Maximizing Physician Compensation at Your Medical Practice

November 8, 2013

Our Physician Compensation Survey offers a glimpse into the financial challenges and opportunities for physicians.

The financial pressure is on for physicians to get compensated not just fairly, but well, at their practices, and Shawn Harkey's medical group is no different.

"We definitely keep a close eye on both fixed and variable components," says Harkey, the financial services director of Texas Retina, an ophthalmology practice with 13 locations in the Dallas-Fort Worth area. "Medicare payments aren't necessarily increasing and we're fighting that battle because the high majority of our patients are over [the age of] 60. That's forcing us to become leaner, more efficient in providing patient care."

Harkey's practice, which has been using its NextGen EHR for six years and its accompanying practice management system for three years, has already seen improved efficiency (physicians can see patients in a more timely manner) and a reduction in overhead costs, such as paper, storage, and staff time spent manually pulling charts.

Today, the practice is also using its Navicure claims clearinghouse technology to verify patient insurance in advance of appointments to avoid a cash-flow slowdown.

"We see a high volume of patients every day so we make sure we have everything checked, such as benefits and referrals, and we use a number of high-cost drugs so we can make sure there's no issues in place with payers," says Harkey.

The state of physician pay is not only changing, but it is also challenging, as Harkey and our annual Physician Compensation Survey respondents would attest. But by taking a proactive approach - taking stock of the trends and seeking new ways to maximize compensation - physicians can not only stay alive, but they can also thrive, financially.

* (To see the data, check out the details of our 2013 Physicians Compensation Survey here.)

The state of physician compensation

Today's physicians are under increasing pressure to make money and see more patients.

While more than two-thirds of the 1,474 physicians who answered our survey told us their income is, to some degree or entirely, tied to productivity, just one-third of physicians said their income is tied, at least in part, to value-based metrics. Twenty-four percent of physicians told us their income relies in part on patient satisfaction.

"[Value-based reimbursement] is growing at a small level, and the reason is that there is not funding available for it," says Kenneth Hertz, a Medical Group Management Association healthcare consultant."If you're earning $250,000 per year and your practice wants to put in place this value-based reimbursement, quality metrics, and other performance metrics, the practice will need to secure additional funds to pay you. Right now, the payers are not providing additional significant dollars to do this. In most cases, practices are having to carve out a pool of money from the current funds available to pay physicians, and then pay those that meet the quality metrics out of that pool."

Regardless of the basis of their payment, more than half of docs in this year's survey - 53 percent - said they were either "slightly" or "highly" disappointed with their income.

"I think there are financial pressures [such as] the changing payment models, the increase in expenses, the reduction in reimbursement in practices," says Hertz. "If you're in private practice you're seeing your expenses go up, and you're seeing reimbursements go down."

Today, many specialists are making more while primary-care physicians are staying flat, income-wise, adds Tommy Bohannon, divisional vice president of recruiting at Merritt Hawkins, a physician staffing agency.

To make up for less than desirable incomes, physicians are trying a lot of things: 26 percent of respondents said they added ancillary services, 36 percent of physicians increased the number of patients seen per day, and 27 percent took on work outside of their practice, for example. Others have started in-house dispensaries, started making fee-based house calls, and taken other measures.

Still, rising overhead costs continue to erode their pocketbooks.

Forty-two percent of all physicians said overhead costs are greater than they were last year, and only 7 percent said they are less than they were in 2012.

"The costs of running a practice are increasing, and that's the same for both those who are employed by hospitals or those who are running their own practice," says Bohannon. "Certainly those running their own practice feel that pinch more."

The Affordable Care Act's Medicaid expansion provision, which calls for Medicaid coverage for those whose income is up to 133 percent of the federal poverty level, or $29,700 for a family of four, according to the most recent CMS data available, isn't making things easier for doctors - even though states that adopt the provision will see Medicaid reimbursement rates rise in 2014. Because of the reform law, 10 percent of physicians say they're considering not taking new Medicaid patients, and 5 percent may stop seeing Medicaid patients altogether.

