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.

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PRESS RELEASE | SullivanCotter Launches Suite of Health Care Benchmarking Solutions

SullivanCotter Launches Innovative Suite of Products to Help Benchmark Health Care Workforce Compensation and Clinical Productivity

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July 30, 2020 – Chicago – SullivanCotter, the nation's leading independent consulting firm in the assessment and development of total rewards programs and workforce solutions for the health care industry and not-for-profit sector, is pleased to announce the launch of Benchmarks360TM. Powered by SullivanCotter's proprietary survey data and research, Benchmarks360TM is a suite of intelligent, web-based products that enables health care organizations to analyze and visualize workforce compensation and clinical productivity.

Designed to address enterprise-wide benchmarking needs for employees at all levels – including executives, physicians, advanced practice providers and other clinical and non-clinical staff positions – Benchmarks360TM provides critical industry-leading data, analyses and reporting to support the compensation decision-making process in an increasingly complex operating environment.

"Amidst a rapidly evolving global pandemic, hospitals and health systems are struggling to navigate a number of unprecedented financial and workforce challenges. Strengthening compensation practices and clinical workforce productivity through unique, data-driven intelligence and insights can help to support long-term sustainability in today's ever-changing marketplace. With the ability to conduct a wide variety of quantitative reviews and custom benchmarking analyses, Benchmarks360TM allows organizations to interactively assess clinical productivity and changes in compensation against national market data," said David Schwietz, Chief Information Officer, SullivanCotter.

As one of the most comprehensive products of its kind, it includes two distinct modules to help balance pay and clinical productivity across the organization:

Workforce Compensation and Clinical Productivity Manager

Compare your organization's compensation and clinical productivity benchmarks to the nation's largest health systems and medical groups. Utilize SullivanCotter's proprietary benchmarking information, representing over one million total incumbents, along with other third-party data sources. This module comes in both a Standard (offered with the purchase of SullivanCotter survey data) and a Pro version (upgrade available for additional licensing fee).

Clinical CPT Manager

Analyze and measure your organization's Current Procedural Terminology (CPT) coding distribution against national physician and advanced practice provider clinical benchmarks at the specialty, work RVU and CPT level. This module can be purchased and added separately.

Benchmarks360TM is offered exclusively to organizations who purchase SullivanCotter survey reports. To learn more, including important licensing information and a full list of features and functionality, visit sullivancotter.com/benchmarks360 or call 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 and expertise to help organizations align business strategy and performance objectives – enabling our clients to deliver on their mission, vision and values.


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

BESLER | The Hospital Finance Podcast®

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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.

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SullivanCotter Webinar Series | Care Team Optimization

Join us for this exclusive webinar series!

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.


REGISTER FOR EACH OF THE 45-MINUTE SESSIONS INDIVIDUALLY BELOW:

(*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

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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.

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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.

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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

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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.


team of physicians assessing medical data and health records

INFOGRAPHIC | 2021 Evaluation and Management CPT Code Changes

Assessing the impact of proposed CPT changes on physician compensation

Every year, the Centers for Medicare and Medicaid Services (CMS) conducts a comprehensive review of the Current Procedural Terminology (CPT) codes and the corresponding Work Relative Value Unit (wRVU) values to determine if changes are needed based on the time, skill, training and intensity necessary to perform the procedure.

As a result, CMS is proposing a significant overhaul of the Evaluation and Management (E&M) codes, which represent various types of face-to-face office or other outpatient visits for new or established patients, to be incorporated in January of 2021.

The majority of specialties utilize these E&M codes, and assessing the impact this may have on compensation and productivity is critical. In this infographic, SullivanCotter summarizes the proposed changes and addresses the following topics to help organizations educate themselves during this transition:

  • CMS efforts to recognize increased work effort for office visits as well as a summary of the 2021 changes
  • The potential impact on physician and advanced practice provider productivity levels and compensation arrangements - especially wRVU production-based plans or salary-based plans with wRVU performance measures
  • Other variables that could influence the assessment of your organization's productivity

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

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

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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.


INFOGRAPHIC | COVID-19 Executive and Employee Compensation Practices Survey

May 2020 - Market Response to COVID-19: Executive and Employee Compensation

Health care organizations across the United States continue to face a number of unprecedented challenges due to the COVID-19 pandemic. As the crisis evolves and the industry makes plans for financial recovery and operational transformation, many changes are expected that will, in turn, affect the workforce and cause additional disruption in an already uncertain environment.

SullivanCotter’s COVID-19 Executive and Employee Compensation Practices Survey series, which includes information from more than 110 leading hospitals and health systems, highlights the compensation and workforce-related actions organizations are currently implementing or considering in response.

