ratios have also increased. While we have anticipated growth in value-based incentives, wRVUs and productivity-based incentives still determine the majority of incentive or variable compensation as a percentage of TCC. Approximately 70% of organizations utilize wRVUs to determine compensation for primary care and specialist physicians, with wRVU productivity accounting for about 18% of TCC in plans with a base salary component and over 90% of TCC in plans without a base salary component. Less than half (44%) of organizations surveyed include a wRVU component for hospital-based physicians, who are instead paid primarily on base salary and shift-based models.

As organizations focus their attention on maintaining patient access and minimizing the financial losses created by COVID-19, the emphasis on individual wRVU productivity will remain prominent. While the pandemic itself has had a sizable impact on patient volumes and physician productivity, the Centers for Medicare and Medicaid Services’ (CMS) proposed changes to the Evaluation & Management wRVU values loom large as organizations look ahead to 2021. These adjustments include an increase in wRVUs for most office-visit E&M codes due to added responsibilities physicians have absorbed over the last five years. As a result of the overall projected increased in wRVUs, a 10.6% reduction in the conversion factor was required in order to maintain budget neutrality. The proposed increase in wRVU values ranges from 28%-46% for established office visits, which will have a significant impact on compensation plans that use wRVUs as a determinant of compensation.

Considerations for 2020 and Beyond

Although COVID-19 has sharpened industry focus on supporting financial sustainability, other market dynamics and the timing of anticipated financial recovery are also influencing the way hospitals and health systems are approaching physician compensation in both the short and long-term.

“Considering the implications of COVID-19 in 2020 and the impending impact of wRVU changes in 2021, the 2020 survey benchmark data represents the best data reference point for use in the near future. With appropriate context, it can serve as a foundation for understanding specialty market positioning leading into COVID-19, identifying recruitment and retention risks, and pinpointing areas of focus for targeted compensation adjustments as your organization moves forward with 2021 planning,” said Dave Hesselink, Principal, SullivanCotter.

There are a number of important physician compensation considerations for organizations to assess as they continue to navigate the new normal:

  • Be mindful of how to appropriately use 2020 survey data. Understand the timing of the data and consider what you are trying to assess before using it. It can be helpful in benchmarking the competitiveness of compensation program elements and incentive opportunities.
  • Develop an approach to physician compensation now in response to CMS’ proposed wRVU changes. Organizations should be proactive in assessing how these changes will impact payer reimbursement and physician compensation programs.
  • With continued uncertainty regarding the impact of the pandemic in FY2021 and beyond, be prepared for new pandemic-related challenges to patient revenues and physician compensation. Organizations would be well-advised to have a plan developed in advance of any new restrictions on elective and non-emergent care to mitigate additional financial losses.

For more information on SullivanCotter’s surveys or the upcoming Evaluation and Management wRVU value changes, please visit our website at www.sullivancotter.com, email us or contact us by phone at 888.739.7039.

About SullivanCotter

SullivanCotter partners with health care and other not-for-profit organizations to understand what drives performance and improve outcomes through the development and implementation of integrated workforce strategies. Using our time-tested methodologies and industry-leading research and information, we provide data-driven insights, expertise, data and technology products to help organizations align business strategy and performance objectives – enabling our clients to deliver on their mission, vision and values.


READ ON NEWSDIRECT


PRESS RELEASE | Results from SullivanCotter's Annual Health Care Executive Compensation Survey

Offering insight into pandemic-related pay actions and considerations for 2020 and beyond as health care organizations plan for what lies ahead

November 5, 2020 – ChicagoSullivanCotter, the nation’s leading independent consulting firm in the assessment and development of total rewards programs, workforce solutions, and technology and data products for the health care industry and not-for-profit sector, recently released results from its 2020 Manager and Executive Compensation in Hospitals and Health Systems Survey which is now in its 28th year. This year’s results include information from more than 2,300 organizations. More importantly, the survey contains the last set of benchmark data compiled prior to the onset of COVID-19 and provides important pre-pandemic reference points for assessing executive compensation programs.

“While pay actions are being impacted by the pandemic, the foundational structure of executive compensation programs has generally remained unchanged. The 2020 survey data can be used to assess the competitiveness of base salaries, the level of incentive opportunities and other program design considerations. In light of the impact of the pandemic on business operations, now is an appropriate time to evaluate the broader implications of COVID-19 on your talent strategy, compensation philosophy and program design to ensure they reflect your organization’s new priorities,” said Tom Pavlik, Managing Principal, SullivanCotter.

Executive Base Salaries in 2020

In recent years, executive salaries were trending upward due to the focus on recruitment and retention of key leadership talent and an increasingly complex health care market. When comparing data reported by organizations that participated in SullivanCotter’s survey in both 2019 and 2020, median base salaries going into 2020 increased at a rate of 3.4% to 5.6% for the most senior executives of independent health systems (Vice Presidents, Senior Vice Presidents, CFOs, COOs and CEOs) as opposed to 0.8% to 4.1% for those executive positions at system-owned hospitals.

However, due to the financial impact of COVID-19, many organizations have implemented temporary executive base salary reductions. According to SullivanCotter’s COVID-19 Executive and Employee Compensation Practices Survey series, which was conducted between April 2020 and August 2020 to provide insight into the current practices of more than 100 large health systems, only 14% of organizations were considering or had implemented executive base salary reductions as of April. By May, this number had risen to 31%. Through August, implemented salary reductions reached 45%. However, of this 45%, nearly half had already reinstated the pre-pandemic salaries with the remainder expected to do so by the end of the year.

Executive Base Salary Increase Budgets

An analysis of the survey data indicates that, prior to COVID-19, median salary increase budgets for health care executives were expected to remain consistent with recent years at 2.7% for independent health system executives and 3.0% for system-owned hospital executives. The pandemic has impacted the financial condition of many organizations and is moderating salary increase plans for FY2021.

According to SullivanCotter’s proprietary COVID-19 research, about 40% of organizations had determined their FY2021 executive salary increase budgets by mid-August. The preliminary median executive salary increase budget is 2.5%, with 15% planning to freeze executive salaries. The other 60% of organizations had not yet determined their salary increase budget, and 20%-25% are delaying the timing of these increases. These figures may change over time as financial performance will impact the ability to fully fund planned budgets, and it is anticipated that more organizations may consider executive salary freezes for FY2021.

Executive Annual Incentive Plans

Executive annual incentive plans (AIPs) are still the norm as organizations are increasingly focused on system-wide alignment and pay-for-performance. Prior to COVID-19, 89% of independent health systems and 67% of system-owned hospitals utilized AIPs with award opportunities varying by health system size based on net revenue.

According to SullivanCotter’s research, however, COVID-19 has had a significant impact on executive incentive plans for FY2020. As of mid-August, more than half of the participating organizations had implemented or were still considering changes to FY2020 plans. While one-third did not yet know how they will handle their FY2020 annual incentive payouts, approximately 20% are eliminating or considering eliminating payouts, nearly 30% expect to pay below target, and only about 20% expect to pay at target or above.

Considerations for 2020 and Beyond

As hospitals and health systems plan for what lies ahead and look to support financial sustainability and mitigate risk, organizations should consider both market practices and their individual financial circumstances when determining their executive compensation and workforce-related actions moving forward.

“SullivanCotter’s 2020 survey reflects the most recent normative year prior to COVID-19. Due to the current pandemic and the extremely dynamic environment, the survey data should be used thoughtfully, with appropriate context, and with sound business judgement as you are planning and considering your pay decisions for FY2020 and beyond,” said Bruce Greenblatt, Managing Principal, SullivanCotter.