Looming Medicare cuts have also kept physicians up at night, wondering whether they can continue participating in the program. Eighteen percent of physicians said the uncertainty of Medicare may cause them to stop accepting any new Medicare patients, 6 percent are considering dropping the program altogether, and 7 percent are exploring direct-pay practice models.

Maximizing compensation

With all these income-based challenges, physicians are looking for new ways to maximize revenue. But seeing more patients can only go so far.

"The biggest thing we hear from practices is, 'If I want to make as much as I did in the past, I have to see more patients,'" says Bohannon. "The challenge, though, is in a private-practice environment, that has a finite limit. You can only see so many more patients."

Here are some other ways practices can improve compensation:

• Focus on referring physicians. Harkey says Texas Retina also goes to great lengths to keep referring physicians happy, so its own physicians have a full schedule. And the results pay off. "We always take same-day, new-patient referrals even if the schedule is full, which can help our referring physicians if and when they have an urgent case that needs to be seen immediately," he says.

• Utilize nonphysician providers (NPPs). With primary-care physician shortages looming, not to mention an influx of new patients under the reform law, nonphysician providers such as physician assistants (PAs) and nurse practitioners (NPs) are going to become even more important as practices shift to team-based care models. Relying on NPPs can help physicians focus on their complex patients, and in turn, help practices accommodate more patients. Also, compensation for NPPs is typically half that of a physician, thus they are a lower-cost resource that can focus on less-intensive office visits or patient follow up that is reimbursed at lower levels, says Jim Lord, a principal with healthcare consulting firm ECG Management Consultants. ECG's most recent "Provider Compensation, Production, and Benefits Survey" revealed that an NP's median compensation is $97,676, versus $210,531, the median for a family-practice physician.

"We're moving into a model now where many of the physicians are just learning how to use that nonphysician provider as an extension of themselves and that's going to be a very important skill for them to master," says Lord.

• Check coding and documentation. One of the easiest ways physicians can get paid what they're owed is by using the correct codes and backup documentation to support those codes. "There are a lot of practices where doctors have gotten into the habits of undercoding, or incomplete documentation," says Hertz. "But there is no reason in the world a physician who performs a service should not be paid properly for the services that he or she provides." Hertz suggests practices regularly audit physician coding and documentation and invest in training. "Make sure they have certified coding staff to assist them in this regard," he says.

• Focus on patient satisfaction. Even the fullest practice will see erosion in its bottom line if patients are unhappy and switch doctors. "If patients by and large aren't happy, your patients won't want to see you," says Bohannon. "Keeping your patients happy plays into making sure your practice is busy, which plays into making sure your practice is maximizing revenue." With the reform law's expansion of Medicaid, plus the influx of patients expected with the health insurance mandate, new patients are going to have more of a choice of where to go, adds Brad Boyd, vice president for healthcare consultancy Culbert Healthcare Solutions. "For a healthcare provider, they need to make sure they're competitive, and they focus on the patient experience," says Boyd.

• Reconsider fixed salaries. People are motivated by rewards, and physicians are no different. The more a physician's compensation is tied to incentives the more opportunity they will have to differentiate performance and maximize compensation, says Lord, adding that data has shown that the biggest differentiator in a physician's compensation is high performance (typically productivity, quality, and service). Under a salaried system there is no upside opportunity and thus compensation "will tend to cap out around median levels," he explains.

"A flat salary that doesn't recognize performance can often be a negative incentive for physicians, if the performance expectations aren't uniform across the practice," says Lord. "If everyone is paid the same but for very different performance levels, the higher performers will tend to ease up in search of equity, or burn out and look for other opportunities."

Ancillary revenue opportunities

More than one out of four physicians who answered our Physician Compensation Survey are attempting to maximize their pay by incorporating ancillary revenue services.

"[Physicians are] influenced by the economy and how much disposable income people have … whether it's an OB/GYN doing weight loss or cosmetic stuff, or a dermatologist doing cosmetic stuff, those are cash-paid revenue streams that can help their practice," says Bohannon.