We expect that workforce practices will continue to evolve. In order to keep health care organizations up to date on emerging trends related to COVID-19, we will monitor developments in real time.

Please note: Data reflect responses as of early May 2020.

You can also view the April 2020 data as a point of comparison.

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INFOGRAPHIC | COVID-19 Physician and APP Compensation Practices Survey

May 2020 - Market Response to COVID-19: Physician and APP Compensation

Health care organizations across the United States continue to face a number of unprecedented challenges due to the COVID-19 pandemic. As the crisis evolves and the industry makes plans for financial recovery and operational transformation, many changes are expected that will, in turn, affect the workforce and cause additional disruption in an already uncertain environment.

SullivanCotter’s COVID-19 Physician and Advanced Practice Provider Compensation Practices Survey series, which includes information from more than 100 leading hospitals and health systems, highlights the compensation and workforce-related actions organizations are currently implementing or considering in response.

We expect that workforce practices will continue to evolve. In order to keep health care organizations up to date on emerging trends related to COVID-19, we will monitor developments in real time.

Please note: Data reflect responses as of early May 2020.

You can also view the April 2020 data as a point of comparison.

VIEW INFOGRAPHIC


Quantifying the Cost of Advanced Practice Provider Turnover

Assessing the Financial Implications

Zachary Hartsell, DHA, PA-C, Principal, SullivanCotter
Amy Noecker, M.Ed., Principal, SullivanCotter


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The United States Department of Labor recently cited an unemployment rate of 3.7%, further noting that jobs in health care have increased by 403,000 over the past 12 months.1 This surge in health care jobs combined with historically low unemployment rates has made retaining workers more challenging. According to NSI Nursing Solutions’ 2019 National Health Care Retention & RN Staffing Report, the current hospital turnover rate across all jobs in the industry is at 19.1%.2 While turnover is the natural order of business in any industry, its impact on an organization - in cost, morale and work disruption - can be significant.

Turnover of physician and nursing staff has been studied extensively in both academic and commercial settings, resulting in a better understanding of their associated costs (see end of article for a list of additional resources). Turnover of advanced practice providers (APPs), however, lacks similar scrutiny. SullivanCotter’s 2019 Advanced Practice Provider Compensation and Pay Practices Survey Report cites an average external turnover rate of 10%, which is down from 12% in 2017.5 While a good amount of historical data exists for actual turnover rates, the cost of turnover has been difficult to report given a multitude of factors that must be considered.

To better understand the cost of turnover, SullivanCotter reviewed several organizational factors impacting turnover and developed a methodology for assessing the related costs. By providing organizations with a framework to perform their own APP turnover cost assessment, we hope this will help to improve the reporting of turnover costs in the future.

This white paper uses data compiled from the National APP Advisory Council’s (NAAC) Workgroup on Turnover as well as well as the following surveys from SullivanCotter:

  • Advanced Practice Provider Compensation and Pay Practices Survey Report
  • Advanced Practice Provider Individual Survey Report
  • Advanced Practice Provider Organizational Practices Survey Report

BACKGROUND ON APP TURNOVER

APP turnover can have a profound impact on patient care and provider satisfaction, and understanding both the causes and costs are imperative. While certain programs have proven effective in reducing turnover, such as formal onboarding programs, mentoring programs, and opportunities for advancement/career development, they often come with costs of their own.3,4

The ability to calculate the return on any such investment is essential in determining whether or not to invest in these programs. In order to be consistent, SullivanCotter recommends using a three-step process to evaluate the financial implications of APP turnover. This includes 1) examining the organizational factors that impact turnover, 2) assessing the related costs and 3) performing an APP turnover cost assessment.

TURNOVER: DEFINED AND CALCULATED

There are two kinds of APP turnover: external and internal.

External turnover occurs when an APP voluntarily leaves an organization. This is often to go to a competitor and may be preventable. Internal turnover occurs when an APP transfers to another service line or specialty within the same organization. This is more common for APPs than physicians given the structure of their certification and licensure.

While this article focuses on the cost of external APP turnover, internal turnover can also significantly impact an organization. While some degree of internal APP turnover is expected and can represent a retention strategy through the ability to offer career growth while staying at the organization, excessive internal turnover can suggest equity issues related to compensation, benefits or culture. A careful review of internal turnover, including interviews
with incumbents, can help to uncover what is driving the situation.

FACTORS THAT DRIVE EXTERNAL TURNOVER

There are several factors that drive external APP turnover. A commonly cited cause is compensation that is not aligned with the market. However, compensation is rarely the sole driver of APP dissatisfaction or turnover.

