2011 Physician Compensation Survey: Are the Scales Shifting?

November 10, 2011

Health reform is supposed to finally provide emphasis on healthcare quality when it comes to physician income, as a counterweight against patient volume. But are you ready for the changes? Plus: Are you earning what your peers make? The results of our annual Physician Compensation Survey are inside.

Like most doctors, Jeb Teichman looks forward to opening his doors to patients each day at Jeffersonville Pediatrics, his small Prospect, Ky., practice. But in 2008, when rising costs and dwindling reimbursement hit hard, he was almost forced to close them.

"We had a disastrous year," recalls Teichman, who almost quit practicing medicine entirely in favor of a consulting job. "My costs were going up, my reimbursement was stagnant to going down, and I was seeing a lot more Medicaid patients than I used to. You can't afford to see more patients like that."

Then a local hospital called with an offer to incorporate his small practice into a larger healthcare organization.

"It was a tough decision for me," says Teichman. "It really came down to 'Do I really want to hang up my stethoscope?' I was glad the hospital came through."

Today, Teichman's practice is thriving and he is better able to focus on providing high-quality patient care because he doesn't have constant financial stresses in the back of his mind.

"It's a lot easier to focus on patients when you don't have to worry about business things," he says. "And although my reimbursement is productivity based, I don't worry about having to see a certain number of patients per day to generate income, so I can implement quality improvements."

As doctors like Teichman know, the state of physician compensation is shifting. Going forward, the pressure of increased overhead and decreased reimbursement is pushing many physicians to increase patient volume. Meanwhile, emerging reimbursement models focused on quality and outcomes might paradoxically add to the volume-driven pressures physicians already are facing.

These shifts beg the question: How do physicians keep up?

Today's compensation challenges

The results of our annual Physician Compensation Survey, which drew responses from 1,766 physicians in the second quarter of this year, highlight some key financial challenges.

* Check out our slide show to view compensation data for primary-care physicians and specialists; culled from our survey of more than 1,700 doctors in every specialty.

Practice-based docs are working harder than ever: 70 percent of physicians said they are clocking in 41 hours or more per week, but in spite of all that hard work, about half (49 percent) of physicians said they were disappointed with their compensation. Only one quarter of physicians, when asked about the difference between their current income and the previous year's income, reported an increase.

Financial pressures are coming from many places.

"The economy is absolutely affecting the amount of compensation practices are earning," says Martin Shehan, senior consultant with Healthcare Strategy Group. "As inflation costs go up, our overhead costs go up. It is the cost of supplies and materials and those types of things."

MGMA Consultant Ken Hertz says many practices are tapped out from having to see more patients to make productivity quotas.

"How many patients can a doctor see in a day?" says Hertz. "Is seeing more patients really providing the care that patients want or the care that doctors want to provide?"

The pressure to meet productivity benchmarks to offset reimbursement cuts urged psychiatrist Kirsty O'Donovan, formerly employed by a large managed care medical group, to change her compensation plan.

"My plan is to just do fee for service," says O'Donovan, who is in the process of setting up a solo psychiatry practice. "Compensation from insurance companies is very poor. Both doctors and patients are frustrated by the business aspect of it."

The emergence of new payment models

In the Affordable Care Act is a provision that calls for the establishment of a Medicare value-based purchasing modifier that will adjust physician fees and, says the Center for Medicare and Medicaid Services (CMS), will "transform Medicare from a passive payer to an active purchaser of higher quality, more efficient healthcare" starting in 2015. Both cost and quality data are to be included in calculating payments for physicians.

At the same time, CMS' meaningful use program, which is ultimately aimed at improving quality of care through the use of electronic health records, is in full swing.

And slowly but surely, insurance companies are following suit.

"Medicare and payers will continue taking steps that will lead medical groups to focus compensation on outcomes rather than on volume of procedures," says Vivian Luce, regional director of physician recruitment firm Cejka Search. "Physicians who cannot meet quality outcome requirements and lower readmissions are likely to earn less."

Hertz says many payers are beginning to look into ways to track patient outcomes and to hold physicians accountable to quality indicators.

