Population Health

Case Study | Union Health – Population Health Management

Improving Patient Care and Optimizing Financial Performance

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As health care continues to shift from productivity and fee-for-service models to more of a quality and performance-based approach, value-based care (VBC) strategies, including population health management (PHM) programs, are becoming a top priority for health care systems across the nation. Leaders within these organizations are searching for more effective and sustainable solutions as they navigate declining reimbursement, regulatory changes, physician burnout and the need for better patient care and lower costs.

These challenges can be addressed with a tailored PHM strategy that supports organizational improvement in the following key areas:

  • Maximizing operational processes and outcomes
  • Developing a support network for physicians and advanced practice providers (APPs)
  • Mitigating risk
  • Enhancing performance in a value-based environment

By identifying actionable and targeted opportunities for improvement through a series of evaluations and readiness assessments, Union Health, an integrated, not-for-profit health system based in western Indiana, was able to develop comprehensive VBC and PHM strategies better aligned with their patient-focused approach to coordinated care.

The Situation

As a six-year participant in a local, tertiary accountable care organization (ACO), Union Health had fully outsourced its operational leadership to the parent ACO member. This legacy partnership and arrangement was simply not producing the desired results from a clinical, operational or financial perspective for Union Health – with data and analytics, physician engagement, embedded care management and post-acute care spend being specific areas of concern. Around 2018, Union Health was at a strategic crossroads in regard to its investment in VBC initiatives as the PHM program was not generating the desired results.

This highlighted the need to more effectively integrate operations across departments and service lines, align incentives for leadership and physicians, and reallocate related resources. At the same time, many competing health systems in Indiana were already realizing the benefits of a highly functional PHM program. The leadership at Union Health recognized the key to success would be through a more consistent approach, improved internal processes and engaged leadership.

The organization decided to narrow its focus by strengthening internal capabilities around care management, physician engagement, analytics and reporting to help ensure greater levels of risk-based contracting success with the Centers for Medicare and Medicaid Services (CMS) and other commercial payors.

The Approach

In late 2018, Union Health was presented with an opportunity to partner and align with a nationally recognized health system in a more advanced Next Generation ACO. A Next Generation ACO model offers more risk and reward (both upside and downside risk scenarios) for health systems who already have highly functional internal capabilities in place to support performance. These models represent some of the most advanced value-based arrangements and require greater system-wide operational sophistication. Union Health was looking for a hands-on approach to align initiatives and ensure success.

In order to assess internal operational capabilities, physician and advanced practice provider engagement levels, incentive models and other key functional areas related to VBC, senior leadership at Union Health collaborated closely with SullivanCotter to help quantify this opportunity. After conducting a comprehensive VBC readiness assessment, which included a close examination of the program’s core functional areas such as partnerships, utilization management, attribution and chronic disease management, Union Health elected to partner with the larger health system who had already demonstrated greater success in the Next Generation ACO model. Moreover, Union Health committed to this arrangement for a minimum of two years to support the development of a strong VBC program. Health systems across the country often partner and align with other systems or independent groups to help mitigate risk and better manage overall cost.

SullivanCotter’s primary role with Union Health was to develop and implement an independent PHM program that would help to improve risk-based contracting performance. The program focused on five core principle areas:

  • Annual care
  • Risk acuity
  • Utilization management
  • Care management
  • Incentive alignment

With these principles in mind and a significant amount of physician and APP input and collaboration, the design of the system’s VBC strategy and approach included the following phases:

 

 

 

 

 

 

 

To help implement the multi-phased strategy, a task force consisting of Union Health’s executive team and leaders in Business Development, Population Health Management, Physician Services, Utilization Management and Care Management was created to help oversee the process. The initial phase of the project consisted of in-depth interviews with physicians and stakeholders, a thorough review of data and performance metrics, and an operational Readiness Assessment. Key findings from this phase revealed:

  • Low engagement from physicians, APPs and other staff with annual care and preventative medicine strategies
  • Significant lack of Care Management resources and coordination such as outpatient pharmacy support, discharge planning and risk stratification
  • Limited definition of roles and responsibilities for Care Management and Operations team members specific to VBC and PHM
  • Insufficient value-based data resources such as reporting capabilities, quality dashboards and clarity surrounding key performance indicators
  • Lack of clarity in the scope of practice for nurse practitioners and physician assistants in current team-based care model
  • Physician and APP compensation and incentives were not aligned with VBC strategies and initiatives; no incentive for physicians and APPs to enhance value-based performance
  • The CMS benchmark or threshold was not met in the contract in order to achieve shared savings – resulting in negative financial impact and poor contract performance

Using the findings from this readiness assessment, SullivanCotter helped executives and physicians at Union Health to further develop a roadmap for the Program Development and Implementation phase.

Roadmap initiatives included the development of:

  • Physician and APP educational and engagement materials for workshop sessions
  • Clearly defined roles and scope of practice for nurse practitioners and physician assistants in primary care
  • Outpatient-focused clinical capacity analysis to support Care Management
  • Comprehensive annual care strategy focused on prevention and wellness
  • VBC Management team to monitor performance and contract relationships
  • Physician and APP incentive components to enhance VBC and PHM
  • Standardized dashboards for the entire care team
  • Post-acute care strategies more closely aligned with Care Management
  • Strategies to monitor ongoing performance

Once the initial components of the roadmap were deployed, the task force worked with SullivanCotter to begin the planning process for two remaining phases within in the PHM model: Physician and APP Incentive Alignment and Performance Review and Monitoring. These processes were also implemented and rolled out during PHM program development and focused on monitoring and enhancing performance in all value-based contracts.

The work accomplished in these two phases included:

  • Population health metrics related to annual care, preventative screenings, vaccinations, utilization management, Care Management team engagement and risk-adjustment
  • Value-based compensation design concepts and continued education provided to physicians and APPs
  • Regular monthly huddles with Care Management team members to review patient volume
  • A risk stratification process to determine appropriate care levels for patients
  • Physician and APP interviews for feedback and evaluation
  • Physician and APP engagement scoring and methodology
  • Refinement of key performance indicators
  • Development and rollout of physician and APP performance dashboard

The Results

Through the investment in and development of the PHM program and other related VBC initiatives, Union Health was able to achieve the following results over a 12-month period:

  • Achieved significant shared savings in year one of the Next Generation ACO as compared to historical performance with improvement of over $6M
  • Reduced per member per month spend compared to prior year by 12%
  • Implemented a newly redesigned approach to primary care by focusing on team-based care delivery
  • Increased the number of completed and billed Medicare Annual Wellness Visits (AWV) from 900 to 5900 with AWV revenue up from approximately $150,000 to $944,000
  • Raised the number of documented Care Management team episodes by more than 200%
  • Lowered number of emergency room visits in the Next Generation ACO population that were deemed “PCP treatable”
  • Documented more than 100 Care Management success stories
  • Boosted the clinical diagnosis documentation rate by more than 20%
  • Enhanced coordination with post-acute care partners and facilities to help reduce total cost of care for ACO patients by 11%
  • Conducted regular meetings and monthly Care Management huddles to enhance physician and APP engagement with knowledge of VBC and PHM concepts and monitoring of individual performance
  • Initiated strategic planning to redesign primary care and other specialty compensation models with a focus on performance and value

Tips for Successful VBC/PHM Program Implementation

  • Assign dedicated resources to care team optimization
  • Collaborate with and gather input from physicians and APPs to strengthen engagement and buy-in
  • Align physician and APP incentives to help streamline and reward clinical efforts
  • Establish achievable milestones to maintain momentum and engagement
  • Conduct regular key stakeholder meetings to provide updates on progress, celebrate successes and course-correct as needed

Lessons Learned

Despite the many factors that differentiate health systems, such as organizational size, complexity, or the communities they serve, there are a common set of fundamental guiding principles and success factors that can be tailored to each organizations’ VBC and PHM strategies.