According to SullivanCotter’s research, there are several additional factors that impact APP engagement and turnover:

LEADERSHIP

  • Organizations that have a top APP leader with responsibilities such as developing overall APP
    strategy and infrastructure, managing budgets and serving as the expert on the APP workforce
    have 2% lower turnover than organizations who do not.5

    • Data from 180 organizations with 28,158 APPs.
  • APPs who report to an APP leader are about 8% less likely to consider leaving the organization in
    the next 12 months than those who do not report to an APP leader.6

    • Data from 6 organizations with 800 APPs.

UTILIZATION

  • APPs who feel maximally or significantly utilized are 22% less likely to consider leaving the organization in the next 12 months than those perceived to be underutilized.6
    • Data from 7 organizations with 891 APPs.
  • APPs who feel maximally or significantly utilized are more likely to recommend the organization
    as a good place to work than those perceived to be underutilized.6

    • Data from 7 organizations with 894 APPs.

PROFESSIONAL STATUS

  • APPs who have dedicated time for non-clinical activities, such as committee work, community outreach, leadership or administration, process/quality improvement work, research, and student education/faculty member, are about 17% less likely to consider leaving their organization in the next 12 months than those who do not have dedicated time for non-clinical activities.6
    • Data from 7 organizations with 496 APPs.

COMPENSATION

  • APPs who believe their compensation is fair or higher than peers are about 33% less likely to consider leaving the organization in the next 12 months than those who feel their compensation is not fair or lower than peers.6
    • Data from 5 organizations with 300 APPs.
  • APPs who believe their compensation is fair or higher than peers are more likely to recommend their organization as a good place to work than those who feel their compensation is not fair or lower than peers.6
    • Data from 5 organizations with 563 APPs.

METHODOLOGY FOR ASSESSING COSTS

To assess the cost of APP turnover, it is important to focus on known and measurable factors with a direct cost and  attributable dollar amount (e.g., recruitment, sign-on bonuses, training, etc.). Indirect costs, such as provider dissatisfaction, burnout and lost patient revenue, can vary widely by organization and are difficult to capture and calculate.

The elements below have direct costs related to APP turnover:

  • Moving allowance
  • Sign-on bonus
  • Recruiter time (e.g. hours spent per APP recruited)
  • Advertising
  • Physician time for orientation and onboarding with a new APP (e.g. hours spent per APP oriented that took time away from patient care)
  • APP time for orientation and onboarding (e.g. hours spent in non-billable orientation time)
  • Background check/drug screen and licensure verification

Based on SullivanCotter’s survey research and industry insights, the total direct turnover cost for a single APP ranges between $85,832 and $114,919.5,7 This estimate is consistent with data from both physician and nursing turnover research.8,9,10 Similar to research on physician and nursing turnover costs, the indirect costs associated with APP turnover are likely significantly higher than the direct costs. These indirect costs are often difficult to calculate given the different variables within each calculation.

Although the costs noted above are objective and quantifiable, the cost of APP turnover may differ from one organization to another. As a result, organizations should perform an individual assessment. When performing an assessment, the elements of turnover should be easily extracted or estimated and agreed upon in advance by executive stakeholders and the group charged with calculating the costs of APP turnover. To properly perform an assessment of the total cost of APP turnover, organizations must have the following information available:

  • Number of APPs working in your organization
  • External turnover rate
  • Headcount of the turnover rate (total number of APPs multiplied by the turnover rate)
  • Factors driving turnover (consider exit interviews and/or engagement surveys)

CONCLUSION

Understanding the related costs and their drivers is only part of the solution to reducing APP turnover. While the direct cost of turnover is calculated to be between $85,832 - $114,919, this is under-representing the full cost of turnover once indirect costs are included. Assessing how to address APP turnover, once drivers have been identified and costs have been calculated, can be even more challenging. This process requires determining what programs are apt to reduce turnover and, equally significant, the costs of those programs. Proposed programs such as postgraduate clinical training (fellowships), protected professional development, career ladders and onboarding should be evaluated for effectiveness and return on investment prior to widespread implementation. Additionally, APP leadership structures should be assessed because the presence of an APP leader has been shown to help reduce turnover.

There is an important cultural aspect to developing and implementing solutions that reduce turnover. It is essential to obtain feedback and buy-in from clinical leadership and additional stakeholder groups such as practicing physicians, practicing APPs, finance, human resources and operational leadership in order to implement long-term, sustainable solutions. Holistic current-state assessments are a good way to bring together key stakeholders and provide both quantitative and qualitative data to inform decision-making.