There are a number of important executive compensation considerations for organizations to consider as they move forward:

  • Be mindful of how to appropriately use 2020 survey data. Understand the timing of the data and consider what you are trying to assess before using them. The data can be helpful in benchmarking the competitiveness of compensation program elements and award opportunities.
  • Rely on sound business judgement and discretion when evaluating base salary actions and incentives for FY2020.
  • Plan to revisit incentive performance goals for FY2021 to ensure they are tailored to the current environment.
  • Assess the broader impact of COVID-19 on executive talent strategy and review the compensation philosophy and program design.
  • With continued uncertainty in FY2021 and beyond, remain mindful of the environment and be flexible.

For more information on SullivanCotter’s surveys, please visit our website at www.sullivancotter.com, email us or contact us by phone at 888.739.7039.

About SullivanCotter

SullivanCotter partners with health care and other not-for-profit organizations to understand what drives performance and improve outcomes through the development and implementation of integrated workforce strategies. Using our time-tested methodologies and industry-leading research and information, we provide data-driven insights, expertise, data and technology products to help organizations align business strategy and performance objectives – enabling our clients to deliver on their mission, vision and values.


READ ON NEWSDIRECT


Optimizing Care Delivery in Response to COVID-19

Supporting system-wide alignment in an evolving health care environment

DOWNLOAD ARTICLE


Health systems nationwide continue to face a number of unprecedented challenges due to the evolving COVID-19 pandemic. Supporting financial sustainability remains a top priority. As the industry looks ahead and makes plans for financial recovery and operational transformation, optimizing care delivery to improve efficiency, drive workforce performance and increase revenue is a critical step in this process.

Care delivery optimization between systems and their affiliated hospitals, integrated practices, and physician and advanced practice provider (APP) workforces can promote financial sustainability by identifying gaps in care delivery, improving operational efficiency, reducing clinical variation, and expanding capacity for important growth initiatives. To help accomplish this, there are five key areas that health care organizations should focus on as they look to position themselves to deliver the greatest possible value.

SullivanCotter recommends a thoughtful and strategic review of the following areas:

Physician/APP-Hospital Alignment

Aligning operations, goals and results across the organization is key to building a workforce that is unified and supports organizational strategy. To enhance care delivery optimization, organizations should:

  • Assess current physician affiliation relationships, including pending and/or potential mergers and acquisitions and consider:
    • Updating due diligence assessments in the context of COVID-19 to include financial analysis and review of agreements
    • Reviewing key characteristics of existing compensation arrangements and performance requirements to conduct best practice comparisons by affiliation model/relationship and assure incentives are aligned between the models
  • Evaluate current and projected physician and APP staffing requirements and care team development to address community need, integrated practice and service line needs
  • Review current and potential Service Line Co-Management or HEIP (Hospital Efficiency Improvement Plan) arrangements to ensure the metrics are still aligned with system goals
  • Assess physician involvement in the decision-making process, including medical group and service line governance structure
  • Consider clinical workforce culture and perceptions related to strategic objectives while also identifying opportunities for improvement

Medical Group Operational and Financial Performance

Evaluating a medical group’s overall performance against a variety of operational and financial metrics will help identify actionable areas for improvement.

  • Assess key medical group and/or specialty-level operational and financial performance indicators
    • Review and update productivity thresholds and benchmarks, revenue, expenses and overall financial performance, staffing ratios, measured outcomes, patient capacity and clinic throughput
    • Evaluate performance indicators shared with physicians and APPs and ensure systems are in place to provide transparent and timely information on performance relative to benchmarks, service line and system strategic goals
    • Consider primary care model redesign and develop financial feasibility pro forma based on volume expectations and clinical regulations
    • Focus on care delivery models designed to achieve optimal financial performance with a patient-centric focus (e.g., improves satisfaction, APPs practice at top-of-license, yields appropriate return on investment)
  • Perform workflow assessment at the service line and practice levels to evaluate patient access and throughput, including the utilization of telehealth and remote services

Specialty and Service Line Care Delivery

Once the medical group’s overall performance has been assessed and specific underperforming specialties have been identified, it is important to do a deep dive into specialty and service line performance. Assessing clinical workforce performance is imperative as organizations look to increase the focus on value-based outcomes associated with quality and cost.

  • Evaluate unwarranted care variation and cost-efficiency opportunities
  • Develop strategies to reduce length of stay variance, readmission and value-based care penalties
  • Perform service line and facility-based workforce planning and staffing efficiency assessments
  • Identify appropriate benchmarks related to cost of care against internal and external cohorts
  • Review physician referral processes to help project actual and expected volumes

Readiness for Value-Based Care

Successfully navigating the transition from volume to value relies largely on enhancing patient access. Care model designs that do not support this goal will likely result in stagnant market share or loss of patients.

  • Conduct a physician needs assessment, demographic map and strategic plan to match service needs within market segments based on expected changes
  • Perform analysis of telehealth capacity, financial return on investment and regulatory requirements
  • Assess clinic space, including waiting room access and throughput in light of COVID restrictions

APP Utilization

APPs are one of the fastest growing segments of the health care workforce. Integrating APPs as key members of the care delivery team and utilizing them to their full potential can help an organization to achieve a number of important goals – including improved patient access, increased revenue, and enhanced quality and service while also reducing the cost of care.

  • Perform a current-state analysis by comparing APP utilization and productivity to market benchmarks based on specialty and role:
    • Quantify the financial opportunity available with a fully optimized APP workforce
    • Conduct a readiness assessment to determine barriers and cultural considerations related to full APP optimization
    • Identify specific specialties or service lines with the most opportunity (financial or non-financial) and readiness for change
  • Review and update APP organizational practices:
    • Assess governance structures, recruitment and retention policies, and training and development programs
    • Align organizational bylaws, policies, practices and operations to federal and state laws, payer policies and procedures, and leading market practices

Conclusion

The process of evaluating these five focus areas will help to highlight and quantify opportunities for improving patient access, enhancing organizational efficiency, increasing revenue and reducing costs as health systems plan for what lies ahead. For each area of focus, SullivanCotter recommends developing an in-depth assessment, utilizing operational and financial expertise and incorporating comparative benchmark data analysis to define potential solutions unique to the requirements of each system to help optimize clinical performance and achieve key organizational goals.

 

Leveraging data-driven insights and over 25 years of experience, SullivanCotter partners with organizations to develop comprehensive care delivery optimization strategies tailored to the unique needs of each client.


Implementing a Job Architecture

Getting the Most from Your Human Capital Management System

DOWNLOAD ARTICLE


A Time of Transformation

Due to the evolving COVID-19 pandemic, hospitals and health systems nationwide continue to navigate a number of financial and workforce challenges. As organizations make plans for financial recovery and operational transformation, there is no doubt that the health care industry is in the midst of significant change. At present, there are many views on the form this transformation may take. Recent news articles and interviews with health system executives suggest a myriad of approaches are likely to be taken during such an unprecedented time:

  • Reducing and/or reallocating certain resources to optimize the workforce
  • Streamlining management structures
  • Accelerating mergers and acquisitions
  • Restructuring/centralizing administrative and patient care services to facilitate innovation and deployment
  • Standardizing processes to more clearly define roles and responsibilities
  • Diversifying health systems through continued entry into adjacent enterprises such as health plans and technology solutions
  • Reimagining and accelerating the delivery of care in ambulatory settings and virtually
  • Broadening skill sets to facilitate flexible deployment and re-deployment of certain workforces in times of change and/or crisis

Although this journey will look different depending on the unique needs and circumstances of individual organizations, change is well underway. Though the health care industry has been evolving for a number of years, COVID-19 has made the need for transformation more urgent and, in some cases, greatly affected the trajectory of the transformation.