Union Health’s multi-phase approach – including Readiness Assessment, Program Development and Implementation, Physician and APP Incentive Alignment, and Performance Review and Monitoring – has proven to be an effective way of improving overall performance through the creation of comprehensive VBC and PHM strategies.

Dedicated to enhancing internal capabilities, resources and value-based performance with the objective of improving population health, Union Health partnered with SullivanCotter to develop a long-term, sustainable strategy and implement a comprehensive program to help to improve access and health outcomes for its patients, strengthen physician and APP engagement, and significantly boost financial performance.


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

Contact us for more information.


HFMA | Navigating Change: Implications of CMS's 2021 Physician Fee Schedule

Addressing the impact on physician compensation and productivity

Featured in HFMA's hfm Magazine, SullivanCotter discusses changes to the 2021 Physician Fee Schedule and highlights challenges health care organizations and their financial leaders are facing as they look to address the impact on physician and advanced practice provider compensation and productivity.

Due to the magnitude of the changes within the final rule for the 2021 Physician Fee Schedule, organizations with productivity-based physician compensation plans must understand the implications of these changes and on payer payments, productivity levels, survey benchmarks and regulatory compliance.

Learn more about the short- and long-term impact of the changes and different approaches to consider as you move forward with 2021 compensation decisions.

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Understanding Co-Management Arrangements

Key drivers, compensation structures and payouts, and performance metrics and target setting

As health care continues to shift its focus from volume to value, hospitals are implementing strategies to help strengthen hospital-physician alignment. Co-management arrangements are contractual agreements between hospitals and physicians that establish shared responsibility for particular service lines. These agreements are commonly structured with an even split between both base and incentive compensation components. Base compensation is tied to the number of management service hours required to fulfill baseline duties, while incentive compensation is linked to strategic performance measures.

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INFOGRAPHIC | Considerations for Addressing the 2021 E&M Work RVU Changes

Considerations for Addressing CMS' final changes to the 2021 E&M Work RVU Values


RELATED CONTENT:
ARTICLE | 2021 Evaluation and Management CPT Codes: Understanding the Impact on Physician Compensation
ARTICLE | Navigating Change: Implications of the 2021 Physician Fee Schedule
SullivanCotter's CPT Advisory Services and Technology Solutions


Following its annual review of the American Medical Association’s Relative Value System Update Committee’s recommendations, the Centers for Medicare and Medicaid Services (CMS) finalized proposed changes to the 2021 Physician Fee Schedule and has significantly overhauled the Evaluation and Management (E&M) code documentation requirements, time-effort recognition, and wRVU values for new and established patient office visits.  These changes were effective as of January 1, 2021.

As organizations look to understand the impact of these changes on reported physician productivity levels, it is also important to assess the effect it will have on physician compensation arrangements, fair market value and commercial reasonableness considerations, financial sustainability and national survey benchmarks.

Contact us or visit our CPT Solutions page learn more about assessing the impact of the E&M code changes within your organization.

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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.


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.


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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Updated: February 2021


RELATED CONTENT:
INFOGRAPHIC | Considerations for Addressing the 2021 E&M Work RVU Changes
ARTICLE | Navigating Change: Implications of the 2021 Physician Fee Schedule
SullivanCotter's CPT Advisory Services and Technology Solutions


Every year, the Centers for Medicare and Medicaid Services (CMS) evaluates the recommendations of the American Medical Association’s (AMA) Relative Value System Update Committee (RUC) and conducts its own review of the Work Relative Value Unit (wRVU) values associated with each Current Procedural Terminology (CPT) code to determine if wRVU revisions are needed based on the time, skill, training and intensity necessary to perform each service.

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 values are adjusted. CMS has issued the 2021 Physician Fee Schedule final rule and has significantly overhauled the Evaluation and Management (E&M) code documentation requirements, time-effort recognition, and wRVU values for face-to-face new and established patient office visits. These changes were effective as of January 1, 2021.