Additional Contributors:

  • Brenda Madura, MS, APRN, CNM-BC, Director of Advanced Practice Clinicians, Advocate Health Care
  • Cynthia Flores, PA-C, Senior Director, Advanced Providers, Vituity
  • Rhonda Hoyer, RN, MS, ANP-C, Director of Advanced Practice, UW Health
  • Surani Hayre-Kwan, DNP, MBA, FNP-BC, FACHE, FAANP, Director, Professional Practice and Nursing Excellence
    Sutter Health

SOURCES

1. Bureau of Labor Statistics. (2019). Current Employment Statistics Highlights. Retrieved from https://www.bls.gov/web/empsit/ceshighlights.pdf

2. NSI Nursing Solutions, Inc. (2019). 2019 NSI National Health Care Retention & RN Staffing Report. Retrieved from https://nsinursingsolutions.com/Documents/Library/NSI_National_Health_Care_Retention_Report.pdf

3. Kurnat-Thoma, E., Ganger, M., Peterson K. & Channell, L. (2017). Reducing Annual Hospital and Registered Nurse Staff Turnover: A 10-Element Onboarding Program Intervention. Sage Open Nursing, 3, 1-13. Retrieved from https://doi.org/10.1177/2377960817697712

4. Fibuch, E., & Ahmed, A. (2015). Physician Turnover: A Costly Problem. Physician Leadership Journal, 2(3), 22-25.

5. SullivanCotter 2019 Advanced Practice Provider Compensation and Pay Practices Survey Report

6. SullivanCotter 2019 Advanced Practice Provider Individual Survey Report

7. SullivanCotter 2019 Advanced Practice Provider Organizational Practices Survey Report

8. Misra-Herbert, A.D., Kay, R., & Stoller, J.K. (2004). A Review of Physician Turnover: Rates, Causes and Consequences. American Journal of Medical Quality, 19(2), 56-66. doi: 10.1177/106286060401900203

9. Schutte, L. (2012). What You Don’t Know Can Cost You: Building a Business Case for Recruitment and Retention Best Practices. The Journal of the Association of Staff Physician Recruiters, 19(3). Retrieved from https://member.aappr.org/general/custom.asp?page=696

10. Shanafelt, T., Goh, J., & Sinsky, C. (2017). The Business Case for Investing in Physician Well-being. The Journal of the American Medical Association– Internal Medicine. 177(12), 1826-1832. doi:10.1001/jamainternmed.2017.4340


Health Care Executives: 2020 Actions for the Board Compensation Committee

Take time in 2020 to reexamine your executive compensation program

The health care sector continues to undergo unprecedented transformation, and the challenges faced by not-for-profit hospitals and health systems are not abating. As organizations look to navigate these changes, the board compensation committee is well served to evaluate the impact of this rapidly evolving environment on the executive compensation program and related committee practices.

Periodic assessment is critical to ensure compensation programs and talent strategies remain aligned with organizational goals and objectives.

Featured in the March edition of the American Hospital Association's Trustee Insights, SullivanCotter highlights a number of important considerations for the compensation committee to focus on in today's complex operating environment.

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2021 Evaluation and Management CPT Codes

Understanding the Impact on Physician Compensation

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Every year, the Centers for Medicare and Medicaid Services (CMS) conducts a review of the Current Procedural Terminology (CPT) codes and the corresponding Work Relative Value Unit (wRVU) values to determine if changes are needed based on the time, skill, training and intensity necessary to perform the procedure. The degree of change varies from year to year, and the impact on individual specialties depends on which codes are modified and the extent to which the codes are adjusted. CMS is proposing a significant overhaul of the Evaluation and Management (E&M) CPT codes in terms of documenting requirements, time-effort recognition, and their respective wRVU values. E&M CPT codes represent various types of face-to-face office or other outpatient visits for new or established patients. These changes will be incorporated in January of 2021.

A large majority of specialties utilize E&M codes and, when changes such as this occur, the resulting impact can be significant. This article will address:

  • CMS efforts to recognize increased work effort for office visits as well as a summary of the 2021 changes to E&M codes.
  • The potential impact on physician and advanced practice provider (APP) productivity levels for various specialties.
  • The potential unintended results to compensation arrangements, especially wRVU production-based plans or salaried-based plans with wRVU based performance measures.
  • Other variables that could influence the assessment of your organization’s productivity.

 

PHYSICIAN AND APP WORK RESPONSIBILITIES FOR E&M OFFICE PATIENT VISITS

“Patients Over Paperwork” is a CMS initiative based on the American Medical Association’s (AMA) RVU Update Committee (RUC) recommendations. The goal of this initiative is to reduce burdensome regulations, enhance efficiency and improve the physician’s experience. The E&M review and adjustment is a step towards removing regulatory obstacles that impede a clinician’s ability to spend time with patients. The first wave of updates includes the modification of ten E&M codes representing standard, established and new patient visits (codes 99201-99215). Other E&M code groupings will be reviewed at a future date.

