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.


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.


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.


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

 


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


Modern Healthcare | New CMS Star Ratings Ignore Socio-Economic Factors

Assessing CMS Star Ratings

In a December issue of Modern Healthcare, SullivanCotter helps to analyze how the inconsistent application of peer groups between CMS’s new star ratings and the Hospital Readmissions Reduction program are creating sizable discrepancies in reported performance. By not risk-adjusting hospitals by peer groups based on their dual-eligible population in the latest preview of the CMS star ratings, hospitals with the largest percentage of dual-eligible stays fared worse than others in the readmissions category - hurting their overall star rating.

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Q&A | What Comes After Physician Compensation Design?

Developing physician and APP compensation plans

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As health care revenue sources continue to shift from volume to value and organizations take on more risk, new physician and advanced practice provider (APP) compensation strategies are emerging. The health care industry is adapting to new payment and care delivery structures with increasingly complex compensation models to match. Organizations must now consider a growing number of components when developing these plans, including recruitment, retention and engagement, patient satisfaction, access, quality of care, governmental regulations and more.

You’ve put time and effort into designing an effective physician compensation plan. How can you make your implementation equally transparent, accurate and successful?

SullivanCotter experts Dr. Mark Rumans, Chief Medical Officer, and Courtney Dutton, Principal, recently answered questions on physician compensation design and implementation - helping to uncover emerging trends and address the increasingly complex challenges health care organizations are facing today.

What are some common challenges organizations face when designing an effective physician compensation program?

CD: Organizations are dealing with a significant number of moving parts when it comes to physician compensation programs. There is both a regulatory environment that focuses on pure productivity and a reimbursement environment that is rapidly changing to focus more on cost efficiencies and value. Because of the proximity of these two realities, along with their varying degrees of complexity, health care leaders often feel like they are living in two different worlds. As organizations start to incorporate more value and quality-based metrics into their plans, physician alignment and engagement becomes more challenging. Historically, physicians have often been isolated relative to the strategic initiatives of the hospital, health system or medical group. But organizations are now recognizing the importance of aligning system-wide goals across all workforces – executives, physicians, advanced practice providers and employees – and must consider a shared vision between each when developing new compensation plans.

MR: It’s very difficult to make changes to physician compensation when the physicians (or the medical group) do not fully understand the reason for the change. Physicians are not always fully aware of all the financial pressures in today’s changing health care environment, and thus don’t understand why change is needed – especially if the physician group is happy with the current program. You need to be able to communicate what you are trying to accomplish and why, and explain how the new compensation plan is aligned with the mission, vision and values of the organization.

After identifying the need for change, the question many organizations struggle with is how far and how fast can you move at any one period of time? Organizations need to consider the gap between current and desired performance and, while they may have some aggressive goals, need to recognize that change to a compensation plan can only move so fast. Significant variation from the current state can cause disruption and unintended consequences if not carefully implemented.

CD: Another common challenge is that the health care industry has been slower to embrace many of the administrative technologies that support infrastructure change and enhanced reporting capabilities of major initiatives such as compensation programs. As a result, there is no clear line of sight for physicians to understand their total performance and how changes in performance can impact their compensation. Right now, physicians are relatively comfortable with the accuracy of their personal productivity as measured in work relative value units (wRVUs). However, as organizations incorporate non-productivity elements into compensation payment models, lack of confidence in the data as well as insight into its impact on outcomes creates challenges when trying to gain physician support for new compensation model.

MR: I agree. Physicians prefer compensation that is related to things they can control or influence - which makes having data points at the hands of a physician so critical. Physicians need a trusted reporting mechanism with accurate and timely data to help track how their actions directly impact their performance.

When you consider some of these common challenges in physician compensation, what key things do organizations need to think about in the design and planning process to help ensure a successful implementation?

MR: I cannot stress enough the importance of compensation committee member selection. Organizations need to include influential thought leaders on the compensation committee who are respected by their colleagues and who can effectively communicate the need for change. Ideally, your compensation committee should include a number of physician leaders who can set aside their personal and departmental compensation and consider the goals of the entire organization. Once your committee has been selected, laying out a framework for success and coming to agreement on what you’re trying to do and why you’re doing it is critical. This can be difficult at first because the committee will not likely have all the technical details about the new plan. Throughout the design process, there are four important things to keep in mind:

  • Define the need for change with respect to the shared vision of the organization
  • Select the process for change with consideration to what decisions need to be made
  • Decide who is going to make these decisions and what data is needed to support them
  • Define and begin implementation of a communication plan to providers

CD: Identifying strong physician leaders to champion the change is vital to success. These strong physician leaders need to have an active voice in the development of the compensation plan. Physicians have a front-line care delivery perspective and can speak to issues that may hinder or enhance the move to a performance-based compensation model. Physician leaders who serve on compensation committees need to take ownership of the plan, inform and educate the committee, synthesize data that pertains to the plan and champion the change within the physician workforce throughout the entire process (development, testing, rollout, implementation and annual review).