Technology and Transformation

To facilitate transformation, many health care organizations are beginning to migrate from on-premise Enterprise Resource Planning (ERP) and Human Capital Management (HCM) systems to cloud-based platforms from organizations such as Workday, SAP, and Oracle/PeopleSoft.1

While the transition has been slow, the need for greater workforce optimization and enhanced processes along with the growing obsolescence of on-premise systems triggered this migration. Organizations making the investment in a cloud-based system report that they are looking to:2

  • Enhance critical workforce insights through real-time reporting and analytics to facilitate workforce optimization
  • Improve administrative processes and implement best practices to allow functions such as finance, supply chain management and human resources to be more strategic
  • Align operations around a single system – eliminating a number of disparate applications
  • Streamline transactions as it relates to mergers, acquisitions and organizational restructuring
  • Integrate a variety of information sources to enhance data integrity
  • Secure best-in-class manager and employee self-service capabilities
  • Support compliance and mitigate risk
  • Reduce variability of practices across the organization

At a time when hospitals and health systems are looking to restructure, diversify and transform, it may seem counterintuitive to suggest that ERP and HCM systems will be a key part of an organization’s transformation strategy. However, David Chou, a prominent health care technology executive and consultant, indicates that “healthcare provider institutions must begin aggressive ERP initiatives” going into 2021 if they want to remain competitive.3 He notes that many on-premise systems are being sunset as the need to enhance the efficiency of administrative processes is long overdue. Health care organizations have only two choices – carry on with costly and inefficient processes or finally make the investment in ERP and HCM technology to optimize and align operations.

For those who play a critical role in managing the health care workforce, the most important component of an ERP system is its HCM module. An HCM system is essentially a database and group of applications that helps to facilitate the management of an organization’s workforce. This often includes compensation, recruitment, learning and development, performance management and payroll functionality. It can either stand alone or be implemented as part of a broader ERP system.

Implementing a Human Capital Management System

Unfortunately, surveys indicate that nearly half of ERP projects fail to achieve the desired outcomes or run over budget and past deadline.4 While there are a number of reasons for these implementation challenges – the most prominent one is that many organizations are simply not ready or properly prepared.

A successful implementation requires much more than just the technology. Critical to the process is a need for well-defined goals, strong commitment from management and other key stakeholders, depth and breadth of expertise on the project team, open communication and the dedication to instill change.

Also very important, but often overlooked, is the need to have clearly defined processes and structures prior to implementation. Foremost, there is little value in implementing structures and processes that are not fully aligned with an organization’s strategy. Additionally, with the tight timeframes often set by organizations and their deployment partners, there is usually little choice but to do what is known as a “lift and shift”. This refers to organizations utilizing their current processes and simply reimplementing those practices into the new technology platform.

This poses a unique challenge for health systems as few organizations begin the deployment with best practices in place. In fact, many utilize a number of disparate processes, structures and tools to manage human capital. So not only have they failed to implement best practices, they currently have few system-wide practices in place.

A comprehensive review of SullivanCotter’s Workforce Insights360™ database, which contains related information from nearly 40 contributing hospitals and health systems, shows that:

  • Approximately 25% of organizations have more than 1,900 job titles and have just 5 employees per job title – this number is even less if you exclude nursing and service line jobs.
  • From CEO to first line supervisor, the median number of organizational levels is 8. The median number of management job levels is 15 – which includes almost 2 management job levels per organizational level.
  • Moreover, 25% of organizations have 20 or more job levels from CEO to supervisor. This level of granularity explains why many organizations have difficulty differentiating management titles and far exceeds the one-to-one relationship between job titles and organizational levels common in other industries.
  • In regards to reporting relationships and the restructuring around functional lines, only about 60% of human resources and finance employees report up through the CHRO or CFO hierarchy. For a quarter of the organizations, this number was less than 50%. This suggests that health care organizations remain largely decentralized when it comes to support functions.

While an HCM system can be implemented without aligning important processes and structures, failure to do so prior to or in conjunction with HCM system deployment often leads to sub-optimal outcomes. Not only is the organization failing to secure the type of transformational change that was likely an important reason for the initial investment in a cloud-based HCM system, but the functionality they are getting as a result is often sub-optimal.

Although highly recommended as an important best practice, it may not be feasible for some organizations implementing an HCM system to have all their processes and structures harmonized and defined at the outset. The implementation of an HCM system is a journey that provides the ability to strengthen and refine current processes and structures or develop new ones.

However, there is one area that all organizations should prioritize – their job architectures.

The Importance of a Job Architecture

Job architecture refers to an organization’s framework for defining and cataloging jobs – the output of which is its library of jobs.

For many HCM systems, the job architecture and database are the hub around which critical functionality is built.

Studies show that 75% of organizations that have implemented a new cloud-based HCM system have also developed a new job architecture before, during or after deployment.5 This not only reinforces how critical a well-defined job architecture is to this process, but also highlights the fact that most organizations do not already have the appropriate structures in place to maximize value from the deployment of a new HCM system.

How an organization defines the job architecture influences how many jobs it has and how the roles are defined. It will affect what type of reporting and analytics are available and how workforce data is accessed by executives, managers and employees. It will also impact how human resources programs are designed or can be deployed. The structure of this database and its content are critical to optimizing the functionality of an HCM system.

The table below reflects the type of information frequently housed in this database and its linkage to important human resources processes:

To optimize the deployment and eventual utilization of the job catalog within a cloud-based HCM system, organizations must consider the following:

1. Cloud-based HCM systems are configurable – not customizable

Hospitals and health systems coming from an on-premise environment are accustomed to doing just about anything they want. When developing new attributes, for instance, they often write elaborate scripts to create custom workarounds. Cloud-based platforms are not intended to work this way, however. They are built upon best practices that the technology provider applies to all users and work best when one understands their parameters and builds their job architecture and job content around those parameters.

2. Manager and employee self-service requires consistency and ease-of-use

Several HCM systems highlight manager and employee self-service as a cornerstone in their value proposition. This creates a challenge for organizations that lack transparency in their job architecture and compensation programs.

If these self-service capabilities are enabled:

  • A simple and intuitive organizing principle must be developed so managers and employees can search, query and request reports
  • Inconsistencies should be resolved to eliminate any potential confusion and enhance the usability of the information
  • Content must be widely available and regularly maintained to allow managers and employees to make appropriate decisions within a self-service environment

Organizations implementing a cloud-based HCM system with manager and employee self-service capabilities would be wise to resolve all of these challenges before going live to help ensure the organization can “hit the ground running.”

Timing

If a redesign of an organization’s job architecture is required, it is best to do so before undertaking the HCM system deployment. However, if that is not feasible, developing a new job architecture concurrent with the implementation work is possible and can be done without negatively impacting the implementation schedule.

Organizations that decide to do this should consider the following:

  1. Build your project plan around the milestone dates provided by your deployment partner. These are generally nonnegotiable as the deployment costs are based on meeting these deadlines and any work needs to be completed within this timeframe.
  2. Consider adopting an established job framework. This will help to ensure alignment with the market, reduce the time required to develop the job architecture, and decrease the burden on the human resources team.
  3. Prioritize the work and focus only on what is necessary to accomplish before going live.

For organizations that have already implemented a new HCM system and are seeing the consequences of not having harmonized or rationalized job structures, it can be difficult to know when to do the work. There may be fatigue from having recently gone through a large HCM system implementation or unease regarding additional change. Both are reasonable concerns. If significant change is not possible, organizations may consider modifying the attributes used to organize jobs in the HCM system rather than completely restructuring the job framework and compensation systems. While more significant action may be necessary in the long-term, small or modest changes in the structure of the job catalog can enhance value and functionality.

Conclusion

While some organizations may decide to implement a new cloud-based HCM system simply because they are phasing out their current platforms, most who embark on this journey are looking to secure greater insights in order to optimize their workforces, improve critical support functions and enhance organizational efficiency. Ensuring that best practices, effective internal structures, and technology-enabled processes are in place is the surest path to success.