Several factors were considered when providing the 2021 recommendations, including:

  • To maintain the “Patients Over Paperwork” goal, CMS kept the documentation reduction requirement for
    appropriate coding.

    • CMS estimates that these adjustments will save 180 hours of paperwork for physicians annually.
  • A time study commissioned by CMS determined that, due to the added responsibilities physicians have experienced over the last five years, an increase in wRVUs for many E&M codes is justified. These include:
    • Longer patient face-to-face time during visits.
    • Increased non-patient time responsibilities such as Electronic Medical Record (EMR) documentation.
    • Added non-reimbursed physician time to coordinate team-based care and population management.
  • To recognize the occasional extended time patient visit, CMS is proposing to allow an add-on code (99XXX) for every 15 minutes of additional work effort for codes 99205 and 99215.
    • This extended time method is similar to anesthesiology work value measurement that credits added time units along with the base procedure.
  • Another add-on code (GPC1X) will be available to provide a small amount of wRVU credit to account for qualified, severe, or complex chronic conditions.
  • CMS also is proposing to permit Physician Assistants (PAs) to practice in accordance with state law supervisory requirements rather than Medicare’s general supervision requirements. In the absence of state law, the supervision requirement can be met by documenting in the medical record the PA’s approach to working with the physician.

These adjustments, along with CMS quality incentive payments, signify CMS’s increased recognition of how the process of delivering high-quality health care has changed. The impact of these changes will likely result in material shifts in wRVU productivity for office-based specialties. Table 1 below compares the current E&M code time allocation and wRVUs to the January 2021 changes.

Table 1: Time Allocations and wRVUs Adjustments: Current versus 2021

THREE IMPORTANT POTENTIAL IMPACTS TO PHYSICIAN PRODUCTIVITY LEVELS AND RESULTING COMPENSATION AND BENCHMARK MEASUREMENTS

1. How will CMS wRVU changes impact the measurement of physician productivity?

This is often the first question that arises when organizations try to assess how changes will impact productivity internally, but also when comparing to published national survey benchmarks. To help analyze the impact, SullivanCotter utilized its proprietary database consisting of individual CPT code volumes and modifiers for approximately 20,000 physicians across 100 different specialties. We recalculated two versions of wRVU productivity benchmarks for comparison; one based on the 2019 wRVU values, and one based on the new 2021 wRVU values. By keeping volumes consistent, the change in wRVU productivity is entirely due to the E&M wRVU adjustments.

Summary findings indicate that of the 100 specialties reviewed, 46% of wRVU benchmarks increased between 3% and 11%. An additional 25% of specialties were impacted by changes greater than 11%. Table 2 below shows the resulting impact at the specialty level. This represents a significant change to wRVU benchmarks and will be critical for organizations to understand the implications to physician compensation payouts and affordability.

Table 3 illustrates a sample of some of the individual specialties with notable impacts to wRVUs:

2. How might wRVU changes impact physician compensation benchmarks?

This depends on the structure of an organization’s compensation programs. If a plan is based heavily on compensation per wRVU calculations, there will be an immediate increase in the amount of compensation paid to physicians as a result of the change in wRVU values. According to SullivanCotter’s 2019 Physician Compensation and Productivity Survey, nearly 3/4 of organizations indicated that wRVUs represent more than 50% of a physician’s total cash compensation. Conversely, physicians with salary-based plans will not see an immediate increase but will experience this over time as benchmarks change.

Over 95% of the organizations participating in the survey utilize national benchmarks to determine annual compensation salaries and compensation per wRVU rates. Understanding how to use these benchmarks correctly is critical during the 2021 and 2022 transition.

SullivanCotter reviewed several different compensation methodologies to estimate the potential impact to survey benchmarks. Considering the E&M code value changes and assuming no modifications are made to compensation plan methodologies, we estimate the average clinical compensation to increase by approximately 6%. This does not include other market factors such as demand, inflation, cost-of-living, changes in productivity and more. As with wRVUs, this will vary significantly by specialty. Table 4 below highlights the estimated changes to survey benchmarks. See Column A to find the estimated change in compensation.

If an organization utilizes wRVU productivity targets to determine compensation using the 2020 survey data while calculating wRVUs using the 2021 wRVU schedule, this will result in higher payouts as physicians meet or exceed the benchmarks at a much greater rate.

