August 5, 2020
Under the radar: Physician compensation with Angie Caldwell of PYA
Angie Caldwell is the Managing Principal of PYA’s Tampa office.
A significant amount of her work is around physician compensation, a topic that is right at the top of many, if not most or all, healthcare providers’ lists of critical issues today as we sort through the financial fallout of the past few months. Here, Caldwell speaks with Jarrard Inc. CEO David Jarrard about physician compensation redesign, the shift to value-based arrangements – and resistance to it – and some issues running under the radar that providers need to bring to the surface.
Listen to the conversation or read the transcript below.
Read the transcript
David Jarrard: Let’s start big picture. Talk about the environment right now with employed physicians, non-employed physicians, providers in general. What’s the mood?
Angie Caldwell: Pre-pandemic, folks were really in a groove. Many organizations were starting to think long-term about physician compensation redesign and incorporating more at-risk elements for value and working that into their compensation plans. The pandemic came along and then it just really switched to survival mode.
As some areas across the country are starting to recover, as elective surgeries have come back on, we’re seeing more interest again in taking a look at our compensation design and structures because they weren’t necessarily set up to handle what just happened. We’re starting to see some folks coming back to the question, “What can we do to make it so that we don’t have the highs and lows?” Especially in a productivity-based model.
DJ: Talk a little bit about that productivity-based and non-productivity-based model as hospitals do the calculations that they need to do now.
AC: In a non-productivity-based model, a shift-based type of model, if the physician is there, they’re being paid for the service whether there’s a patient there or not. The light is on, so the service is being paid for. So, a productivity-based model is typically a work RVU-based model.
If the work RVU isn’t there, then the physician is not compensated other than their base compensation. There are many variations, but from a pandemic perspective, shift-based compensation where the light is on and you’re providing for the service whether there’s a patient in the bed or not, well that’s a cost to the hospital.
Without the offsetting collection or reimbursement for the patient service, for the productivity-based physician during the pandemic, there weren’t work RVUs being generated. So, the physician received their base compensation where in all likelihood they were used to receiving a productivity incentive bonus on top of that. Folks are left wondering how to – or should they – make up the difference?
DJ: Do you see this accelerating the shift to per member per month compensation models, like population health? Does it drive us in this direction and if so, how fast?
AC: We do, especially in primary care. How much easier would it have been if the inflow of reimbursement was steady, as you said, based upon a patient panel, based on a per member per month. It would have been so much easier from a cashflow perspective had hospitals and employers been able to do that.
But of course they weren’t. So now there’s a focus on how we can get there and do it reasonably? Whenever it is that we’re able to get to the other side of this – or at least manage it better, we will revisit that conversation.
DJ: Two-part question. How quickly is that going to happen? Does the existing platform of physicians survive? Will hospitals in the future need as many positions as they had in February?
AC: I think as soon as folks are able to focus on their provider agreements, they’re going to come around to this and try to get to that magic place where there is a steady reimbursement from an employed provider pool perspective.
If I had to prognosticate a bit, I think it will maintain. They still need the same number of physicians. Employers might not be unnecessarily hiring right now. There are statistics out there that the recruiters’ open searches dropped 30%. That’s unheard of, right? We’ve heard of the physician shortage. We’ve heard of all these recruiting needs and all of a sudden, overnight, 30%, boom! Those roles were taken off the recruiters’ plates. So I think there’s definitely still a need for that employed provider.
All of a sudden, the market shifted from a sellers market to a buyers market when it came to the number of physicians out there. There are a lot of physicians in private practices right now who are knocking on the hospital’s door to say, “We can’t do this anymore. The financial risk is too great. We want to practice medicine.”
DJ: We’ve done a couple of surveys of physicians for some of our healthcare system clients. And they’re finding what you’re saying, which is that there were physicians who may have been considering a different kind of future, maybe even leaving medicine or doing something else. And that number doubled between the February and now. It’s a substantial shift in the mindset of physicians, particularly independent physicians.
AC: Yes. And I’ve heard that same shift in other therapists as well. Physical therapists are expressing dissatisfaction. We hear them say, “I can’t touch my patient anymore because of all of the PPE and the distance.” You’re right. There’s a great dissatisfaction right now that, I hope goes away over time and we’re able to manage and innovate through because we have to have these folks.
DJ: So, it’s a buyer’s market if you’re a health system, but I also have heard that there are potential disruptors entering the market. And I’m thinking of a variety of PE–backed players, but there are the big brand names – CVS, Walgreens and Walmart – who are at least threatening to be opening clinics and engaging on these positions.
