Thoughts on Physician Compensation Models

doctor-medical-medicine-health-42273.jpegConcerns Regarding Employment Model

In the past fifteen years, health systems moved to a physician employment model in many of their markets.  Intermedix estimates the number of hospital-owned physician practices has tripled since 2002.

Unfortunately, health systems are not effective physician practice managers.  As Jeff Goldsmith  noted in a recent Harvard Business Review article: “For many health care systems, physician “integration” — making physicians employees of the system — seems to have become an end in itself. Yet many hospitals are losing upwards of $200,000 per physician per year with no obvious return on the investment.” Mr. Goldsmith believes the poor returns on investment are due to the lack of focus on the key drivers of practice profitability: compensation models, centralized revenue-cycle functions and negotiation of health plan rates, and the reduction of needless variation in prescribing and diagnostic-testing patterns.

To make matters worse, a comparison of hospitals which switched to an employment model to hospitals which did not switch showed no demonstrated improvement in quality outcomes for the switching hospitals.

Physicians are not happy either. Burnout is a significant concern: “The spike in reported burnout is directly attributable to loss of control over work, increased performance measurement (quality, cost, patient experience), the increasing complexity of medical care, the implementation of electronic health records (EHRs), and profound inefficiencies in the practice environment, all of which have altered work flows and patient interactions.”

Losses in a physician practice also put the health system at risk under the False Claims Act.  This theory of liability is attractive because it is easy to show the subsidies exist.  The hospital subsidizing the practice then has to show the arrangement is fair market value and commercially reasonable. If this burden is not met, the subsidies can be found to violate the Stark law, which does not require any showing of intent.  Any claims submitted to Medicare in violation of the Stark law are often considered false claims.

Other Models to Consider

Given the pitfalls of the employment model and experience to date, health systems and physicians are looking for alternatives to the employment model which can meet the following goals:

  • Give physicians more control over their practice and encourage entreprenuership.  Giving physicians more control and encouraging their input to make practices more efficient should reduce physician burnout.
  • Reduce or eliminate practice subsidies, which will improve health system financial stability and reduce compliance risk.
  • Provide alignment between health system goals and physician practice goals.
  • Provide incentives to improve patient satisfaction and quality outcomes.

Virtual Private Practice

In this model, the physician practice (JV) is jointly owned by the health system and the physicians.  The health system provides management and other services to the JV.  The health system does not directly subsidize the physician practice, but may pay the JV for intangibles, such as a fee for using its brand.  This approach works best if the income of the JV is sufficient to meet the physicians’ compensation demands or the benefits of the professional management provided by the health system result in reduced operating costs.  Alternatively, the relationship can identify alternative sources of income, such as  ancillary services or value-based payments.

Professional Services Agreement

In this model the health system enters into contract with independent group and “leases” its physician employees. The physicians maintain their independence through continued ownership of the group’s professional corporation, which decides how the compensation from the health system will be distributed among the physicians. A PSA usually includes additional compensation for taking emergency room call, administrative medical director duties, and coverage of distant clinic sites. If structured appropriately, a PSA can bill for the services furnished by the physicians as provider-based services under the tax identification number of the hospital and qualify for the additional facility fee.

Co-Management Agreement

A co-management agreement is a type of professional services agreement. Under a co-management agreement, physicians are still independent contractors of the hospital, but typically, the hospital pays the physicians fixed fees for professional and certain management services. The hospital can also pay the physicians a variable fee based on quality outcomes. The hospital itself provides administrative and certain other managerial services to support the physicians. If desired, physicians may form a separate corporate entity that enters into the co-management agreement with the hospital—this allows for physicians to remain in private practice but align with the hospital’s quality and safety goals.


The Woman Who Fell From the Sky

What would you do if you were traveling abroad and needed medical care, but did not speak the language? How would you tell the treating physician what is wrong with you? What if you tried to tell her you had a sprained shoulder, but were misunderstood and they started to treat you for chest pain? What if they thought you were psychotic because they could not understand what you were saying and you were dressed differently from everyone else?

011-Woman-from-the-Sky-smIn 1983, Rita Patino Quintero was found in Johnson City, Kansas digging through trash cans and talking incoherently. She was oddly dressed and seemed to be claiming she “fell from the heavens.” She was taken to Larned State Hospital, a state psychiatric facility, where physicians diagnosed her as schizophrenic. To support their diagnosis, providers noted her unusual statements, her depression and aggression, and the fact she dressed in layers and refused to bathe. While at Larned, she was treated with psychotropic medications and eventually developed tardive dyskinesia, a condition brought on by long-term use of psychotropic medications and characterized by involuntary movements.