Similarly, if an organization uses the 2020 compensation per wRVU survey benchmark while using the CMS 2021 values to calculate physician productivity, clinical compensation will increase as a result of the pre-adjusted compensation per wRVU rates. Using Internal Medicine as an example, the following graph represents the potential unintended consequences. This will vary depending on whether your organization primarily utilizes a wRVU incentive plan versus a salary-based plan.

To avoid these pitfalls, organizations should conduct a strategic review of upcoming changes to help determine the impact this will have on physician compensation plans. Discussions can include the awareness, appropriateness, affordability, modifications, and expectations to any change in compensation.

3. If your organization utilizes compensation per wRVU benchmarks, what should we expect for the 2021 benchmark?

As mentioned above, nearly 75% of organizations in the SullivanCotter 2019 Physician Compensation and Productivity Survey utilize the compensation per wRVU benchmark in determining physician compensation. For any group implementing the 2021 rate into their compensation plan, a fundamental understanding of how market benchmarks will change is important.

This article has reviewed estimated increases to both wRVUs and clinical compensation. However, because the expected change in wRVUs is greater than the expected change in clinical compensation, the impact on the compensation per wRVU ratio will have an inverse effect. See Column C in Table 4 for the impact on specific specialties. This results in decreases to the compensation per wRVU rate. Overall, our pro forma modeling indicated a 3% decrease in the rate, which varies by specialty.

 

OTHER FACTORS TO CONSIDER WHEN ANALYZING COMPENSATION IMPACTS

As organizations continue to educate themselves during this transition, there are several other factors to consider.
These include:

  • Can the current compensation methodology unintentionally create Fair Market Value (FMV) risks due to higher compensation payments?
  • Do compensation incentive plans include supervisory payments to physicians based on APP productivity levels? These changes will affect wRVU values for codes utilized by APPs.
  • For specialties that are paid shift rates, are there additional incentives based on productivity?
  • Does the organization pay for physician virtual care visits that tie to E&M values? This could result in higher pay for virtual care.
  • CMS will also be adding 99XXX as an add-on code for every 15 additional minutes of visit time as well as GPC1X for patients with complex chronic conditions. The assumptions and analysis above do not account for the changes in the distribution of E&M coding or increases in wRVUs due to these new codes. A wRVU increase does not automatically equate to an equal revenue reimbursement increase.
  • CMS also applies an annual budget factor that caps the overall per wRVU reimbursement to avoid a significant increase in CMS payments. This can significantly increase the total percentage of revenue paid to physicians.

 


SullivanCotter offers advisory support and technology solutions to help your organization understand and respond to the potential impact of these changes.

To learn more, contact us at 888.739.7039 or info@sullivancotter.com

 


Physician Compensation and Compliance: More Than Just the Individual Components

This Briefing is brought to you by the Fair Market Value Affinity Group of the American Health Lawyer's Association's Hospitals and Health Systems Practice Group.

Properly assessing the fair market value and commercial reasonableness of physician compensation arrangements in an increasingly complex regulatory environment is more critical than ever before. As the number of related health care settlements continues to grow, organizations are under increased scrutiny regarding both the physician compensation and contracting processes and must have protocols in place to help ensure compliance and mitigate risk.

As a member of AHLA's Fair Market Value Affinity Group, SullivanCotter's Kim Mobley, along with other industry experts, recently contributed to this Practice Group Briefing which includes an analysis of the current regulatory environment, insights from both an attorney's and a valuator's perspective, a step by step process for helping to support compliant compensation arrangements, and other important questions to consider.

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Copyright © 2020, American Health Lawyers Association, Washington, DC. Reprint permission granted.

PODCAST | Trends in Physician Compensation

BESLER | The Hospital Finance Podcast®

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Dave Hesselink, Principal, discusses the results of SullivanCotter's 2019 Physician Compensation and Productivity Survey on a recent episode of the The Hospital Finance Podcast® with BESLER. Now in its 28th year, this survey is the largest and most comprehensive of it's kind with data reported on over 206,000 physicians, advanced practice providers and PhDs from nearly 700 participating health care organizations. It features key information on insight on physician base salary, total cash compensation and productivity data and ratios including work RVUs, collections, patient visits and panel sizes.


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 physician compensation programs are evolving as organizations address a variety of new challenges in a rapidly changing health care environment. To discuss the study results, I’m joined by Dave Hesselink, Principal in the Physician Workforce Practice of SullivanCotter. Dave, welcome to the show.

Dave Hesselink: Thank you very much. Appreciate being here.

Mike: So Dave, for those in our audience who may not be familiar with SullivanCotter and the work that you do, can you tell us a little about your firm?