How long do you think our health systems have to calculate and keep the physicians that they want to keep?
AC: Disruption is here to stay. These other disruptors have been talking about and planning to do this for a while and, quietly, suddenly, it’s happening. And, it’s happening under the radar while everything else is going on. So, like you said, it’s a buyer’s market.
There are physicians in the market. These disruptors might not have the same stress and difficulty in filling those physician roles that our hospital friends have had in the past, because there is an opportunity right now with the number of providers in the market.
The healthcare and physician–patient relationships are very personal. To the extent that that relationship is managed well, then to take that patient away from that physician, it’s going to probably take more than an Amazon shop down the street to break that relationship.
But we know the statistics on all the folks who don’t get the care that they need or don’t go have a primary care physician. For that per person, wow. They’ve got a world of opportunity and a whole different physician selection to choose from – including telehealth.
DJ: And compared to the mystery box that are often health systems in terms of cost. If I’m going to CVS or Amazon, I’m going to assume I know what the price is. I know, if there’s a copay, what it is. I know exactly what my risk is financially and that during the recession that can be really attractive as well.
AC: Exactly. And, I don’t know if you’ve ever used telehealth during the pandemic.
DJ: Yes. I’ve stared at several doctors’ foreheads; I’ve had a couple of visits.
AC: The pandemic also forced me to use telehealth. It wasn’t that I was afraid to use telehealth. It’s just that I have a relationship with a physician, so I didn’t find the need. The pandemic forced the issue and wow! What an awesome option for all of us. Hopefully it’s here to stay.
DJ: Hopefully it’s here to stay, it’s super convenient for me and to have a doctor show up on time to the 15–minute mark. That’s a remarkable experience all by itself.
DJ: But it’s also one of the challenges when we get to physician compensation, because the money for telehealth isn’t exactly the money for that visit anymore.
AC: You’ve got it. And so, one of the things that I think will be another hot button issue as it relates to physician compensation and physician compensation design, is to make sure in those physician arrangements, that those physicians are getting paid appropriately for telehealth. Whether it’s on a per work RVU basis, a per click basis, or call coverage related to telehealth.
There’s so much going on in that space right now, that is shored up in future arrangements is going to be important.
DJ: I love the thought of a physician being paid on a per–click basis. That changes the whole mindset, but it’s the world we’re facing. It’s more of a challenge for some older physicians who are maybe looking for a different path in their career than younger ones who have lived in the video world and digital world their entire careers.
AC: Although I have to say that the first person that I saw via telehealth was an older gentleman and he said, “I’m not going to retire for another 15 years.” He said, “I love this! This is easy.” So, there might be an awesome opportunity to extend the work life of the aging physician population through telehealth.
DJ: Wouldn’t that be great to keep that wisdom and those smarts around, instead of relying on an EMR to tell you what to prescribe, because you’ve got people who’ve been around and seen it all. I love that.
AC: Exactly. And they have better, set hours, more fixed hours, because like you said, it’s 15–minute increments. They can do it from home or wherever. It might be an awesome opportunity.
DJ: That’s a great, I love that. So you used a phrase earlier I want to come back to. You talked about compensation design, which is such a great word because when we survey our clients’ physicians, when they think about compensation of course they’re talking about money. But to the things you’ve already said, they’re interested in their lifestyle and their work life balance.
When you work with your clients to help them think about compensation, is it purely about the money or is it more than the money as you think about how to keep these doctors?
AC: Absolutely more than just about the money. The design of the physician compensation really has to follow how the physician works, how they go about their daily practice. And then with that, whatever compensation plan that is in place has to incentivize the physician to do the best that they can in that daily work.
Take the example we talked about with a productivity–based model and a non–productivity-based model a moment ago. You could argue that a work RVU model in a hospitalist type setting might not be the right model for the way that physician works. Not to say that that can’t work, but if you think about the way an orthopedic surgeon works versus the way the hospitalist works, there’s definitely a different design related to that physician compensation that more closely aligns with how the physician goes about their daily practice.
DJ: So, Angie, as you work with your health systems and advise them on how they need to be acting now, not even six months from now, but today, what’s a priority for them? What should they be focused on?
AC: Coming out on the other side of this the conversation is going to come back to how we put more value–based compensation into physician arrangements. And is that value then aligned with the strategic goals of the hospital or health system?