1As Healthcare Turns to ERP, It Also Turns to the Cloud, Brian Eastwood, HealthTech, November 9, 2018.
2Getting the Most from Workday: It’s Not Just About Configuration. Darrell Cira and Susan Lokker, WorldatWork Training Course, October 2017.
3Don’t Sleep. Healthcare CIOs Must Step Into 2021 Now. David Chou, Forbes, May 21, 2020.
4ERP Software: Facts and Stats, Elizabeth Quirk, ERP Solutions Review, April 18, 2019.
5Hidden Challenges of Implementing a New HRIS on the Total Rewards Function. Darrell Cira, Rob Heir, Patrick Bostrom, Steven Seykora, Presentation at WorldatWork National Conference, May, 2015.


ON-DEMAND WEBINAR | COVID-19: Impact on Physician and APP Workforce Strategies

Positioning Your Organizations for Success in the New Normal

View an on-demand record of this exclusive webinar hosted by the Health Forum/American Hospital Association - featuring data, insights and industry experts from SullivanCotter.

VIEW THE RECORDING


The impact of the pandemic has accelerated the need for strategic alignment between health systems and their employed and affiliated physicians and advanced practice providers (APPs).

As the industry begins to look ahead and plan for financial recovery and operational transformation, executive leadership should take this time to reassess their organization’s alignment strategies and affiliation models in order to identify key workforce and care delivery optimization opportunities.

Working in partnership with physicians and APPs, organizational leaders are evaluating ways to best position themselves to manage anticipated increases in volume, navigate the transition to value-based reimbursement, and support long-term financial sustainability.

During this webinar, industry experts from SullivanCotter will discuss:

  • Physician and APP alignment strategies during and beyond the COVID-19 pandemic
  • Key components for enhancing strategic alignment between physicians, APPs and health systems
  • Leading practices in physician needs assessments and key considerations for primary care team optimization
  • Emerging trends in physician and APP compensation
  • The utilization of physician feedback and emerging performance management tools to aid in the development of core performance expectation and incentive plan metrics


Case Study | Optimal Use of APPs Can Help to Enhance Post-COVID-19 Financial Recovery

Featured in the July edition of hfm Magazine

As hospitals and health systems plan for post-COVID-19 recovery and operational transformation, the focus on optimizing care delivery, lowering expenses and increasing revenue to ensure financial sustainability will be critical.

Enhancing the use of existing clinical resources can help to support these goals. As part of this effort, leaders should make it a priority to reassess the role of advanced practice providers (APPs) given their extensive training, broad skill sets and ability to adapt to different practice settings.

In their work with SullivanCotter, learn how Excela Health's efforts to optimize their APP workforce yielded millions in financial opportunity - proving valuable during their COVID-19 response and recovery plan.

READ FULL ARTICLE


INFOGRAPHIC | Redeploying CRNAs During COVID-19

Helping to meet critical patient needs

Are you considering the redeployment of CRNAs during the COVID-19 pandemic?

Organizations need an intentional and thoughtful strategy for CRNA placement and utilization.


As the COVID-19 pandemic continues to evolve, health care leaders nationwide are looking for better ways to address surging patient volumes. Certified Registered Nurse Anesthetists (CRNAs), with experience in rapid systems assessment, airway management, fluid resuscitation and general anesthesia delivery, have proven to be a valuable resource in providing critical care to the influx of COVID-19 patients.

Redeploying CRNAs outside of traditional operating room roles can equip organizations with a much-needed critical care workforce to help manage growing patient volumes and support innovative care delivery.

DOWNLOAD INFOGRAPHIC


INFOGRAPHIC | Tools for Redeploying Advanced Practice Providers During COVID-19

Many health care organizations have redeployed advanced practice providers during COVID 19 to meet evolving patient needs.

Considering both the short and long-term elements of this strategy can help to ensure success.


Redefining the care delivery team is critical to meeting important patient needs in a rapidly changing health care environment. Advanced practice providers (APPs) can be a valuable resource in helping to accomplish this given their extensive training, broad skill set, and ability to adapt to different practice settings.

Redeploying APPs can be an effective way to manage growing patient volumes, maintain financial stability and support emerging care delivery models such as telemedicine.

DOWNLOAD INFOGRAPHIC


WEBINAR RECORDING | Physician Enterprises After COVID-19: Capturing and Assessing Opportunities

Hosted by McDermott Will & Emery

VIEW RECORDING


Physician enterprises will face lasting changes to their operations following the coronavirus (COVID-19) public health emergency. Transactional opportunities have also shifted, and physician enterprises and their counterparts have new factors to consider when assessing and pursuing collaborations and other transactions in a post-COVID-19 world.

Led by McDermott Will & Emery, SullivanCotter's Kyle Tormoehlen, Principal, and other strategic health care consultants joined leaders from hospital and health system physician groups and private equity-backed physician groups to highlight how physician enterprises can position themselves for success in the new healthcare landscape.

This webinar includes a discussion of:

  • How has COVID-19 changed the healthcare and investing landscape?
  • How can physician practices shift their means of care delivery, including telehealth solutions, now and after COVID-19?
  • How have operational challenges impacted physician practice valuations?
  • What transactional opportunities have arisen from the public health emergency?
  • How can physician enterprises and their counterparts execute successful strategic collaborations?

Modern Healthcare | 2020: Annual Executive Compensation Article

SullivanCotter helps to examine how health care organizations are adapting their executive compensation practices in response to COVID-19

As costs surge and revenue declines for health care organizations amidst the COVID-19 pandemic, many are re-evaluating their executive compensation programs as they focus on organization-wide equity, recovery and what lies ahead in such an uncertain environment.

Featured in an August 2020 edition of Modern Healthcare, SullivanCotter's Bruce Greenblatt and Tom Pavlik share data from SullivanCotter's recent COVID-19 research and highlight some of the key executive compensation changes being implemented or considered in response. This includes actions on base salaries, adjustments to current year incentives to account for the impact of the pandemic, and adjustments to future compensation programs and talent strategies to incorporate recovery considerations and ongoing uncertainty.

In order to focus on the need for financial sustainability, cost efficiencies and revenue growth, all of which have been accelerated by COVID-19, organizations should adopt a more flexible and fluid approach as they move into 2021 and beyond.

READ FULL ARTICLE


PODCAST | Impact of COVID-19 on Physician and APP Compensation Practices

BESLER | The Hospital Finance Podcast®

LISTEN TO PODCAST

Zach Hartsell, Principal, discusses some of the results from SullivanCotter's 2020 COVID-19 Physician and Advanced Practice Provider Compensation Practices Survey on the July 29, 2020 episode of the The Hospital Finance Podcast® with BESLER.

Highlights of this episode include:

  • Background on SullivanCotter's COVID-19 survey series
  • How organizations are handling furloughs and layoffs during the pandemic
  • How cash compensation and benefits have been affected by the pandemic
  • What are organizations looking at in terms of salary protections and incentive compensation for physicians?
  • Some trends around redeployment and premium compensation for advanced practice providers

TRANSCRIPT

 

Mike Passanante: Hi, this is Mike Passanante and welcome back to the award-winning Hospital Finance Podcast®. Consulting firm SullivanCotter recently released survey results indicating that organizations are anticipating changes to physician non-productivity-based incentives in 2020. To discuss the study results, I’m joined by Zachary Hartsell, a principal at SullivanCotter. Zachary, welcome to the show.

Zachary: Michael, glad to be here. Thank you for inviting me.

Mike: Today we’ll be talking about the results of SullivanCotter’s COVID-19 Physician and Advanced Practice Provider Compensation Practices survey series. What were you looking at, specifically, in this survey? And who did you survey?