Many physicians provide office-based E&M services and, when broad 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 reimbursement impact on Medicare physician services as well as the likely downstream effect on commercial payer physician reimbursement.
  • The potential impact on physician and advanced practice provider (APP) reported productivity levels for various specialties.
  • The potential unintended impact on compensation arrangements – especially wRVU production-based plans or salary-based plans with wRVU-based performance measures.
  • Other variables that could influence the assessment of your organization’s wRVU productivity.

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

“Patients Over Paperwork” is a CMS initiative based on the AMA’s RUC recommendations. The goal of this initiative is to reduce burdensome regulations, enhance efficiency and improve the physician experience. The E&M review and adjustments are steps towards removing regulatory obstacles that impede a clinician’s ability to spend time with patients. The first wave of this initiative includes the modification of ten E&M codes used for billing new and established office-based patient visits (codes 99201-99215). Other E&M code groupings (inpatient, skilled nursing, etc.) will be reviewed at a future date.

Several factors were considered when formulating the 2021 changes 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 incorporated an add-on code (G2212) for every 15 minutes of additional work effort beyond the time expectation associated with 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.
  • Implementation of another add-on code (G2211) has been deferred until January 1, 2024.  At that time, an add-on code will be available to provide additional recognition (reimbursement and wRVU credit) for qualified, severe, or complex chronic patient conditions.

These adjustments, along with CMS quality incentive payments, signify CMS’ increased recognition of how the process of delivering high-quality health care has changed. The impact of these changes will result in material increases in reported wRVU productivity for office-based specialties. Table 1 below compares the 2020 and 2021 E&M code time allocation and wRVUs.

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 the 2021 wRVU changes impact the measurement of physician productivity?

This is often the first question that arises when organizations try to assess how wRVU changes will impact reported 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 for comparison: one based on the 2020 wRVU values, and one based on the new 2021 wRVU values. By keeping volumes and distribution constant, the change in reported wRVU productivity is entirely due to the 2021 wRVU adjustments.

Summary findings indicate that of the 100 specialties reviewed, wRVU benchmarks for 46 specialties increased between 3% and 11%. The modeling shows that wRVU benchmarks for an additional 25 specialties increased by greater than 11%. Table 2 below shows the resulting impact on reported wRVUs by number of specialties. This represents a significant change to wRVU benchmarks, and it will be important for organizations to understand the impact on physician compensation and physician practice economics.

Table 2: Overall Specialty Impact of 2021 E&M Changes

Table 3 below illustrates a sample of some of the individual specialties with notable increases to reported wRVUs.

Table 3: Median wRVU Impact of 2021 E&M wRVU Changes

2. How will wRVU changes impact physician compensation benchmarks?

The answer to this question depends on the structure of an organization’s compensation program. If a plan is based heavily on historical compensation per wRVU benchmarks, there will be, all this being equal, an immediate increase in the amount of compensation paid to physicians as a result of the change in wRVU values. According to SullivanCotter’s 2020 Physician Compensation and Productivity Survey, nearly 3/4 of organizations indicated that wRVU productivity drives more than 50% of physician total cash compensation. Conversely, physicians with salary-based plans linked to national compensation benchmarks will not experience an immediate increase in compensation but may experience a change over time as benchmarks evolve.

Over 95% of the organizations participating in the survey utilize national benchmarks to determine annual salaries and/or compensation per wRVU rates. Understanding how to use these benchmarks appropriately is/will be important during the 2021 and 2022 transition years.

