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Trends in physician compensation [PODCAST]

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The Hospital Finance Podcast

In this episode, we are joined by Dave Hesselink, Principal at SullivanCotter, to discuss results from their Physician Compensation and Productivity survey.  

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Highlights of this episode include:

  • Background behind the study, now in it’s 28th year, which has become the largest annual physician compensation survey in the industry.
  • What key factors are driving the need for new approaches to physician compensation?
  • Why market supply and demand for physicians continue to drive increases in compensation but productivity has remained unchanged.
  • What provider organizations should be doing right now to remain competitive when it comes to compensating their physicians.
  • And more…

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. So 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. So, the workforces that we focus on include executives, physicians, advanced practice providers, and other employees. I work in the physician’s space and more specifically in that physician’s 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. So 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 workforce and I think that’s really why we’re talking today, is our most recent survey results.

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. And 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. So that sample size of 200,000 represents about one-quarter of active practicing physicians in the US. We conduct that survey really to evaluate trends and physician compensation, pay practices and productivity for our survey participants and the purchasers of the survey. And then rather than this being an online survey of individual physicians where individual physicians are participating, the survey 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. So often, it’s in the HR function. We feel that that’s really the best approach to getting the most accurate and impartial data from the organizations that participate in our survey. Of those organizations that are participating typically include health systems, hospitals, medical groups, other organizations that employ physicians. And in addition to publishing and selling our survey, we use the survey results to inform our advisory services, which I just talked about, which really focus on aligning physician compensation not only with market benchmarks but with the organization. So overall objectives as well.

Mike: And 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. And I want to talk to you a little bit about that. So what would you say, Dave, 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 healthcare over the past 10 years, I would say, has been the evolution in pair 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 pair payments for performance in areas other than volume. So, think about clinical quality or patient experience or reducing the cost of care. All of those really align with the IHI’s triple lane. And so with a greater share of health system payments based on factors other than the volume of care provided or what we would call 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 pair environments. So that’s what I would call really more of a balanced scorecard approach. So, 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 healthcare organizations is the growing physician shortage. So physicians who previously put off retirement due to a weak economy in the last decade now have already moved ahead or starting to move ahead with those retirement plans considering the strong economy we have today. So, in 2018, physicians apply projections were updated and the physician shortfall is no 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 specialist already can be weeks or months. So, 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. And in addition to that, there’s 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 continue to drive increases in total cash compensation. But that’s not really leading to an increase in productivity, isn’t that right?

Dave: Yeah. That’s correct, Mike. In fact, annual physician cash compensation continues to increase while physician productivity has been mostly unchanged over the past, I would say, eight years. Our survey also provides data on physician collections. That shows that collections remain pretty flat over the past several years. So when you combine all of that data together, I think what that 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. So a greater investment in that physician enterprise really puts more financial pressure on the rest of the healthcare 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: Yeah. It’s an interesting environment right now. There’s definitely greater interest in aligning physician compensation around what I would call a more balanced set of performance metrics. So 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. So we annually collect information about how physician compensation plans are structured. And the prevalence of those value-based incentives and 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. So I think that there’s a little question mark there about that result that I think your listeners may have. And I think that there’s probably two limiting factors that most healthcare organizations face. The first one is the ability of the reporting infrastructure to keep pace with a large amount of clinical quality data that’s required for good metric development and the rigorous testing of that data to ensure physician acceptance. So last thing you want to do is collect some data and then send physicians around it and find out later on that the data is not reliable or is not trusted by the physicians that you’re sending. 

And then I think the second limiting factor here is really the outdated regulatory environment that’s still largely focused on supporting physician compensation based on the quantity of care provided rather than the quality of care provided. So as a result, hospital and health system employers, in particular, are a constraint to what I would call 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’s 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: Yeah. Well, first of all, it’s 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, it’s producing the results consistent with your organizational philosophy and your strategic objective. We have a section of our survey called the pay practices section of our survey. And it’s 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. And then finally, I think it’s 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, I’ll call, increasingly competitive environment. So as an example, new physicians coming out training often have significant student-loan debt. A particularly attractive recruitment tool is 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 those 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. So 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 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. So 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, all of that 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.


 

 

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