1. Tsoules, Sweeney, Martin & Orr, LLC
Physician Compensation Models Medical Group Management Association May 5, 2011
Susan B. Orr, Esquire
Tsoules, Sweeney, Martin & Orr, LLC
29 Dowlin Forge Road
Exton, PA 19341
Tel.: (610)
Fax: (610)

2. Outline of Presentation
Marketplace Trends in Physician Compensation Regulatory Requirements Overview and Analysis of Popular Compensation Models
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

3. Trends in Physician Compensation
Performance Based Incentive Plans are on the rise*
92% of Groups offer incentive plans
63% of Hospitals
67% of Integrated Health Systems
Increase with payouts tied to quality
Accountable Care Organizations
Patient Centered Medical Home
Productivity remains the most common
* Hay Group, 2010 Physician Compensation Survey
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

4. Regulatory Framework for Analysis of Physician Compensation
Anti-kickback Statute
Physician Anti-referral (Stark Law)
False Claims Act
Tax-exempt Organization Law
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

5. Anti-Kickback Statute
Criminal offense to knowingly and willfully solicit, receive, offer, or pay any remuneration to induce referrals of items or services paid for by a federal health care program
Government must prove intent to induce referrals
The Statute is violated even if one purpose of remuneration paid under a business arrangement is to induce referrals
Violation of Anti-kickback = violation of False Claims Act
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

6. Anti-Kickback Statute Safe Harbors
Statute contains certain “safe harbor” exceptions
Protect certain payment and business practices from prosecution if all elements of a particular safe harbor are met
Transactions that do not fit within a safe harbor are not necessarily illegal, depends upon particular facts and circumstances
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

7. Bona Fide Employment Safe Harbor
Any amount paid by an employer to an employee (who has a bona fide employment relationship with such employer) for employment in the provision of covered items or services is not considered remuneration
What is “bona fide employment”?
W-2 employee for tax purposes
No FMV required
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

8. Personal Services Safe Harbor
Applicable to Independent Contractors
Written Agreement for at least one (1) year
Specifies services to be provided
FMV compensation
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9. Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC
Stark Law
Prohibits a physician from making referrals for “designated health services” to an entity with which physician (or immediate family member) has a direct or indirect financial relationship, unless a specific statutory exception applies
Also prohibits entity and physician from billing for services provided pursuant to a prohibited referral
Any violation of Stark, even unintentional, results in liability
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

10. Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC
Stark Law
What is a Financial Relationship?
Broadly defined to include any direct or indirect ownership or investment in an entity furnishing DHS
Or compensation arrangement with an entity furnishing DHS
Financial arrangement is protected if activity falls within an exception
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

11. Bona Fide Employment Exception
Employment is for identifiable services;
Amount of compensation is consistent with fair market value for the services;
Compensation is not determined in a manner that takes into account (directly or indirectly) the volume or value of any referrals by referring physician; and
Agreement is commercially reasonable (even if no referrals)
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

12. How to Determine Fair Market Value?
Identify comparable data that reflects the services performed
CMS states: “Reference to multiple, objective, independently published salary surveys remains a prudent practice for evaluating FMV.”
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

13. In-Office Ancillary Services Exception
Physicians
Must qualify as a “Group Practice”
Must meet Performance, Location and Billing Requirements
Solo practitioners can refer and receive compensation from in-office ancillaries
Physicians can refer DHS within their “Group Practice” (even if group is Hospital-owned) and can receive compensation indirectly related to DHS under certain specified criteria
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

14. Federally Tax Exempt Organizations
No Private Inurement
No part of net earnings or other charitable assets of a Section 501(c)(3) organization may inure to the benefit of any private shareholder or individual
No “de minimis” exception for private inurement
May pay “reasonable” compensation for services
Total compensation package for physician services must be reasonable for the geographic market and physician specialty
Total Compensation = salary, bonus, fringe benefits, deferred compensation and other forms of compensation
Benchmark physician compensation using comparable information
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

15. Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC
Third Party Surveys*
Sullivan, Cotter & Associates, Inc. – Physician Compensation and Productivity Survey
Hay Group – Physicians Compensation Survey
Hospital and Healthcare Compensation Service – Physician Salary Survey Report
Medical Group Management Association – Physician Compensation and Productivity Survey
ECS Watson Wyatt – Hospital and Health Care Management Compensation Report
William M. Mercer – Integrated Health Networks Compensation Survey
*Cited in March 26, 2004 Federal Register as data sources for determining physician compensation
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

16. Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC
Compensation Models
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

17. Goals of Compensation Arrangements
Comply with complex regulatory requirements
Comply with strategic business decisions
Be Competitive based on physician labor market
Physician satisfaction
Incentivize/Motivate Physicians
Match compensation with services provided
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

18. Steps in Designing a Compensation System
Articulate what you want the Compensation System to accomplish
Look backwards to see how well the prior system accomplished the goals
Brainstorm how to better measure behavior that supports new goals
Reform the model until all are in agreement
Evaluate the effectiveness of the new system
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

19. Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC
Design Variances
Single Specialty Group
Most homogenous
Spread between producers is narrow
Multi-Specialty Group
Most challenging/tension among specialties
Each specialty must carry its own weight
Hospital-owned Practices
Trust building
Physicians take risk for production
Academic settings
Issue of non-clinical activities
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

20. Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC
Compensation Models
Equal Division of Revenue
Fixed salary
Base Plus Incentive/Bonus
Pure Productivity
Other responsibilities
Medical Director
Managing Partner
Supervision of ancillary staff
Non-clinical activities
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

21. Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC
Equal Compensation
Generally found in single specialty practices (radiology, general cardiology)
Applicable to owners
After expenses paid, revenues are allocated equally among owners
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22. Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC
Equal Compensation
Pros:
Simple
Promotes idea of one united group and team behavior
Avoids Stark issues
Cons:
High produces not incentivized
Low produces allowed to coast
Can result in conflicts among physicians – based on varying volume
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

23. Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC
Fixed Salary
Income guaranteed regardless of productivity
Common for new physicians just out of Residency
How to Determine Salary?
Use objective data: salary surveys
Formula: Estimated Gross Revenue, less expenses attributable to Physician and profit margin
(Continued)
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

24. Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC
Fixed Salary
Pros:
Worry free – sense of security for Physicians
Simple, easy to understand and administer
Cons:
Offers little long-term incentives
Encourages minimum work effort
Discourages entrepreneurship
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

25. Base Salary Plus Incentive
Fixed Base Salary (75% of total Compensation)
Based on survey data/historical data
May be an advance against total compensation
Incentive tied to:
Productivity (Revenues vs. wRVU’s)
Non-productivity related measures, i.e., patient satisfaction, quality meeting evidence based guidelines
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

26. Incentive Compensation
To Determine Available $ for Incentive Compensation: Collect Data
Expenses
By Physician
Ancillary
Overhead allocation
Productivity Information
Charges
Net collections
RVU’s
Encounters
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

27. Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC
Incentive Issues
% as Reserves for future Practice development
Allocation between Owners vs. Employed Physicians
Allocation of DHS Revenue
Productivity Bonus based on personally performed DHS services
Ancillary revenue pool to be distributed equally to all physicians
% Equal Distributions
% Physician Productivity
% Qualitative Factors
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28. Copyright © 2010 Tsoules, Sweeney, Martin & Orr, LLC
Productivity Defined
Gross Professional Charges
Gross Revenue
Net Collections
RVU’s
Days Worked
Patient Encounters
Points
Customized System
Copyright © 2010 Tsoules, Sweeney, Martin & Orr, LLC

29. Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC
Physician wRVU
Components:
Physician time required for each service
Technical skill and physical effort
Mental effort and judgment
Psychological stress associated with Dr’s concern about treatment risk to patient
Based on CPT code
Fixed compensation rate per wRVU
Base future compensation on current RVUs
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

30. Productivity Based on Collections (Proportional Overhead)
Dr. A
Dr. B
Dr. C
Dr. D
Practice Total
Productivity %
19%
21%
28%
32%
100%
Revenue
475,000
700,000
800,000
2,500,000
Overhead
242,630
268,170
359,560
408,640
1,279,000
Net Income
$232,370
$256,830
$340,440
$391,360
$1,221,000
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

31. Productivity Based on Collections (Equal Overhead)
Dr. A
Dr. B
Dr. C
Dr. D
Practice Total
Productivity %
19%
21%
28%
32%
100%
Revenue
475,000
700,000
800,000
2,500,000
Overhead
319,750
1,279,000
Net Income
$155,250
$205,250
$380,250
$480,250
$1,221,000
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

32. Productivity Plus Equal Share
Dr. A
Dr. B
Dr. C
Dr. D
Practice Total
Productivity %
19%
21%
28%
32%
100%
Equal Compensation (50%)
152,625
610,500
Productivity (50%)
115,995
128,205
170,940
195,360
Net Income
$268,620
$280,830
$323,565
$347,985
$1,221,000
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

33. Non-Productivity Related Measures
Medical Home Model/Accountable Care Organization
Reimbursement tied into quality/meeting certain outcomes
Performance outcomes are more likely to be achieved when:
Compensation is tied to the achievement of those outcomes
Programs rolled out gradually, with considerable education prior to linking measurements with payment
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34. Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC
Quality Measures
Participation in quality performance program
Adherence to evidence based guidelines, clinical protocols; reporting performance
Clinical outcomes
Patients up-to-date for needed services
Cost control
Use of EHR/CPOE
Patient satisfaction
Leadership, participation, citizenship
Call Coverage
Peer Chart Review
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

35. Base Salary Plus Incentives
Pros:
Rewards for hard work
Continues to offer some security
Directs behavior
Rewards achievements that promote goals/objectives of group
Cons:
Can place a large amount of income at risk
Cause minimum work standards
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

36. Pure Productivity Model
Most complex
Range from complex formula for multiple factors to a simple model based on amount billed, or amount collected for physician services or quantity of RVUs
Goal = enhanced productivity, but can result in competitive work environment
Encourage overutilization of Services
Copyright © 2011Tsoules, Sweeney, Martin & Orr, LLC

37. A Good Compensation Plan Must:
Work for the entire group
Clearly understood
Be equitable/fair: define physician’s work
Data and contribution reliability
Promote trust among physicians
Promote Group Incentives/objectives (New Partners/Non-clinical activities)
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38. Copyright © 2011 Tsoules, Sweeney, Martin & Orr, LLC
QUESTIONS?
QUESTIONS
ANY QUESTIONS 38 38 38
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