MR: As medical groups continue to grow, implementing compensation plan changes for groups with 200 or more physicians/providers is no longer an easy task. Imagine doing it with thousands of physicians! So, in addition to strong leadership, the compensation committee must also be mindful of the organization’s ability to implement a new plan from a “nuts and bolts” perspective. They need to assess what type of systems are required to implement the plan well before the plan has been approved. Working out the physical implementation of the plan well in advance of it going live has many benefits and allows you to course correct should there be any technical issues.

Additional questions to consider are:

  • What is needed from an IT standpoint to implement the plan?
  • What tools do we currently have and what is our capability in regards to reporting performance metrics to physicians in real-time?
  • How will comparisons of the current compensation structure to the new model(s) be communicated and what tools are needed to administer this change?

How critical is communication when implementing changes to a compensation program?

MR: Communication is as critical as the plan itself. Committees and administration need to develop a communication plan in tandem with the development of the compensation plan. The questions the compensation committee considers in the plan development will typically be the same questions asked later by providers. Anticipating these questions will help encourage plan adoption, drive engagement and serve as your roadmap to a successful launch.

CD: Building a communications plan at the beginning of a compensation redesign helps set expectations regarding the project’s timeline and identify the major milestones. Once the milestones are identified and agreed upon by the compensation committee, it is important to plan the frequency and mode of communication. Be sure to establish a process to allow for feedback and be flexible should changes need to occur based on that feedback.

MR: What you communicate and how frequently you communicate are also very important factors to consider. An ideal communications plan will allow for several “touchpoints” to share (on paper, in person and electronically) the basics: who, what, where, when, why and how. Equally important is clearly articulating who the decision makers are, and why, to ensure expectations are set as to how feedback will be used throughout the process. You can do some of this communication via email, but ideally your communications plan will allow (early on and throughout the process) for several one-to-one and oneto-many communication opportunities.

Consider the following opportunities in your communications plan:

  • Town Hall meetings
  • Lunch and Learn presentations
  • Dinner with your Chief
  • Monthly or weekly communication from the CMO and/or compensation committee
  • Online communication (such as a website that outlines the plan and process, stores important documents, Q and A and a managed chat room)

CD: Setting context is an important first step. Providing opportunities for physicians to understand changes in reimbursement and compensation structures and how market influences are impacting and/or apply to your organization is very important. Be prepared to explain your organization’s short-term and long-term strategy and what is driving the need for change. This is where physician champions are key. Allowing them opportunities to reinforce the need for change with peers lays the groundwork for physician engagement and involvement as opposed to a top-down approach when the message is delivered only by administration.

Once the compensation plan is developed and agreed upon, how can an organization drive provider engagement throughout the implementation and transition to a new compensation program?

MR: As new compensation plans are implemented, it is important for providers to have the opportunity to understand what the new performance expectations are and how a change in performance will impact their compensation. Give specific examples and allow physicians time to ‘shadow’ the new plan without any impact to their current compensation. During this shadow period, be able to show where there are gaps in performance and what changes are needed to mitigate any downturns. It is important that physicians understand the organization wants them to be successful and will work with them to understand and close any gaps in performance.

CD: During the shadow period, it is also important to communicate how the plan will be administered once it is fully implemented. This should include how often physicians can expect performance reports, the process for identifying data discrepancies and availability of subject matter experts that can address questions. Additionally, after the completion of the shadow period, many organizations implement a phase-in of the new compensation plan, which provides protection for providers with significant changes in compensation and allows for additional time to adjust behaviors and adapt to the new model.

What are some tactics (or examples) for increasing provider acceptance and support of proposed changes to a compensation program?

CD: Establishing a formal compensation review committee and governance process allows physicians the opportunity to present concerns or raise valid pushback/unintended consequences of the new compensation plan. This committee would be responsible for reviewing the plan on an annual basis to ensure continued alignment with system goals and strategic initiatives, recommending plan changes, reviewing non-productivity metrics and vetting provider or departmental requests for plan modifications.

MR: In addition to establishing a governance process, any tools that make the plan more transparent will help to generate more support. Whether it is a report or online dashboard, you need to how physicians how they are performing and how this relates to the new compensation model. There is often apprehension surrounding this process, and the fear of change is often more harmful than the change itself. Be sensitive to this and utilize as many tools as possible to help make the transition as smooth as possible.

Once the new compensation program is fully implemented, how do you sustain provider engagement?