Dave: You bet. SullivanCotter partners with health care organizations across the country and our objective is really to help drive performance and improve outcomes through the development and implementation of what we call integrated workforce strategies. The workforces that we focus on include executives, physicians, advanced practice providers, and other employees. More specifically, in the physician space, we help those health care organizations optimize performance while managing the complex regulatory risk that they face from their financial relationships with both employed and independent physicians. In that space we provide an array of services including physician compensation design, fair market value of commercial reasonable assessments, physician affiliation and needs assessments, business valuations, as well as other advisory support. And in addition to our consulting services, we also offer data and software to help attract, retain, and engage the executive and clinical workforces.

Mike: Absolutely, and as I mentioned, we’ll be talking about the results of SullivanCotter’s 2019 Physician Compensation and Productivity Survey. So Dave, can you just explain for us what you were looking at, specifically, in the survey and who you surveyed?

Dave: You bet. This is an annual survey that we’ve actually been conducting now for over 25 years. Over that time span, it has become the largest annual physician compensation survey in the industry. This past year, we had over 200,000 incumbents included from nearly 700 participating organizations. That sample size of 200,000 represents about one-quarter of active practicing physicians in the US. We conduct that survey to evaluate trends in physician compensation, pay practices and productivity for our survey participants and the purchasers of the survey. Rather than this being an online survey where individual physicians are participating, the responses for our survey are compiled centrally at the organizational level by an individual within the organization who is knowledgeable about physician compensation and productivity. Often, this is in the HR function. We feel it is really the best approach to getting the most accurate and impartial data from the organizations that participate in our survey. Participating organizations typically include health systems, hospitals, medical groups, other organizations that employ physicians. In addition to publishing and selling our survey, we use the survey results to inform our advisory services, which I just talked about, to really help focus on aligning physician compensation not only with market benchmarks but with the overall organizational objectives as well.

Mike: Certainly, many different types of provider organizations are thinking about how to alter their physician compensation plans to bring them into alignment with some of the new models that are out there with payments. I want to talk to you a little bit about that. What would you say are some of the key environmental factors that are driving the need for new approaches to physician compensation?

Dave: I think there’s two that I’ll talk about. Probably the most significant change in health care over the past 10 years, I would say, has been the evolution in payer reimbursement from a pure fee-for-service approach to really what I’ll call, in most markets, a modified fee-for-service approach that also includes value-based incentives or value-based payments. I want to be clear for your listeners. When I say value-based payments or value-based incentives, I mean third party payments for performance in areas other than volume. Think about clinical quality, patient experience or reducing the cost of care. All of those really align with the IHI’s Triple Aim. With a greater share of health system payments based on factors other than the volume of care provided or physician productivity, physician employers have, over the past several years, shifted their reward systems to include performance in a variety of areas that reflect their payer environments. That's what I would call more of a balanced scorecard approach. In the advisory work that we do, we help physician employers evaluate their particular environment and align their physician compensation programs to be successful.

The second significant trend, I would say, that affects health care organizations is the growing physician shortage. Physicians who previously put off retirement due to a weak economy in the last decade now have already moved ahead or are starting to move ahead with those retirement plans considering the strong economy we have today. In 2018, physicians supply projections were updated and the physician shortfall is now expected to exceed 120,000 physicians by 2030 - just in the next 10 years. I’m sure your listeners can identify this because new patient waits for some specialists already can be weeks or months. To avoid potential disruption to the important goals that your listeners have around quality service and cost, we believe that implementing a creative and contemporary physician recruitment strategy will be very important for organizational success now and into the future. In addition to that, there is also a lot of interest in advanced practice provider recruitment as a supplement to those physicians, particularly with the shortage that I’ve just outlined.

Mike: Let’s dig into that a little bit because you found in the survey that market supply and demand for physicians continues to drive increases in total cash compensation. But that’s not really leading to an increase in productivity, isn’t that right?

Dave: That’s correct, Mike. In fact, annual physician cash compensation continues to increase while physician productivity has been mostly unchanged over the past eight years. Our survey also provides data on physician collections and shows that collections remain pretty flat over the past several years. When you combine all of that data together, I think what this illustrates is that employers, physician employers are investing more in their physician practice organizations to attract and retain providers without reciprocal increases in productivity or reimbursement. A greater investment in that physician enterprise really puts more financial pressure on the rest of the health care organization’s performance. I’m sure your listeners can validate that in their organizations as well.

Mike: Dave, let’s talk about value-based payments and how that plays into compensation because those incentives around value-based payments are taking on a more prominent role in compensation. Can you tell us what you found there?