Zachary: Well, happy to discuss it, Michael. SullivanCotter has actually conducted two surveys on this topic, one in April and one in May. We conducted these survey to provide insight to our clients and to the market as to how organizations were responding to the pandemic from a workforce and total rewards perspective. Both surveys had over 100 participants, and we saw a 70% repeat in participation from the first to the second survey. Participating organizations had annual net revenue ranging anywhere from 400 million to 28 billion -  representing many of the largest integrated, academic and pediatric hospitals and health systems in the country. The goal of the survey was to understand the changes that occurred or are being considered as it relates to physician and APP compensation practices. When we think about compensation, we think not only about cash compensation, but things like incentives, premium pay, and benefits. We also wanted to understand what kind of compensation plan changes organizations were considering as a result of the different workflows in response to the pandemic, such as redeployments, closed clinics, etc.

Mike: Got it. So let’s dig into something you just said there. What are you finding organizations are doing in terms of furloughs and layoffs at this point?

Zachary: Great question, Michael, and something that we often get. Contrary to the attention-grabbing headlines, most organizations are not furloughing or laying off their employed physicians or advanced practice providers. In fact, less than 10% of survey respondents had implemented layoffs or furloughs. What we’re seeing in place of that is nearly half of the organizations are instead reducing physician and/or APP compensation or considering changes to benefit programs like retirement plans, CME, etc. For the minority of organizations who have looked at furloughs or layoffs, the consistent trend we are seeing is that organizations are focusing more on temporary furloughs rather than layoffs, which seem a little more permanent. Additionally, these changes are impacting the staff physicians and APPs more than they are the APP or physician leaders. When we look at organizations that have implemented furloughs, on average, the duration lasts anywhere from about three to four weeks. I will say, though, since our survey release, through conversations with our clients and media reports, we are seeing an uptick in the need to have, in some markets, more workforce actions like furloughs and layoffs due to the continued financial strain and the lack of patient volumes. But this really varies market by market and organization by organization. In our experience, it seems to be in part due to the pre-COVID financial health of the organization. I think this will be really important to monitor in the coming weeks and months, as we hit additional surges and/or volumes don’t return as projected. And if that were to happen, we could see an increase in the prevalence of furloughs and layoffs. Whereas if volumes return greater than expected, we are going to see more returning to work and even potentially new hiring.

Mike: That would be optimal. Zachary, how have you found cash compensation and benefits? How have they been affected?

Zachary: We’ve been seeing changes in the way organizations are handling compensation of their APPs and physicians as a result of COVID. But it’s not just the COVID pandemic, it’s also the economic fallout from that. And again, like with furloughs and layoffs, these changes are occurring with a lot of variability and are really dependent on the degree of disruption the organization has experienced and the pre-COVID financial health of the organization. Now, within this, we have seen some things that we expect, and we’ve seen some surprises. For example, one surprise was that we have not seen a lot of premium pay for physicians or APPs working in frontline areas with only 10% of organizations reporting that they’ve considered or have implemented premium pay compensation. This was something that we were expecting a lot more of. Compensation protection for physicians were expected, and we see them present. As of May, about half the organizations implemented or were considering temporary compensation floors - and this is for the non-frontline physicians. This is understandable given the continued loss of volume and the loss of patient revenue. Interestingly, though, while half of the organizations were protecting physician compensation, this number actually decreased from the April survey by about 10% - indicating that some organizations that may have offered initial protections had lifted those protections. Benefits are another area where we are seeing organizations making changes. In our May survey, about 35% had implemented or were considering changes to benefit programs such as reducing or eliminating retirement plan contributions, reducing or eliminating CME funds or time off, or reducing PTO time.

Mike: Zachary, let’s talk specifically about physicians for a moment. What are organizations looking at in terms of salary protections and incentive compensation for them?

Zachary: As I mentioned above, it really is dependent on whether they were frontline providers– and I mean ED, critical care, hospital medicine, or non-frontline. As we said, for frontline providers, we saw very little in the way of premium compensation. For the organizations that did use a premium, we have seen a bit of an interesting shift. Initially, those were all applied as a percentage increase to the shift rate. But as financial situations have evolved, the structure of those premium payments has changed to a one-time stipend or bonus. We talked about non-frontline physicians and about half of organizations having cash compensation protection for physicians experiencing a loss of shifts or productivity as a result of the decrease in elective procedures or non-emergent visits. When you break down the detail and you look at the scope of the protection, about 40% of organizations were providing about 100% of historical cash compensation protection, about 40% were protecting between 75 and 90 percent of historical compensation, and anywhere from 5-15% were protecting somewhere in the neighborhood of 50-75% of historical compensation. So there was a significant amount of protection being offered. As organizations begin a slow recovery out of the COVID crisis and as people start to think about how they reconcile the health system financial sustainability, I think that these compensation protections are going to be more in the limelight. As we said, organizations are starting to lift them a bit and I think as protections linger on, or market conditions create the need for subsequent protections, we’ll likely see that the increase of organizations requiring repayment of these – currently it’s about 22%. But as this continues on, we may see more and more organizations requiring repayment. One last thing to talk about with physicians would be the incentive component. And when we talk about incentive, nearly 40% of organizations plan to modify physician incentive plans for the remainder of 2020. When we talk about incentives, though, in this context, we are specifically talking about non-productivity incentives - things such as value-based incentives or the system-wide incentives that physicians are eligible for, not the productivity incentives that we spoke about earlier. Additionally, about a quarter of organizations anticipate making future changes to the physician compensation plan as a result of the fallout from COVID-19.

Mike: Zachary, the work of many advanced practice providers was affected by COVID-19. Tell us about the trends you saw around redeployment and premium compensation for those providers.

Zachary: Well, as we discussed earlier, Michael, this is really interesting to me, being an advanced practice provider myself. I think that this has really been one of the "aha" moments organizations have experienced as a result of COVID - and that is the value that the flexibility of the APP workforce. For example, 71% of organizations have redeployed or plan to redeploy their non-frontline APPs into frontline specialties. And I’ll tell you anecdotally, that’s not just the ICU or hospital-based units. But it’s things like COVID screening clinics, telemedicine, infectious disease, and pulmonary medicine clinics. A critical consideration for organizations looking to redeploy their APPs is ensuring that they’re redeploying the APPs with the right skill set. This is incredibly important and can’t really be overlooked. This is often best accomplished through performing an organization-wide skill inventory of your APPs. Other important considerations when thinking about redeployment include clarifying emergency credentialing policies, reviewing staffing plans, and providing training for new care delivery and documentation requirements. On the compensation side, about half the organizations have made reductions to cash compensation with the average reduction of approximately about 10%. While APP incentive programs are not as common as with physicians, in our survey, about two-thirds did say that they have incentive plans. This is higher than what we typically see. Our May survey indicated that about a quarter of them were modifying their incentive plans. When we break down the data, that was fairly evenly split between modifying the plan, reducing the plan, or eliminating the incentive opportunity altogether. I think what we’re starting to see now is organizations thinking about the future. In our May survey, about 15% of organizations anticipated making changes to future APP compensation, as a result of COVID-19, with another 47% unsure. As the pandemic continues and as there is more clarity around the financial situation post-pandemic, I suspect we’ll have more organizations making decisions about whether they will be making future changes to APP compensation.

Mike: Do you have any recommendations for organizations that are revisiting their compensation packages for physicians and APPs as a result of the pandemic?