Continued transparency is vital. The most successful systems allow for ongoing feedback on the program and continue to monitor the impact after it has been fully implemented. Don’t be surprised if subtle program changes are required. Small changes to the plan over time may help with overall adoption, so be open to the idea of ongoing engagement for long-term improvement. The governance and physician compensation committees, ideally staffed with both physicians and administrative stakeholders, are the best resources for plan development and adoption. They review the plan, identify outliers, and put into place policies and procedures to help support the values of the organization. There is a high-level of built-in trust with this model as those developing and implementing the plan  understand the unique complexities associated with being a physician.

CD: Along those lines, communicate that this is not a “once and done” plan. Physicians will have a greater appreciation for the plan and process knowing that there will be an ongoing review process and a willingness to make changes as necessary. Let physicians know that you understand the bigger picture and that as health care evolves, the compensation program will need to flex over time to align with these changes.

Why and how can technology be used to support this effort?

CD: Change is often perceived as happening too fast. Having the use of technology to enable that change, especially when it comes to communicating and administering the plan, is key to its success. In this age of viral communications, things can spiral out of control quickly. We cannot rely on wRVUs to improve performance, nor can we rely on spreadsheets as a way to communicate and administer physician compensation. To engage physicians and gain trust when tying new non-productivity measures to compensation, organizations need to provide them with one place to access clear and concise performance data.

MR: Being able to show physicians all the components that impact their pay is key. You need to be clear about how the plan is structured, what components are being measured, the goals of the organization, what is expected from providers, the source of your reported data and the actual compensation calculations. Technology can provide a platform that is both accurate and transparent – allowing people to really see and understand how their compensation is tied to value. Many organizations are now accessing and assembling compensation data from multiple different systems, which is timeconsuming and can lead to human error. Data-driven technology transforms a lengthy and arduous process into one system that provides actionable insight and allows physicians and their managers to see as much or as little information as they want. This level of transparency creates an opportunity for course correction if needed.

CD: A strong technology platform can really act as the cornerstone for change. Just as EMRs have improved patient care, diagnostics, patient outcomes, and practice efficiencies, provider performance technologies can support organizations in the transition from volume to value by aligning pay with performance and serving the diverse needs of leadership, administrators and physicians.


SullivanCotter’s Provider Performance Management TechnologyTM

Provider Performance Management TechnologyTM (PPMTTM) is a market-leading, cloud-based solution that enables provider engagement through transparent performance-based compensation administration and analytical capabilities.

Utilizing best-in-class technology and decades of physician compensation and health care expertise, PPMTTM is designed to support organizations in the transition from volume to value. PPMTTM is offered as part of a comprehensive portfolio of advisory, information and technology services to address client needs.


CMS Star Ratings Highlight Need to Compare Performance by Hospital Type

Understanding what drives performance

As the marketplace for health care grows increasingly complex, organizations must develop a greater understanding of what drives performance to remain competitive.

The Centers for Medicare and Medicaid Services (CMS) recently published its newest Star Ratings, designed to measure and report hospital quality. These ratings have provoked a number of questions and concerns as more than 3,600 hospitals - regardless of size, breadth of services, or geographic location - are benchmarked against a collective average.

SullivanCotter was recently featured in a Modern Healthcare article which addresses these differences. As organizations use these ratings to help drive improvement efforts, it is important to consider the following:

  • Using national benchmarks like the CMS Star Ratings can be a great way for hospitals nationwide to help drive quality improvement, but only if they understand the nuances and complexities in the data and how to best analyze it.
  • Not all hospitals are the same. To truly identify areas of meaningful improvement, hospitals must be compared to like hospitals.
  • Organizations cannot improve what they cannot measure, and the new CMS Star Ratings continue to provide transparency in health care quality and performance as the industry shifts from volume to value.
  • To drive improvement efforts and help organizations more effectively benchmark performance against their direct peers, the market requires a standard set of national quality metrics that is stratified by hospital type.

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Using CMS Star Ratings to Drive Improvement at Specialty Hospitals

Using national benchmarks to drive quality performance

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In order to remain competitive in an increasingly complex marketplace, health care organizations must develop a greater understanding of what drives performance and improves outcomes in the transition from volume to value. Although the overall aim to enhance patient satisfaction, improve quality and reduce the cost of care is the same, specialty hospitals, academic medical centers, community hospitals, and major and minor teaching hospitals each operate under very distinct circumstances.

The conditions they treat are as different as the populations they serve and it cannot be assumed that patient experience at one type of hospital will be commensurate with the other. The Centers for Medicare and Medicaid Services (CMS) published its most recent Star Ratings in December 2017. While designed to measure and report hospital quality, these ratings have provoked a number of questions and concerns as more than 3,600 hospitals - regardless of size, breadth of services, or geographic location - are benchmarked against a collective average. The complexities and nuances of the new ratings can make it difficult for hospitals to truly understand how they compare to their peers and where there are still opportunities for improvement.