"Some payers are tracking it on their own, and the clear trend will be for this to be part of the payment equation for practices," he says.

Productivity incentives, based on relative value units, remain the most common form of bonus payments to doctors, but new payment methodologies that tie bonuses to quality and cost-savings are emerging at practices.

"Compensation models help direct physician behavior," says Hertz. "If payers are saying to us 'quality indicators are important,' then we want our physicians to keep quality indicators in mind when caring for patients. So if we develop a compensation plan that rewards for quality, we're serving our patients and our payers."

But quality-based reimbursement models have yet to take hold, according to physician recruiter Merritt Hawkins, whose most recent review of physician recruiting incentives found quality-based bonus metrics in fewer than 7 percent of practices' compensation plans.

But there is evidence that number is growing.

"It's more frequently seen at this point in hospitalist practices than other specialties as there's readily available data and core measures by which to gauge outcomes," says Tommy Bohannon, vice president of hospital-based recruiting for Merritt Hawkins, who also works with private practices. "When we see it in other specialties, it's typically used in conjunction with some other quantitative measure and more focused on patient satisfaction and efficiency."

Under a qualitative compensation model, "Your available bonus pool is X. Your paid bonus will be a factor of Y (your quality score) times [a percentage of] X to determine how much of your bonus pool you receive," says Bohannon. "This allows the practice to make sure that excess productivity doesn't come at the expense of lower quality."

It's important to note that these models vary and there are many schools of thought on how to construct a quality-based alternative to traditional revenue minus expenses or RVU-based models, Bohannon adds. "It is widely thought that a qualitative bonus model, one not tied to any type of productivity measure, needs to account for 10 percent to 20 percent of total compensation to have a measurable difference on [physician] behavior." However, Bohannon warns that with most specialties, tying variable compensation only to quality could lead to a decrease in efficiency and lead to losses for the practice.

Fairview Health Services, a large, nonprofit healthcare system in Minnesota, recently ditched its RVU payment model in favor of one aligned with qualitative clinical outcomes.

"The productivity driven model did not support the goals and objectives of Fairview, to have exceptional clinical outcomes, exceptional patient and family experience, [and] efficient and effective use [of] resources," Greg Schoen, Fairview's director of physician compensation, said via an e-mail message. "Incentives were aligned with seeing more patients in the office and not focusing on improving the health of populations. The concept of accountable care organizations was clearly on the horizon in 2009 when we initiated this process and it was the decision of Fairview to best position itself for that future by creating the incentives to drive performance that would allow us to most effectively contract with large buyers and third-party payers in the future."

Schoen says opportunities to provide higher-quality primary care under this model are significantly greater due to the change in methodology of compensation.

"In a productivity-based model using RVUs, the only way to improve compensation is to generate more RVUs," says Schoen. "The new model focuses more on performance, and as such, excelling on performance in quality, patient satisfaction, and better use of resources rewards providers for doing this work. To date, the model has resulted in improved compensation for the majority of our primary-care providers and we have seen significant improvement in performance on quality of care measures as determined by Minnesota Community Measurement," he says, referring to a state collaboration that conducts research into evidence-based best practices.

Keeping quality intact

If quality care is going to become more inextricably linked with compensation, how can physicians preserve quality without having to work longer hours - something they're already doing to boost patient volume?

For Teichman, preserving quality of care required access to the resources of a bigger organization. Teichman, who had to integrate with a larger medical group to preserve quality, may have more company in the coming years.

According to our survey, 19 percent of 681 physicians, said that they had their sights set on joining a group partnership, such as an ACO in the next five years.

But if you're not planning on doing that, you'll need to consider other ideas.

Urbanna, Va.-based solo family practitioner Jim Robusto says that taking a $270, four-hour coding course taught by another physician in 2007 improved his revenues by 30 percent because he no longer undercoded for patient visits. By doing this, he is able to give patients more time and attention because he doesn't have to fit more patients into his schedule to make enough compensation.

"One thing we need to do to improve our compensation is we need to learn how to code better. Many, many doctors don't' understand how to charge for their services," says Robusto. "When doctors undercharge, they're missing out on about 30 or 40 dollars a patient."