However, not all add-on services make sense for all practices.

"It really depends on the specialty of the practice and the patient population," says Bob Collins, managing partner and cofounder of The Medicus Firm, a national physician recruiting firm. "For example, it might make more sense for a primary-care practice or an OB/GYN practice to offer Botox or skin treatments than it would for a cardiology or gastroenterology practice, which would have a greater number of older patients and males in the patient mix than the aforementioned specialties," he says.

Before adding ancillary services, physicians should consider patient mix, demand for the service, competition (to see if the market is already saturated with this service), and implementation costs.

"If something costs too much in comparison to the revenue potentially generated, you have to have a lot of volume to justify it," says Bohannon. "If you're worried that volume may either not be there or may fluctuate, it may not be worth it."

Staying put vs. moving on

When thinking about their next move, physicians are considering a number of options.

In the next five years, 12 percent of physicians said they plan to join an accountable care organization (ACO) or other group partnership, and 14 percent plan to become employed by a larger health system, according to our survey.

"The cost of running a practice continues to rise and that's the biggest reason you see so many people migrating," says Bohannon. "That's usually the impetus for people initially to say, 'OK, I'm going to give up, I'm going to become an employee of someone.' It's not necessarily that they say, 'OK, I see the industry moving toward an ACO [model].'"

But before hopping on the employment-model bandwagon, physicians should make sure they truly weigh the pros and cons.

"I would suggest, first and foremost, you need to get your arms around what you're trading," says Collins. "In many cases you will have less input and autonomy than you would if you were transitioning to a private practice. You're no longer the boss, and you've got to be at peace with that transition … with that tradeoff for a more secure institution and a guaranteed income. If you can't consider that tradeoff reasonable and fair, don't do it."

Another option for the financially overwhelmed, perhaps an underexplored one, is actually moving to another part of the country.

"Every year, we're continuing to place more physicians than we did the year before," says Bohannon. "… It's a matter of what they're willing to go through to make that change. If it hasn't reached a tipping point where they're willing to pack up and move to make more money, they may be frustrated, but they're not disgruntled enough to pack up and make a change."

Trying value-based compensation

While most physicians are still paid based on volume, according to our Physician Compensation Survey, incentive-based compensation programs are on the rise.

And there's good evidence that payers, motivated by the lure of cost savings, will follow on the heels of CMS, which launched its accountable care organization (ACO) program a little more than two years ago.

This raises the question: Should your practice dip its toes into programs based on achieving quality metrics and cost savings?

Harry Singh, practice manager of 21st Century Family Medicine in Phoenix, believes so.

"In the near future, what we're seeing is reimbursements are going to be based on quality measures," says Singh, whose practice recently started participating in a hospital-led ACO.

The hope is that participating in the ACO will help Singh's seven physicians become more familiar with the new, quality-based incentives before other payers start adopting them.

"We wanted to get a feel for what this is," says Singh. "We went into this reluctantly. The cost and benefit didn't work out in our favor, but we still decided to do it because it's something that's coming down the line."

Singh says that by understanding how an ACO works, his physicians will ultimately profit in the future.

"We want to do this across the board with not just the Medicare population but with other patients in the practice, so we can justify to commercial plans that by doing this there will be savings … and try to use that as leverage to maximize compensation," he says.

* (To see the data, check out the details of our 2013 Physicians Compensation Survey here.)

In Summary

Today's physicians are under increasing pressure to make money and see more patients, our annual Physician Compensation Survey reveals. A few points to consider for maximizing compensation:

• Great technology can improve a practice's efficiency;

• Utilizing nonphysician providers can be cost-effective and free a physician for more acute-care needs;

• Keep your physicians' schedules full by focusing on patient satisfaction;

• Undercoding costs practices money, so use correct codes and provide backup documentation;

• Carefully weigh the pros and cons before switching to a hospital-employment model; and

• Consider relocation to provide more lucrative opportunities and a lower cost of living.

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/December 2013 issue of Physicians Practice.