SullivanCotter reviewed several different compensation methodologies to estimate the potential impact to survey benchmarks. Considering the E&M code wRVU changes and assuming no modifications are made to compensation plan methodologies we estimate average clinical compensation will increase by approximately 6% assuming no changes in compensation rates is made. This analysis does not include implications from other market factors such as demand, inflation, cost-of-living, changes in productivity and more. As with reported wRVUs, this impact 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 compensation as physicians meet or exceed the production targets at an increased 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 using compensation per wRVU rates calculated on the older (lower) wRVU values. Using Internal Medicine as an example, the following graph represents the potential unintended consequences for organizations using a variety of compensation plan designs assuming no change in compensation plan methodology. The potential impact varies significantly depending on whether an organization primarily utilizes a wRVU incentive plan versus a salary-based plan.

To avoid these pitfalls, organizations should conduct a strategic review of the 2021 Physician Fee Schedule changes to determine the impact on their physician compensation plans. Considerations include awareness, appropriateness, affordability and feasibility of modifications as well as physician expectations regarding any potential change in compensation.

3. If organizations utilize compensation per wRVU benchmarks, what should they expect with regard to the 2021 survey benchmarks?

As mentioned above, nearly 75% of organizations in the SullivanCotter 2020 Physician Compensation and Productivity Survey utilize the compensation per wRVU benchmark in determining physician compensation. For any organization using the 2021 wRVU values in their compensation plan, a fundamental understanding of how market benchmarks will change is important.

In this article, we reviewed estimated increases to both wRVUs and clinical compensation. However, because the expected change in wRVU values exceeds the expected change in clinical compensation, compensation per wRVU ratios are expected to decrease in future surveys. See Column C in Table 4 for the estimated impact on specific specialties. Overall, our study indicated a 3% decrease in the TCC per wRVU rate, but with significant variability by specialty.

 

OTHER FACTORS TO CONSIDER WHEN ANALYZING COMPENSATION IMPACTS

As organizations continue to evaluate the impact of the final rule during this industry transition, there are several other factors to consider. These include:

  • Will moving forward with historical compensation per wRVU rates and 2021 wRVU values unintentionally create Fair Market Value (FMV) and Commercial Reasonableness (CR) risks due to the resulting higher compensation payments?
  • Do compensation incentive plans include supervisory payments to physicians based on APP productivity levels? The 2021 wRVU value changes will also affect codes utilized by APPs.
  • For specialties that are paid shift rates, are there additional incentive opportunities based on wRVU productivity?
  • Does the organization pay for physician virtual care visits by tying them to office visit E&M values? This could result in unintended higher pay for virtual care.
  • CMS has added G2212 as an add-on code intended to be used with 99205 and 99215 for each additional 15 minutes above 70 minutes of documented time associated with an individual patient visit. The assumptions and analysis above do not account for changes in the distribution of E&M coding or increases in reported wRVU productivity due to this new code. A wRVU increase does not automatically equate to an equal reimbursement increase.
  • CMS also applied an annual budget neutrality factor which caps overall physician fee schedule reimbursement to avoid a significant increase in CMS payments. The reduction in the CMS conversion factor, in combination with significant increases in wRVUs for cognitive specialties, may result in additional compensation paid to physicians. However, revenue increases are unlikely to offset the more significant increases in wRVU-based compensation if 2021 E&M code values and historical compensation per wRVU rates are utilized going forward.

The published 2021 Physician Fee Schedule final rule reduced the Medicare conversion factor by 10.2% to maintain statutorily required budget neutrality. However, on December 27, 2020, the Consolidated Appropriations Act of 2021 – including provisions that temporarily mitigate a portion of the conversion factor reduction – was signed into law. The CMS final rule tables were later published with the 2021 Medicare conversion factor set at $34.89. This is a reduction of 3.3% from 2020. However, expected Medicare revenue increases resulting from the combination of higher RVU values and a higher than anticipated conversion factor rate, are unlikely to offset the more significant increases in wRVU-based physician compensation absent any change in compensation plan rates going forward.

 


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.

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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PODCAST | Executive Compensation Committee Update

Tim Cotter featured in McDermott Will & Emery's Governing Health Podcast Series

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Health care continues to evolve at a rapid pace, and executives with the skills and competencies to navigate complex change and lead transformation are in high demand. As a result, boards of directors are increasingly focused on the supervision, compensation and retention of the senior executive leadership team.