Zachary: This really may be a crossroads for physician and APP compensation as COVID-19 will serve as a referendum on the traditional compensation programs. We imagine that there will be organizations who will use this disruption to escalate the movement away from productivity-based compensation to more performance-based compensation. I’ll tell you, though - there will be other organizations that will see this as an opportunity to double down on productivity in order to try to see a quick financial recovery. I think for all organizations the overall question is, “Can you afford to return to the old model? Or is this time of disruption a chance to reset using a different formula?” I think the challenge that most organizations will face is how to make these long-term decisions when there are still so many unanswered questions. "How long will the COVID disruptions last? What’s going to happen to telehealth and the payments? What impact will the rise of the uninsured be on organizational finances?" And something else that has not been discussed as much but will have a big impact is the impending CPT coding changes and how these changes will impact organizational finances and physician compensation in the future. As healthcare organizations attempt to plan for these uncertainties, there’s going to be a need for more efficient operating models. I think there’ll be some right-sizing of cost structures and the reassessment of organizational processes and structures to become a little more clear. I think organizations should be thinking about taking inventory as, “Do you have a clear and consistent base performance and work expectations for all of your physicians and APPs? Do you have physicians and APPs working at the top of their license and training and aligned with desired outcomes like patient access, throughput, and quality? Do you have a compensation philosophy and a model for physicians and APP that is aligned with organizational goals, that is equitable, externally competitive, efficient, and easy to administer?" And most importantly, "Is it understandable to the physicians and APPs?" A clear compensation strategy that is paired with a clearly-defined performance and clinical work expectations are the critical components that leaders can utilize to hold the clinicians accountable, differentiate performance, and in turn, compensation in the future. As the COVID-19 pandemic continues to evolve, we will continue to monitor the market and provide updates to the trends we shared here today. I think these trends are important to keep an eye on and for organizations to consider while they’re analyzing their own compensation plans and financial positions.

Mike: Zachary, if someone wanted to read more about the study results, where can they go?

Zachary: Go to www.sullivancotter.com and look under our resources page. You can also follow SullivanCotter on LinkedIn, where we regularly post compensation trends and insights related to COVID-19 and physician and APP compensation. Finally, I’m happy to answer any specific questions at zacharyhartsell@sullivancotter.com.

Mike: Zachary Hartsell, thanks so much for stopping by today and talking with us on the Hospital Finance Podcast.

Zachary: Thank you again, Michael. I appreciate the invite.


Modern Healthcare |
Pandemic May Pound Lopsided Physician Pay Model Into Shape

Will pandemic-driven changes to physician compensation affect pay programs in the long-term?

In the early days of the COVID-19 pandemic, health care organizations were faced with a number of unprecedented challenges as in-person visits were delayed and elective surgeries postponed. Many responded by having to implement pay cuts, furloughs and/or layoffs - and the physician workforce was not immune to these changes.

Featured in a July 2020 edition of Modern Healthcare, SullivanCotter helps to evaluate how these pandemic-driven changes to physician compensation programs may indeed be a sign of more significant long-term changes to come if the current surge in cases and situation continues. Despite consistent year over year increases in total compensation, according to SullivanCotter's Physician Compensation and Productivity Survey, organizations will now need to reassess physician pay models in light of recent events to help maintain operations and support future sustainability.

READ FULL ARTICLE


SullivanCotter Webinar Series | Care Team Optimization

Hospitals and health systems nationwide continue to face a number of urgent financial and workforce challenges amidst an evolving global pandemic.

As organizations look for ways to increase access and manage recovering patient volumes, transform operations and ensure financial stability, focusing on the optimization of the care delivery team is imperative.


Contact us at info@sullivancotter.com to request the recordings from any of the three sessions.

(*Please note that these webinars are intended for health care provider organizations only)

 

Session 1: Building the Business Case for APP Optimization

Wednesday, August 19 | 12:00pm-12:45pm CT

In order to effectively optimize the care delivery team, organizations must understand both the barriers and keys to success, effective affiliation models, readiness indicators and more. SullivanCotter will also highlight real examples that show significant increases in revenue opportunity and patient visits through enhanced APP utilization.

SESSION 2: Data-Driven Care Model Design and Implementation

Tuesday, August 25 | 1:30pm-2:15pm CT

Designing care models with intention to help support optimization is a critical next step. During this session, SullivanCotter's overview of this process will include insight into redesign opportunities, effective change management, implementation planning and expected outcomes. Case studies will showcase real results tied to increased revenue, productivity, access and engagement.

SESSION 3: Compensation Strategies to Reinforce Optimization

Wednesday, September 2 | 12:00pm-12:45pm CT

In order to ensure lasting change, optimization requires strategic compensation programs to help reinforce care models, achieve organizational goals and drive desired results. This session will address the evolution of APP and team-based compensation models as well as highlight important considerations moving forward. Case studies will focus on the team-based incentive plans for primary care and specialty services.


WEBINAR RECORDING | COVID-19: Managing Human Capital and Ensuring Sustainability

Hosted by the Health Forum/American Hospital Association

VIEW RECORDING


Hospitals and health care systems across the United States face significant financial and workforce challenges resulting from the COVID-19 pandemic. As this situation continues to evolve, organizations will need to review compensation-related practices across their workforce to identify modifications required to support changes in deployment and organizational sustainability while also ensuring the wellbeing of employees and patients.

In this webinar, you’ll learn how health care organizations are adjusting their compensation practices and human capital strategies in response to COVID-19. We will present data from recent SullivanCotter research highlighting the impact of COVID-19 on related practices for executives, physicians, advanced practice providers (APPs) and other health care employees. We will also share SullivanCotter’s interpretation regarding how the human capital landscape may change key components of talent management and total rewards after the crisis subsides.

This session includes a discussion of:

  • Emerging workforce compensation practices that organizations have implemented or are considering implementing to help address the financial and operational issues related to COVID-19
  • Specific practices for physicians and APPs, such as premium pay for those on the front lines, salary guarantees for other providers, paid time off (PTO), redeployment, extra shifts and more
  • Specific practices for executives and other employees, such as emergency PTO, premium pay, deferring salary increases or implementing temporary reductions, revisiting incentive plans to reflect current situation, re-evaluating retention incentives and more
  • How changes in the regulatory landscape have already impacted or may impact decision-making around compensation practices
  • What the post-COVID-19 human capital landscape may look like

WEBINAR RECORDING | How COVID-19 Has Changed the Utilization and Deployment of Advanced Practice Providers

Cutting Edge Issues and Trends in Health Care Fair Market Value

Webinar from the American Health Law Association which features SullivanCotter's Trish Anen discussing the impact of COVID-19 on advanced practice provider (APP) utilization, deployment and compensation strategies.

VIEW RECORDING


Length: 90 minutes
Level of Difficulty: Advanced
Price: $149

Description: Historically, physicians were the sole clinical provider for most patients across the country. Over the past few decades, the rise of nurse practitioners, nurse midwives, nurse anesthetists and physician assistants (Advanced Practice Providers or APPs) have expanded the concept of a clinical provider.

The COVID-19 pandemic has required health systems across the country to redeploy APPs in various ways and, as a result, many restrictions regarding APP practice have been waived.  This webinar focuses compensation strategies for these individuals and discussed the long term implications for the effective utilization of APPs.


WEBINAR RECORDING | Designing Transitional Compensation Models During the COVID-19 Pandemic

Cutting Edge Issues and Trends in Health Care Fair Market Value

Webinar from the American Health Law Association which features SullivanCotter's Kim Mobley discussing best practices for addressing COVID-19-related compensation for front line physicians.

VIEW RECORDING


Length: 90 minutes
Level of Difficulty: Advanced
Price: $149

Description: Recently, the government issued blanket Stark waivers and Anti-Kickback guidance related to COVID-19 physician arrangements. This new flexibility is welcome news to hospitals, health systems and other organizations that have been tackling challenging physician contracting, compensation and staffing issues during the COVID-19 pandemic.