Surveys have shown that a lot of physicians don’t like the thought of being paid on a value–based metric. They feel like they’re getting paid to check a box in the EMR system. So that’s one thing that as hospitals and organizations put more at risk in value-based models they’ll have to think about whether what they are measuring is really valuable.
It’s really strategically important for the organization. To the extent that it is, then how much of that then can we use to help pay the physician for helping me help them achieve that goal? That’s one thing I see that’s going to come up, and that alignment isn’t easy.
There’s no perfect formula for getting it accomplished because each organization’s problems and strategies and needs are different.
DJ: It’s interesting because you’re teeing up a whole conversation about what is value when it comes to the delivery of care and what is valuable to that physician. And even to the kind of physician – primary care physicians come to it with a very different mindset that a surgeon.
AC: Yes. Very different.
DJ: I would imagine in the design of those value-based systems that physicians are integral to the creation, right? To the engineering, to the wiring. So, having great relationships with the physicians that matter and bringing them in to be part of the creativity.
AC: You bet. To design those metrics without the input of the physicians could be problematic. Again, they don’t want to feel like they’re being compensated to check the box in the EMR when they feel that it’s not making a difference and doesn’t matter to the patient or the organization. So, to involve them at the front end is incredibly important.
In the talk about value–based compensation and adding it to the compensation plan or program design, a few years ago everyone rushed to do it. It was the hot thing to do. Organizations would warm up process so to speak by putting some very easy things into physician agreements to achieve one or two things and very little dollars. What we found was that, while the intent was to get everybody accustomed to paying for value, getting them used to having even more at risk for value, what we found in many cases is that it had just irritated everyone. Some metrics were set up but they couldn’t be measured.
“We’ll put this in the agreement but oh, we can’t measure it now.” Or the dollar value wasn’t enough to really incentivize the physician to do it. So that rush to get it accomplished, just to say that you have value–based incentives in your arrangements, didn’t work. It simply frustrated everyone.
DJ: Which makes everyone even more cautious today in this crazy environment that we’re in, and who knows how long that’s going to last. It’s hard to pin down, and previous experiences make it a very sensitive conversation to have. And yet it’s one that has to happen.
AC: Absolutely. Long term sustainability is key. Hospital–owned physician practices tend to lose money. Some of them lose a lot of money. So as hospital systems are looking at that long term viability and sustainability, they’re looking at some of these physician practices to better understand and get to better financial health for the health system as a whole.
DJ: Do you have a rule of thumb that you use to help health systems understand what percentage of future compensation is going to be value–based? I’m not sure where it is today. It’s pretty small overall today, but the sense of the folks we talk with is it’s going to shift and shift fairly dramatically in the next year.
AC: Most of what we see is about ten percent at risk for value. The surveys will say that the range is ten to twenty percent. The more modern organizations, the ones that are currently updating and modernizing their plans are moving to that twenty percent mark fairly rapidly. After all of this, other organizations that can focus on it probably will go from the ten percent where they are now to probably more of a 25 to 30 percent mark.
DJ: Because I assume that reimbursement is going to follow the same track, right? It’ll be more and more of the value–based looking for the people that are being cared for.
AC: Yes, exactly. Just smooth out that cashflow as well. Another item that organizations should have on their radar, in addition to value–based compensation – to the extent that a compensation plan is tied to benchmark survey data – is, what is going to happen to the benchmark survey data?
When people report during this COVID period what is happening in 2020, we won’t see the impact of that until the 2020 surveys are released in 2021. What is going to happen to that data? The surveys have not clarified how they’re going to ask for that data from respondents yet.
We’re actually on the phone with several of them and asking, “Are you going to request that the COIVD period be excluded? What COVID period would you ask to be excluded?” It’s different depending upon where you are in the country, right? So, to the extent that a compensation plan is tied to a benchmark, it will be interesting to see, and organizations will need to be prepared as to how they’re going to handle potential blips and unreliable data that’s going to come about.
DJ: What about the design of compensation? It’s made me think about the origin for so many health systems – which is the contracts they have with the physicians and those initial agreements. I wonder, as you think about working health systems, how much of that redesign is really going to happen there.
It should start with a review of what their base is and understanding what their agreements are today and what flexibility is built into that. I imagine not a lot, actually.
AC: Right. It will be really important to know what you have and where the risks are. There’s a good opportunity now to look back at those written agreements and assess the holes. Many of those agreements did not anticipate compensation during a pandemic, so now’s a great opportunity to have some help in drafting up language around that.