In this episode, the first in a two-part series, Michael Peregrine welcomes Tim Cotter, Chairman and Managing Director of SullivanCotter, and Ralph DeJong, Partner at McDermott Will & Emery, for a discussion on the latest trends and developments impacting the executive compensation committee's decision-making process.

This episode includes a discussion of the following:

  • Where health care executive compensation is trending in 2020
  • Impact of today's high CEO turnover on board oversight standards and talent retention practices in health care
  • How coordination between the executive compensation committee and other board-level committees is increasing
  • Impact of certain environmental factors on health care executive compensation decisions

Compliance Today | Best Practices for a Compliant, Aligned Professional Services Agreement

Understanding professional services agreements in an ever-changing marketplace

Featured in the October 2019 issue of the Health Care Compliance Association's Compliance Today publication, SullivanCotter Principals Stan Stephen, Dina Unrath and Tom Johnston discuss how a systematic review of professional services agreements can help health systems better assess regulatory and financial risk, standardize contracting terms, and refine processes and oversight for contracting with providers.

This comprehensive process includes the following five steps:

  • Form a central contract authority team that comprises a cross-section of key representatives to develop key assessment criteria and processes to evaluate PSAs.
  • Inventory current PSAs to create a central database tracking key contractual terms.
  • Review agreements for compliance with regulatory guidelines and to identify opportunities for economies of scale.
  • Evaluate agreements for strategic need and overall performance requirements, including a review of needed support for desired services from employed and/or independent providers.
  • Renegotiate when appropriate to address changing markets and regulatory guidelines.

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Copyright [2019] Compliance Today Magazine, a publication of the Health Care Compliance Association (HCCA).

AHA Trustee Insights | Key Action Steps for the Compensation Committee

Ensure alignment between executive compensation and key health system objectives

The marketplace for health care continues to evolve, and organizations are increasing the size and scale of their operations in response. New executive positions are emerging and growing in organization-wide impact while selected roles, especially at the subsidiary hospital-level, are narrowing in scope – leaving health care leaders to reconsider whether their current compensation strategy is still the best fit.

To help ensure continued alignment between executive compensation and key organizational objectives, not-for-profit hospitals and health systems must periodically review and update these programs in the context of a rapidly changing health care environment.

Featured in the March edition of the American Hospital Association's Trustee Insights, SullivanCotter highlights important action steps for the compensation committee as they determine if corresponding updates are necessary.

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PODCAST | Governing Health: Executive Compensation Trends

Board Engagement and Expertise

In a rapidly evolving health care environment, establishing executive compensation and related pay practices remains a critical responsibility of the Board of Directors. These decisions are complex, highly regulated and require heightened board engagement and specialized expertise.

In this edition of the Governing Health Podcast Series, Michael Peregrine, Partner, McDermott Will & Emery, welcomes two of the leading voices on executive compensation trends and practices in health care: Ralph DeJong, Partner, McDermott Will & Emery and Tim Cotter, Chairman and Managing Director, SullivanCotter.

This episode includes a discussion of:

  • Latest executive compensation reports
  • Evolving use of metrics, data and performance outcomes
  • Development and maintenance of incentive plans
  • Post-merger compensation trends
  • Relationship between talent management, retention and compensation
  • Impact of the Tax Cuts and Jobs Act

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Split-Dollar Life Insurance: Risks, Benefits and Key Considerations

Delivering cost-effective executive benefits

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Health care organizations are facing increased pressure as they try to recruit and retain top talent. At the same time, the onset of the 2017 Tax Cuts and Jobs Act and the introduction of a 21% employer-paid excise tax on compensation over $1 million for top-paid executives has left some hospitals and health systems asking the
following question: Is there a more cost-effective way to deliver compensation and benefits?