In addition to discussing the blanket waivers, the webinar will explore developing best practices for addressing COVID-19 coverage for front-line employed physicians, redeployed employed physicians and physicians providing coverage under exclusive provider arrangements.  Speakers will discuss potential regulatory landmines and fair market value strategies and considerations.


Navigating the Uncertainty of COVID-19

Considerations for the Not-for-Profit Board Compensation Committee

READ FULL ARTICLE


The COVID-19 pandemic is impacting the not-for-profit sector in a myriad of ways. The crisis is placing an enormous strain on both financial and workforce resources by creating uncertainty on current/future revenue, employee safety and job security.

The Board Compensation Committee serves a critical governance role in organizational efforts to navigate uncertainty by advising management on talent risks, supporting a focus on the key success factors to survive and recover from this crisis, and ensuring that the executive compensation program reflects best market and governance practices.

In this article, SullivanCotter addresses some of the compensation-related issues these organizations are facing and provides a number of guiding principles for the Compensation Committee during this unprecedented time.


Practice Acquisition Strategy and COVID-19

Adjusting for the New Normal

DOWNLOAD FULL ARTICLE


Since the signing of the Affordable Care Act in 2010, independent physician practices have faced a growing number of financial challenges. These challenges have been driven by a decline in reimbursement, an increase in operating expenses, the need for greater capital investment (e.g. electronic medical records), new competitors, the rise of consumerism and more. The evolving COVID-19 pandemic has surfaced several new and more urgent financial issues for physician practices as revenues rapidly decline due to the cancellation of elective surgeries, decreased patient visits and limited ancillary services.1

A recent report from Barclays PLC states that doctors’ offices have seen visits drop by 50% on average.1 This disruption has been compounded as operating costs at independent practices are difficult to scale. Debt obligations must still be met while workforce retention and compensation issues are exacerbating tensions. Perhaps the greatest variable of all is the uncertainty organizations are facing regarding the duration of the pandemic or the business model required to support a “new normal.” Due to these COVID-19-related financial implications, SullivanCotter expects a substantive increase in practice transaction and consolidation activity over the next six to twelve months. For this reason, health care organizations should have a strategy in place in order to act quickly and decisively on future acquisition opportunities.

THE CURRENT ENVIRONMENT

Global economic uncertainty across all industries is at a record high as the International Monetary Fund forecasts the sharpest downturn since the Great Depression.2 Health care organizations are not immune to this uncertainty. Furthermore, the health care outpatient sector lost 40,700 jobs in March 2020 after nearly 30 years of month over month growth.3

Never has the federal government and the Centers for Medicare and Medicaid Services (CMS) restricted hospital and physician operations as much as they have during the COVID-19 pandemic (e.g., postponing elective surgeries, canceling in-person visits, etc.).4 Although evolving reimbursement models have always presented challenges for health care providers, the rate of change is at an all-time high as evidenced by CMS’ recent telehealth reimbursement updates.

Moreover, health care organizations face significant workforce challenges regarding supply and demand as select services hit their peak while others have excess capacity. These changes are testing the ability of physician practices to adapt, but most are not built for major shocks to the system.

Traditionally, health care has been considered a recession-proof industry by having stable and consistent revenue streams through the provision of essential services. As a result, independent physician practices have generally operated with low cash reserves. Without a significant cash buffer or access to credit, the current economic reality is not sustainable for smaller independent practices. Many practices are experiencing an inability to meet payroll and other critical financial obligations during COVID-19 and employee furloughs continue to rise at an alarming rate. In combination, these factors will threaten the future of physician practices — both operationally and financially.

INCREASED TRANSACTION ACTIVITY

Given the current financial distress and long-term economic uncertainty, we expect to see a significant increase in transaction activity as practices will look for new capital partners to help ensure future sustainability. Maintaining operations in today’s evolving health care marketplace is difficult enough for independent practices. The challenge has now been compounded during COVID-19 due to delayed procedures, employee furloughs, and the urgent shift to telehealth.

Planning for post-COVID-19 recovery remains extremely difficult as practices are unable to predict the pandemic’s duration, broader economic impact, future patient habits and other critical implications. When will patients feel comfortable entering clinics again? Is there a new perspective on elective visits? Will telehealth and the associated reimbursement models be maintained? A number of important unanswered questions remain, which is causing practices to seek a financial safety net. This often comes in the form of a joint venture, strategic affiliation, or full acquisition by a larger and more financially stable organization.

DEVELOPING YOUR STRATEGY

Health care organizations with a strong balance sheet are in a unique position. The current environment represents an unprecedented buying opportunity, and financially stable organizations must be prepared to move quickly and act decisively. Organizations should develop a strategy that enables them to adapt to the evolving marketplace in real-time.

SullivanCotter recommends the following guidelines as organizations consider the way forward:

Develop a transaction team

A few immediate questions organizations may consider are:

Why do we need a team to assess new transactions? We’ve bought/affiliated with plenty of practices in the past.

  • Regardless of your organization’s experience in acquiring practices, a dedicated team is required to move quickly. Specifically, this team serves as a decision-making body where each member understands their specific roles and responsibilities — allowing organizations to take a proactive approach.

Who should serve on this team?

  • Team composition should be split between internal and external stakeholders. Internally, it is imperative to represent executive, legal, and key service line/physician leadership stakeholders. Externally, a standing agreement or statement of work should be in place with third-party valuation, legal, financial, and compensation advisors.

Where do we begin?

  • Effective leadership is increasingly important in times of crisis. A supportive executive team is required to ensure that resources are prioritized, decision-making authority exists and an effective communication process is deployed.

Understand organizational needs

A thoughtful and intentional acquisition strategy should focus on four key elements:

Regulatory Environment

  • Are all future arrangements considered fair market value and commercially reasonable for both the practice acquisition and subsequent employment arrangements?
  • Are there any anti-trust issues?
  • What is the funds flow for ancillary services, outside investments, physician compensation, etc.?

Financing

  • What are the sources of capital? Is outside financing required? What type of internal approval must be secured to access this capital?
  • What is the organization’s targeted capital structure?

Transaction Terms

  • What are the must-have elements of an acquisition? Is anything non-negotiable?
  • Has internal and external counsel approved standard language for acquisitions?
  • How is value being assessed? What assets will be considered in determining purchase price (e.g., workforce in-place, active patient charts)?
  • What protective measures and control mechanisms are in place to help govern these transactions?
  • What is the desired level of affiliation? Physician affiliation relationships run along a continuum ranging from a low level of affiliation to full practice integration/employment.

Integrations

  • What is the timeline for integration? How would an integration impact existing initiatives and priorities?
  • Who will lead the integration internally?
  • What are the technology requirements for a successful integration (e.g., consistent EMRs)?
  • How can integration occur in a way that aligns with an organization’s culture?

CONCLUSION

The health care industry is in the midst of unprecedented change, disruption and even opportunity as a result of COVID-19. In order for organizations to effectively evaluate and act upon any forthcoming transactional opportunities, a thoughtful and well-considered strategy must be in place. Planning now allows for the development of a proactive approach that is aligned with key organizational goals and objectives.

--

SullivanCotter brings unique insight into the practice valuation and physician affiliation process with an in-depth understanding of the market forces, regulatory environment and operational infrastructure required to drive successful transactions. Please contact Kyle Tormoehlen or Tom Trachtman to learn more about how SullivanCotter can partner with your organization.