Dave: Yes, it’s an interesting environment right now. There is definitely greater interest in aligning physician compensation around what I would call a more balanced set of performance metrics. I mentioned a few earlier: clinical quality, patient experience, access, cost of care. However, when we look at the survey results, the amount of compensation tied to performance on these metrics has been relatively flat over the past four years, representing, what I would say, in the range of 5 to 10 percent of total cash compensation. We annually collect information about how physician compensation plans are structured, and the prevalence of those value-based incentives in compensation plan design has increased - no question about that. In 2019, approximately 60% of survey respondents reported that value-based incentives were used in their compensation plan designs, and that was up about 5% from 2018. So while the use of value-based incentives has increased, what we find is the amount of compensation tied to performance on these metrics has remained relatively constant. I think that there’s a little question mark there about that result that I think your listeners may have. There are probably two limiting factors most health care organizations face. The first one is the ability of the reporting infrastructure to keep pace with a large amount of clinical quality data that is required for good metric development and the rigorous testing of that data to ensure physician acceptance. The last thing you want to do is collect some data and send it out to physicians and find out later on that the data is not reliable or is not trusted by the physicians that you’re sending it to.

I think the second limiting factor here is really the outdated regulatory environment that is still largely focused on supporting physician compensation based on the quantity of care provided rather than the quality of care provided. As a result, hospital and health system employers in particular are a constraint to relatively small value-based incentive programs. There is some recent movement on the regulatory front, however, as CMS recently proposed changes to the regulatory framework of the Physician Self-Referral Law - or Stark Law as it is commonly referred to. That happened in October of last year. Those are still proposals at this point, but we’re hopeful that these regulatory changes could result in greater flexibility to increase value-based incentives without fear of federal intervention.

Mike: Dave, what do you think provider organizations should be doing right now to remain competitive when it comes to compensating their physicians?

Dave: Well, first of all, it is important to monitor national and regional physician compensation trends to ensure that your physician compensation programs are competitive. We believe participation in and use of benchmarking surveys like ours is the best way to do this. Secondly, I would say periodic evaluation of your physician compensation program is important to make sure it remains up to date and that it is producing the results consistent with your organizational philosophy and strategic objectives. We have a section of our survey called devoted to pay practices, and it is a great tool for conducting this periodic review. Of course, listeners can also contact us to get more in-depth evaluation of their compensation program if they like and recommendations for improvement. Finally, I think it is important for physician employers to understand the dynamic physician recruitment environment. There are a host of physician recruitment tools and practices that are being utilized today in this increasingly competitive environment. As an example, new physicians coming out training often have significant student-loan debt. A particularly attractive recruitment tool is to offer assistance with student-loan repayment in return for a commitment to practice for a predefined period of time - say three, four or five years. Your initial compensation offer might be competitive, but recruitment incentives like student-loan repayment can easily sway candidates in your favor. Our survey contains information on those practices as well: the prevalence of their use, the ranges that are in play, the retention requirements and more. Your organization’s physician recruiters will likely appreciate access to information to better understand the national recruitment environment as an adjunct to their knowledge of the local environment.

Mike: So Dave, if someone wanted to read more about the study or purchase a copy of the survey, where can they go?

Dave: Well, to obtain a copy of the 2019 Physician Compensation and Productivity Survey, listeners should go to Sullivancotter.com and click on the contact us tab. I will say that our 2020 surveys are currently open for participation through April 3rd, and we would love to have as many organizations participate as possible. Information on our individual surveys, our survey bundles – we do bundles and surveys together – pricing can be found on our website.

Mike: Excellent. Dave Hesselink, thanks so much for joining us today on The Hospital Finance podcast.

Dave: My pleasure, Mike


Navigating Commercial Reasonableness of Physician Compensation Arrangements

The Changing Health Care Environment

To stay compliant with evolving regulatory requirements, health care organizations must have the appropriate structures in place to help mitigate financial, resource and reputational risk for potential physician compensation violations related to the Stark Law, the Anti-Kickback Statute and other IRS not-for-profit regulations.

Understanding Commercial Reasonableness in the context of a rapidly changing health care environment is critical, but navigating what this requirement entails can often be challenging. In this piece, SullivanCotter highlights typical areas of focus to consider when assessing the commercial reasonableness of physician compensation arrangements.

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INFOGRAPHIC | 2019 Health Care Staff Compensation Survey

Insight into compensation and pay practices for key health care staff positions

In an increasingly competitive marketplace for talent, health care organizations must balance the need to manage labor expense with the ability to effectively recruit, retain and engage key staff positions.

Learn more about emerging market trends in base salary, total cash compensation and pay practices from SullivanCotter’s 2019 Health Care Staff Compensation Survey – featuring critical benchmarking data from more than 600 organizations on over 450 different administrative, nursing, professional, supervisory and management positions.

Don't miss your chance to participate. The 2020 survey is now open!

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