How do amendments to the agreements happen as a result of that? There’s so much to think about, but that would be a great first step.
DJ: It’d be my first thought – and our advice to our clients – that this strange environment is stressful. It gives us and gives the organizations permission to do some difficult things or have some difficult conversations or conduct some reviews that may have been more politically fraught in the past. Things were different, and the mistake would have been not to take advantage of that moment or having permission.
AC: Absolutely. Transparency will be key. And continuing those conversations with sustainability being at the top of everyone’s minds as we think about the losses that these health systems have incurred in the first quarter and going into the second half of 2020. Sustainability is on the minds of everyone, and I hope that conversation will be had with those employed physicians.
DJ: I would hope so as well. And my hope is that the providers are close to the table of the organizations redesigning themselves for what is the sustainable future. My sense is that health systems are going to be very different in 24 months or 36 months than they are today. And then we’ll require a different level of sustainability from their positions. It’s a little hard today to know exactly what that’s going to be.
AC: Oh, yeah. You hit on another hot item, physician leaders. How are those physician leaders going to be utilized to help the health system? As you said, the leaders need to be at the table to help the health system get through this next phase of design and help the health system navigate what might happen next.
That’s a whole other area of interest for sure.
DJ: And I’m sure it’s interesting to the physicians as well. I can’t imagine if you’re a physician, you’re not thinking about, sort of existentially, “Well, what am I doing here? What’s the right path for me?” We’ve seen a little bit of splitting between the relationship of the physician and the health systems as they both experienced the recession and other impacts of the pandemic.
And I think some of the work of the health systems is to fill that gap and draw them close again, particularly those physicians and physician groups who they consider most essential.
AC: Yes, because that will be key in navigating and getting through all of this. And then making sure, from a compensation perspective, that that’s all aligned. When the physician leaders are at the table and are willing to help, making sure that the physician arrangement is set up to compensate them for the value that they’re bringing from a leadership perspective to help with that navigation. That’ll be super important.
DJ: This work is so important because there are so many conversations about what healthcare should be and how it should be delivered, there are there idealized approaches of what it could be. But at the end of the day, somebody has to pay for it, and somebody is going to get paid for doing the work.
So this work of doc compensation is where the rubber hits the road. It has to be real and built in a way that can continue to evolve in a time that’s so turbulent. It’s hard work.
AC: It is hard work. It’s hard work to make sure it’s all balanced. It’s a daunting task. That’s why we need that leadership.
DJ: All right, Angie. This is great. I’ve already got about five things I need to think about because of what you shared. What else do our hospital friends need to know or be thinking about on this topic that’s so important right now?
AC: One of the things that has come up a couple of times that I don’t think is immediately on the radar, but will pop up again, is when are people able to come up for a breath of air. Again, related to physician leaders and medical directorship agreements, some of these medical directors have worked tirelessly within their organizations during the pandemic as part of war rooms, pandemic response, etc.
What happened within those medical directorship agreements to make sure, again, that those physicians were appropriately and adequately compensated for the work they did as part of that pandemic response. There’s likely a cap on the number of hours or a cap on the amount of medical directorship compensation.
Again, just balancing out the work that needed to be done and what happened. And compliance – you think about whether those medical directors exceeded their caps already at June 30 or July 31? How can the organization prepare for that and address that on the front end or before it becomes another problem?
DJ: It’s a problem that’s already happened, and we don’t even know it yet.
AC: Right, it could have happened. And folks don’t know what they don’t know.
DJ: It really puts a spotlight on the things that need to be reviewed going forward for the next time, but also the grace and relief that needs to be provided because so many people have been a part of these command centers and sacrificed their lives and their time and time with their families and other things to do this work and keep these organizations whole.
AC: You bet. Now’s a good time to relate it to all that, to do a physician compensation risk assessment. If the process wasn’t in place now, now’s the time to get that in place.
You can quickly look across your physician population and categorize them. These are the folks that we can work on another day. These are the folks that are the middle tier. This group needs to be addressed right away. Hopefully that process is in place, so they know which physicians to address first. If that process isn’t in place, now’s a good time to put one in place.
DJ: That’s such a good point because I think a number of health systems will be forgiven for not anticipating the global pandemic and the impact on them. They’ll be forgiven the first time, but they won’t be forgiven for not having anticipated it again.
AC: Right. The waivers are great, but it’s even better when you didn’t have to rely on it.