Physicians tend to undercode, says Robusto, because they are fearful of audits. But by having the correct documentation to justify their codes (for example, whether or not prescriptions were given, or a patient's smoking status was recorded), physicians will be able to face those audits.

Experts such as Shehan also advise practices that still aren't using an EHR to begin doing so. The time when practices could continue working as they always had is ending, because profit margins are getting too thin for inefficiently run practices to continue. A well-integrated EHR can help you code correctly, can allow you to see more patients in the same amount of time (without rushing), and can prompt you to provide services that patients genuinely need.

Negotiating compensation

The broader economy may be lousy, but physicians remain in high demand, especially in primary care. That's good news when it comes to negotiating compensation.

"The dynamic of the [primary care] physician shortage is that even in a down economy, the ability to make sure you're getting a good job and a fair package has always been there," says Bohannon.

Even so, experts offer a few tips on how to get the best contract possible:

Look at the incentives. Most compensation packages include a combination of straight salary plus bonuses based on productivity (and sometimes outcomes), so those numbers might seem like the only important factors to physicians. But experts say they should be considered as part of a whole package. Today, competitive practices attract the best physicians with a range of incentives that also include CME reimbursement, loan forgiveness, and signing bonuses. "Now 87 percent of practices offer reimbursement for CME in all of their compensation packages," says Luce. "They're also offering signing and retention bonuses in some situations."

Consider the community. While many physicians prefer communities with populations of 50,000 or more, in its recently published guide for physicians on assessing medical practice opportunities, Merritt Hawkins advises physicians to look beyond the numbers. Access to amenities important to you will help determine if a community is right for your family.

Ask about future plans. As part of physicians' "due diligence" in considering an opportunity, they need to ask about a practice's long-term plans. Luce suggests physicians ask "are there any consolidation plans on the forefront?" before signing on the dotted line. "If a physician joins a private, independent practice where they are promised two years to partnership - and then the practice is acquired or merged into an employed model before partnership is achieved - that could impact their compensation."

For practices that want to recruit top talent, here are some ways to create a competitive compensation package:

Hire physicians open to change. Luce suggests practices hire physicians who can practice effectively in a team-oriented environment as payers experiment with compensation models that pay more for outcomes and include more global bundling. "Medicine is becoming more of a team sport," says Luce. "New physicians will look at this new model as the standard."

Offer slow buy-in. Make sure your compensation matches your long-term goals, says Bohannon. "If we know that your goal is to bring someone in that is a partner with you on the business side of things, it doesn't make sense to structure [a contract] in the short term, where the lion's share of profits go to them when they are an associate. So we may structure something leaner." Conversely, if your goal is for someone to remain an employee indefinitely, you have to share more of the productivity with them or you risk alienating them over time, he adds.

Look around. Don't just focus on what the practice down the block is offering prospective employees. "It's more of a national job market than a regional job market," says Bohannon, who frequently advises practices on what the broader market is doing, so that they may offer competitive compensation packages. "We run into a lot of issues where practices will be too caught up in 'we're going to pay X, because the practice down the street is paying X.'"

Whether you're a physician or you're looking for a physician to fill a spot at your practice, compensation isn't just about the numbers.

"You have to match up your goals with the right compensation model to fill your needs long-term," says Bohannon.

* Check out our slide show to view compensation data for primary-care physicians and specialists; culled from our survey of more than 1,700 doctors in every specialty.

In Summary

Physician compensation is under pressure. Years of increasing overhead and dwindling reimbursement have prompted many physicians to increase patient volume. Our latest physician compensation survey found that:

• Seventy percent of physicians said they are clocking 41 hours or more per week, yet half are disappointed with their compensation.

• Only a quarter of physicians, when asked about the difference between their current income and the previous year's income, reported an increase.

• With compensation models favoring bundled payments and improved patient outcomes, practices should hire physicians who can practice effectively in a team-oriented environment.

Marisa Torrieri is an associate editor at Physicians Practice. She can be reached at marisa.torrieri@ubm.com.

This article originally appeared in the November 2011 issue of Physicians Practice.