These challenges have triggered renewed interest in split-dollar life insurance, although limited adoption rates have been observed to date based on SullivanCotter’s 2018 Benefits Practices in Hospitals and Health Systems Survey Report. While, under certain circumstances, split-dollar life insurance has the potential to reduce costs for the employer while delivering a similar or greater benefit for the executive, it is a much more complex approach than cash-based compensation structures and carries risks that must be carefully evaluated.

For some, split-dollar life insurance evokes memories of past programs that did not deliver on the promises made or, worse, resulted in a cost to the executive rather than a benefit. Proponents of contemporary approaches cite refinements to the design, potential excise tax savings and reductions to operating expenses as reasons to consider such a program. However, a balanced review will also examine the long-term cost impact, inherent complexities, risks, optics, capital requirements and regulatory uncertainty.

The key is understanding the nuances of today’s split-dollar life insurance arrangements and under what circumstances they might warrant consideration.

WHAT IS SPLIT-DOLLAR LIFE INSURANCE?

Split-dollar life insurance is fundamentally different from cash-based compensation programs. Contemporary split-dollar life insurance programs are typically structured as follows:

  • In lieu of cash-based programs, the employer funds a life insurance policy with a single up-front premium. This is treated as a loan to the executive where the principal and interest is typically repaid upon death.
  • If the loan accrues interest at the Applicable Federal Rate (AFR) and is repaid, it results in no taxable income for the duration of the arrangement.
  • The executive can receive tax-free withdrawals from the policy each year during retirement.
  • The loan is not considered a cost from an accounting perspective, resulting in reduced operating expenses.
  • Since the arrangement is not considered taxable income, excise taxes may be reduced. Legislation specifies that regulations will be prescribed to prevent avoidance of the excise tax. As such, the potential reduction in excise taxes through use of split-dollar life insurance is uncertain, pending excise tax final regulations.

WHAT ARE THE KEY BENEFITS OF SPLIT-DOLLAR LIFE INSURANCE?

The potential benefits of split-dollar life insurance programs are primarily financial in nature:

  • Split-dollar life insurance commonly results in reduced operating expenses and, due to the accounting treatment, a shift from investment income to operating income. The long-term cost impact will depend on the investment income opportunity cost relative to the operating gains.
  • Availability of retirement income from split-dollar life insurance is typically adjusted to be higher than the alternative cash-based program. Due to the risks involved with split-dollar programs, executives must consider timing, amount of cash flow and potential variability in those amounts when deciding whether or not this arrangement is right for them.

There is no simple way to identify the financial impact without modeling projections under different scenarios. The financial impact can vary significantly based on the size of the loan, the age of the individual, interest rates, life insurance policy features and tax rates. How comparisons are made, including when retirement income is expected to be available and over what period, can have an impact as well.

WHAT ARE THE KEY RISKS ASSOCIATED WITH SPLIT-DOLLAR LIFE INSURANCE?

Any expected financial benefits should be assessed against the following costs and risks associated with split-dollar life insurance:

  • Complexity and degree of confidence with impact to executive’s assets. Program tends to be a voluntary alternative to a simpler cash-based program and adopted only by those who can afford to accept the inherent risks.
  • Long-term commitment. The program may be in place for several decades, during which time there could be several unanticipated events impacting the program’s performance with no viable exit strategy.
  • Retirement income needs and cash flow. Program is only available through regular annual payments and not lump sums. This reduces the ability to adapt to an executive’s evolving financial needs and preferences.
  • Corporate cash flow. In many cases, the organization must increase its cash outlay to make the program attractive to potential participants. This can call into question whether tying up additional assets in the split dollar program is a good use of funds by a not-for-profit organization. While there may be financial benefits, the optics could be challenging to defend as the size of loans reportable on the Form 990 Schedule L can be significant – albeit without any reportable income on Schedule J.
  • Life insurance policy performance. The success of the split-dollar program hinges on the life insurance policy performance. Policy illustrations include assumptions about market-related factors, such as S&P500 index performance, as well as elements controlled by the life insurance company, including policy charges and crediting rates. Illustrations typically show one scenario based on current policy charges and another based on guaranteed charges – and the results can be substantially different. The ability to maintain current policy charges is contingent on the insurance company’s profitability.
  • Plan administration. Few organizations have the infrastructure necessary to administer the program internally and rely instead on outside administrators with associated expenses. Maintaining an understanding of these arrangements within the organization will be important as inevitable staff turnover occurs throughout the life of the program.