CMS defines specialty hospitals as those that are primarily or exclusively engaged in the care and treatment of patients with a cardiac condition; patients with an orthopedic condition; or patients receiving a surgical procedure. While CMS bases these ratings on 57 different quality measures across seven areas of performance, specialty hospitals only reported an average of 27.2 of the 57 measures. For example, 97% of specialty hospitals reported patient experience metrics. On the other hand, only 5% of specialty hospitals reported data on acute ischemic stroke 30-day mortality and 30-day readmissions because they do not typically treat this condition.

The same is true for patients with complex medical conditions such as pneumonia, coronary artery bypass graft, chronic obstructive pulmonary disease and acute myocardial infarction. Only 20-25% of specialty hospitals that were rated included measures for mortality and/or readmissions for this patient population. Additionally, less than 25% of specialty hospitals reported data for the majority of the NHSN infection rates in the Safety of Care measure group, excluding C. Difficile. The CMS ratings require additional stratification by hospital type in order to paint a more accurate picture regarding how organizations are performing in relation to their direct peers.

However, the impact of further stratification could be significant for specialty hospitals as 83% of the 74 specialty hospitals included received a four- or five-star rating. With a small number of metrics to report, specialty hospitals have fewer variables to address to help improve their scores within this ranking system and, more importantly, the care delivered to patients that can be benchmarked with publicly-reported data. All hospitals, including specialty hospitals, need to understand their variation to national benchmarks as well as the variation to their peers.

Specialty hospitals using CMS Star Ratings to drive improvement efforts should focus on the following steps:

DEFINE YOUR PEER GROUP

In addition to reviewing benchmarks for like hospitals, specialty hospitals must also consider how their ratings compare to other relevant local and regional competitors. Patient experience scores, for example, can vary widely by region. As the highest weighted measure in the CMS Patient Experience group, “Overall Rating of Hospital” had a national average of 89.01 in the December 2017 Star Ratings. On average, Nevada hospitals show a linear score of 86.90 while Wisconsin hospitals show a linear score of 90.78 - a 4.5% difference between the two states. Regional differences are important to consider when evaluating performance compared to a set of benchmarks.

BENCHMARK YOUR PERFORMANCE AGAINST PEERS

Do not underestimate the importance of peer group selection. Not all hospitals are the same – and to truly identify areas of meaningful improvement, hospitals must be compared to like hospitals. Hospitals will often have more than one peer group. For example, a specialty orthopedic hospital will want to benchmark itself against other orthopedic hospitals. However, it might also want to benchmark specific metrics like patient experience against other local hospitals that offer orthopedic services.

IDENTIFY AREAS FOR IMPROVEMENT

It is critical that organizations develop a better understanding of their variation to the CMS benchmarks. If a specialty hospital is performing above or below average, the key is to identify ‘how’ and ‘why’. Individual metrics that have a negative variance to peer group benchmarks highlight potential opportunities for improvement. Additionally, identifying areas that are important to patient outcomes and the mission of your organization will resonate most with staff and have a higher likelihood for improvement.

ALIGN REWARDS WITH TARGETED IMPROVEMENTS

Once an organization selects a specific area to target in improvement efforts, it is important to determine how employees can be motivated or incentivized to engage in these activities. As organizations shift from volume to value, quality metrics are becoming more prevalent in provider compensation plans. For example, according to SullivanCotter’s Physician Compensation and Productivity Survey, quality incentive compensation for physicians increased in 2017 from an average of 5.9% to 7.4% of total cash compensation. Aligning quality improvement efforts with compensation is an effective approach to driving change and helping to reach overall organizational goals.

REEVALUATE REGULARLY

While it is difficult to generate significant progress on one metric in a single year, organizations should not overlook the need to review these benchmarks in aggregate on a periodic basis. If there is a noticeable shift in the data, changing direction and adjusting improvement efforts accordingly is important.

CMS Star Ratings continue to provide transparency in health care quality and performance as the industry maintains its focus on value-based care. Perhaps the adage that best applies is “you can’t improve what you can’t measure” - and these ratings are certainly a step in the right direction. Despite the myriad of differences in the 3,600+ hospitals included in the CMS ratings, all share a common goal of advancing the overall quality of health care. However, to truly drive improvement and help organizations more effectively benchmark performance, the market requires a standard set of national quality metrics that is stratified by hospital type.

Organizations like the National Quality Forum and others are helping to establish these national benchmarks. Standardizing the process would help to facilitate more meaningful comparisons, allowing specialty hospitals to focus more on individual opportunities for improvement and less on their variance from the collective national average.