Kyle Tormoehlen
Principal
303.931.1521
kyletormoehlen@sullivancotter.com

Tom Trachtman
Senior Consultant
317.442.0837
tomtrachtman@sullivancotter.com


SOURCES:

  1. Wilde Mathews, A., & Evans, M. (2020). Hospitals, Doctors Feel Financial Squeeze as Coronavirus Sweeps U.S. The
    Wall Street Journal. Retrieved from https://www.wsj.com/articles/hospitals-doctors-feel-financial-squeeze-ascoronavirus-sweeps-u-s-11585768706
  2. Lawder, D. (2020). Global Economic Downturn in 2020 on Track for Sharpest Downtown Since 1930s: IMF. Reuters.
    Retrieved from https://www.reuters.com/article/us-imf-worldbank-outlook/global-economy-in-2020-on-track-forsharpest-downturn-since-1930s-imf-idUSKCN21W1MA
  3. Evans, M. & Grossman, G. Pandemic Squeezes Profit at HCA as Fewer Patients Treated. The Wall Street
    Journal. Retrieved from https://www.wsj.com/articles/pandemic-squeezes-profit-at-hca-as-fewer-patientstreated-11587492600
  4. The Centers for Medicare and Medicaid Services. (2020). Non-Emergent, Elective Medical Services, and Treatment
    Recommendations. Retrieved from https://www.cms.gov/files/document/cms-non-emergent-elective-medicalrecommendations.pdf.

 


Addressing COVID-19: Key Considerations for the Board Compensation Committee

Enhancing Board Governance of Talent Management and Compensation During COVID-19

DOWNLOAD FULL ARTICLE


The COVID-19 crisis is impacting not-for-profit hospitals and health systems in a myriad of ways. The crisis is placing an enormous strain on both financial and workforce resources by creating uncertainty regarding current/future revenue, volume, employee safety and job security. The Board Compensation Committee (Committee) serves a critical governance role in the organization’s efforts to navigate uncertainty by advising management on talent risks, supporting a focus on the key success factors to survive and recover from this crisis, and ensuring that - if scrutinized - the executive compensation program reflects best governance practices, given market dynamics and the need for Compensation Committees to move quickly.

Guiding principles for the Committee in these unpredictable times may include:

  • Relying on sound business judgment and discretion in compensation decision-making by considering organizational finances, employee health and safety, broader workforce impacts (e.g., furloughs, layoffs), talent risk and burnout, local and industry market responses and competitive market positioning.
  • Basing decision-making on the organization’s specific circumstances with due consideration of market practice intelligence and optics.
  • Being flexible to adapt to a dynamic and fluid environment that will continue to evolve over the coming months.
  • Considering the organization’s compensation strategy and the short/long-term impact of major changes to the compensation program in response to the crisis.
  • Defining key success factors for managing through this crisis, and anticipating the post-crisis changes to strategic and operating priorities, in preparation for discussions on incentive plans that may no longer have relevance due to the disruption caused by COVID-19.
  • Balancing internal and external perceptions of compensation decisions, especially if the organization is receiving financial assistance and/or implementing furloughs/layoffs, with the need to honor previous compensation commitments.
  • Mitigating any immediate key talent risks while maintaining a long-term focus on talent retention and
    succession planning.
  • Ensuring transparency to the full Board on any compensation actions taken during the crisis.

SUCCESSION PLANNING

If within the Committee’s purview, consider the development of an emergency succession plan that identifies the individuals who can serve as interim replacements for key executives who may require an extended quarantine period or experience severe burnout. It is also important to consider whether the current succession plan requires any changes given the emerging organizational challenges as well as the skill sets and qualifications of the current candidates. The crisis will allow for the identification of individuals who are stepping up and exhibiting leadership, which will help to inform the Committee’s succession planning efforts. Prepare for a longer-term review of the talent strategy that will be needed to adapt to and thrive in the post-COVID-19 environment as strategic priorities shift and operating models change.

COMPENSATION DECISIONS DURING COVID-19

The Committee should consider the competitiveness of total compensation while also evaluating retention risks. This requires a facts-and-circumstances approach when evaluating potential compensation reductions. If a long-service executive’s total compensation is high relative to the market with limited variable compensation, the impact of a salary reduction is much different than in a situation involving a short-service executive with below-market compensation and higher variable pay (with incentives unlikely to be paid).

Consider market intelligence on COVID-19-related compensation practices of similarly-situated organizations. To date, the not-for-profit health care sector’s actions related to temporary executive salary reductions, increased deferrals and salary freezes have been modest compared to the more aggressive approach of publicly-held companies. These practices are subject to change as financial challenges increase and the impact on the health care workforce continues to evolve.

A major focus area for the Committee is the annual incentive plan given the economic uncertainty facing hospitals and health systems. Since incentive plans can be helpful in focusing executives on key priorities, rather than suspending or eliminating the plan, give consideration to a more discretionary and flexible approach to performance measurement. This may include re-setting goals, assessing performance pre- and post-COVID response, eliminating irrelevant goals, and/or including measures that focus on restarting the organization and near-term recovery. If utilizing a discretionary approach, guiding principles should be established to help inform decision-making. In some cases, the Committee would be well-served to delay the finalization of incentive measures and goals for forthcoming incentive plans until there is less organizational and market uncertainty. The timing of the conclusion of the performance period will impact the Committee’s options. Those with calendar year-ends may have more time to plan.

While most organizations have not taken any action to date regarding long-term incentive plans (LTIPs), we expect that, similar to annual incentive plans, the negative financial impact and potential reassessment of strategic plans will impact future goal setting and LTIPs that are already in place. As some organizations are considering postponing the implementation of new LTIP cycles, most are waiting until the crisis starts to subside before making any decisions on these plans.

Given the number of new and emerging financial challenges, the Committee should explore actions that will help to control costs without creating significant talent retention risks or sending unintended messages to the workforce. In addition, such actions need to be assessed in light of any implications related to employment agreements and 457(f) and 409A deferred compensation rules.

If your organization is considering loans and loan guarantees available under the CARES Act or the Main Street Lending Program (as available to not-for-profits), assess the required compensation restrictions and their implications for executive and physician recruitment and retention for individuals with CY 2019 total compensation exceeding $425,000.

ACTIONS FOR ENHANCING RECOVERY POST-COVID-19

After addressing issues requiring immediate attention, the Committee should consider actions for enhancing organizational recovery. The definition of performance in the new environment post-crisis continues to evolve, and it may be appropriate to refine the way organizational and individual performance is assessed. The Committee should work with management to define both short and long-term goals required to support recovery (e.g., cost reductions, financial stability, workforce engagement, care redesign) and, if appropriate, include these in incentive plans. Given changes in the delivery model, it may be time to assess organizational structure, spans of control and the scope and definition of various executive roles. Underlying all these actions is the need to identify critical talent and update succession plans and talent management strategies.

COMPENSATION COMMITTEE GOVERNANCE

The Committee should review approval procedures and processes and modify if necessary to ensure critical executive and physician compensation arrangements can be acted upon in a timely fashion. The Committee should consider adjusting its calendar to include more regular discussions on compensation and talent implications over the coming months since the environment is dynamic and circumstances are rapidly changing. If virtual Committee meetings are being considered for the first time, the General Counsel should ensure the desired method is acceptable under state law.

PHYSICIAN COMPENSATION

The Committee should review approval procedures and processes and modify if necessary to ensure critical executive and physician compensation arrangements can be acted upon in a timely fashion. The Committee should consider adjusting its calendar to include more regular discussions on compensation and talent implications over the coming months since the environment is dynamic and circumstances are rapidly changing. If virtual Committee meetings are being considered for the first time, the General Counsel should ensure the desired method is acceptable under state law.

MOVING FORWARD

Although the future is uncertain, an active and focused Compensation Committee will help to ensure that the organization can retain, manage and develop highly effective individuals for key roles who can lead the way in the post-crisis world. The market dynamics around executive compensation are very fluid. Any major program design changes should be carefully considered before implementation as this may impact leadership retention, recruitment and succession planning initiatives in an environment where exceptional health care leaders will be highly sought after.