HOW SHOULD ORGANIZATIONS PROCEED?

Those interested in pursuing split-dollar life insurance should follow a process that ensures robust analysis and engagement with all stakeholders.

Engage an independent advisor. Many organizations rely on advisors who can financially benefit from the placing of the insurance in the form of commissions. It is rare for organizations to have internal resources to evaluate these programs given how seldom they are currently being used. Acting on the organization’s behalf, an independent advisor can work with the individual brokers to ensure key objectives are being met and the proposals appropriately reflect the costs, benefits and risks of the arrangement. The independent advisor can then provide an assessment of the proposals, ensuring that the organization receives a balanced perspective and understands the critical aspects of the program that impact decision-making.

Organizations should assess these five considerations and reevaluate interest after each step:

  • Review of executives who might be suitable candidates and which cash-based programs could be exchanged  for split-dollar life insurance. If multiple executives may potentially participate, one or two individuals may serve as test cases.
  • Initial engagement with stakeholders to identify the level of interest from executives, the Board’s or Compensation Committee’s perspective on risks and optics, and determination of how program costs will be evaluated by the organization’s finance leaders.
  • Identification of one or more experienced insurance brokers who can develop a detailed proposal that supports the key strategic objectives. The proposal should include design features, cost analyses, benefit projections and stress testing of multiple assumption sets.
  • Independent assessment of the proposals that ensures a clear, unbiased summary of the program’s operation, impact on operating income/expenses and investment income, considerations for participants, program optics and disclosures, key risks and additional insights regarding assumptions.
  • Consideration of the proposals and independent assessment by all stakeholders, including potential participants, Board or Compensation Committee members and finance leaders.

If a split-dollar life insurance program is under consideration, a thorough assessment of potential risks and rewards must be conducted. Having an independent expert who can facilitate the process, deliver a balanced evaluation of options and ensure each party is asking the right questions and getting the answers they need is critical to making an informed decision.

Note that SullivanCotter does not sell insurance or receive commissions, referral fees or payments from those who do.


Modern Healthcare | Higher Stakes: Boards Play Pivotal Role in Hospital Direction

Evolution of the health care boardroom

As hospitals and health systems learn to navigate an increasingly consumer-driven marketplace for health care, the scope of the board's responsibility continues to expand in kind.

To help organizations align with the industry's new value-based performance goals and guidelines, trustees are now tasked with providing greater insight into emerging areas of focus such as consumer engagement, data analytics, information security and recruitment and retention.

Featured in the June 4th edition of Modern Healthcare, SullivanCotter discusses the evolution of boardroom activities from traditionally transactional into something much more complex.

In addition to overseeing executive compensation programs, boards are also taking the lead on other important issues such as cultural integration, leadership diversity, pay equity and more. Many are even diving deep into performance benchmarking and analyzing key quality metrics to help ensure alignment with and progress towards overall organizational goals.

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PODCAST | Governing Health - Executive Compensation Trends Update

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With the new provisions set forth by the Tax Cuts and Jobs Act and recent trends associated with pay equity, the use of clawbacks and the expansion of incentive compensation goals and objectives, the governance of executive compensation remains a critical boardroom concern.

In the most recent edition of the Governing Health Podcast Series, Michael Peregrine, Partner, of law firm McDermott Will & Emery, welcomes two of the leading voices on executive compensation trends and practices in health care: Ralph DeJong, Partner, McDermott Will & Emery and Tim Cotter, Chairman and Managing Director, SullivanCotter.