After twelve years of hospitalization, Quintero was finally released in 1995 at the behest of the Kansas Advocacy & Protective Services (KAPS) agency. They found a note in her file from 1983 indicating the Mexican Consulate in Salt Lake City told Larned personnel that Rita matched the description of a Tarahumara Indian, a northern Mexican tribe. KAPS convinced the hospital to release her and allow her to return to Mexico.

This case is an extreme example of what can happen when health care providers ignore a patient’s language needs and cultural context. You can read more of Rita’s story in my recent article on the Importance of Cultural Competence in Health Care – Part Two. Here is Part One in this series.

My Personal News Feed

My primary source of news these days is my Twitter feed. I joined the site later than most, and avoided the temptation to follow my friends and family so I could keep track of what they are having for dinner. I mostly follow news sources, which means Twitter is like my own personal news feed. (Click the image below to follow me.)

I follow and click through to lots of articles on Vox and Politico. Two recent articles on these sites deal with an issue I discussed in a recent article for AHLA Connections: how should the changing U.S. demographics change how health care companies operate? The main point of my article was health care providers need to embrace cultural competence to be competitive in the future.  If we are going to design our health care systems to meet the needs of our patients, we need to be able to communicate with our patients and understand how their culture affects their health care needs.

Ezra Klein from Vox discusses how the changing U.S. demographics are changing the nation’s media business. The old media was dominated by white men, and the stories they told were those of interest to white men. The new media is more diverse and the stories that go viral on social media sites are those that touch on a reader’s core identity, including her race, ethnicity and sexual orientation:

The internet has set off an explosion of media outlets, so more kinds of stories are being tried. There’s a vast increase in reader data, so it’s clearer which stories get read. And audiences now have the power to send stories viral, so there’s more reward to writing about issues that affect people who may not already be part of your core audience. There are dark sides to the chase for viral traffic, of course, but on the whole, I think this is a pretty positive development in American journalism: it’s helping us realize we were systematically giving too little attention to stories that weren’t of interest to the kinds of people who dominated newsrooms.

Writing for Politico, Doug Sosnick argues the present day is a “hinge moment” due to the changing U.S. demographics and the 2016 presidential election will be a bridge from the past elections, when a majority of voters were white, to future elections when the full effects of the new demographics will emerge as a factor:

As we begin to settle in to a post-industrial, interconnected digital world in an emergent multi-ethnic society, the 2016 presidential campaign is likely to close out a long era in American politics—a shift that is going to change which voters matter and which states matter.

Sosnick concludes:

While the 2016 presidential election is likely to reflect the last remnants of this bygone era, the candidate running for president in 2016 who best understands how the country is changing and runs a campaign based on the America of the future rather than the America of the past is most likely to be our 45th president.

There are probably numerous other articles that make similar points. The smart money is on organizations that compete around the innovations required to adapt to the future U.S. demographics, not its past.

Importance of Cultural Competence in Health Care

Promoting diversity and inclusion in the health care setting is not just about reducing health care disparities. A number of health care systems, health plans, national associations, and states believe accounting for the diversity of patients and ensuring your board, clinicians, managers, and staff reflect, understand and address this diversity will improve health care outcomes, increase patient satisfaction, and increase market share.

Health care organizations must effectively interact with their patients who come from different cultural and linguistic backgrounds. To address the lack of clear guidance on how to account for diversity in providing services, the U.S. Department of Health and Human Services, Office of Minority Health developed the National Standards for Culturally and Linguistically Appropriate Services (CLAS) in Health and Health Care in 2000. The CLAS Standards were enhanced in 2013 after a public comment period, a systematic literature review and ongoing consultations with leaders and experts from the health care community. The enhanced CLAS Standards are designed to broaden the reach of cultural and linguistic competency at every point of contact in the health care continuum.

Although adherence to the CLAS standards is voluntary, health care organizations should expect accreditation agencies to evaluate their efforts to address these issues. For example, The Joint Commission has established accreditation standards that directly or indirectly measure an organization’s ability to provide culturally and linguistically appropriate services, particularly in the areas of improved communication, cultural competence, patient-centered care, and the provision of language-assistance efforts.

The New England Journal of Medicine is encouraging further research into the impacts of adopting the CLAS standards. Both scientific research and anecdotal information from adopters can help organizations weigh practice options and make business decisions.

Together Health

Trinity Health and Ascension Health announced the formation of a new business entity to coordinate health care across all of Michigan. Together Health is a separate, freestanding organization which will have its own Board, CEO and committee structure. The two systems will work with their employed and independent physician leaders to develop population health based contracts and health care delivery systems that offer seamless, coordinated care. Together Health Network will also work in concert with payers to develop health plan products for public and private health exchanges, as well as direct-to-employer offerings.

Ethan Rii and I will be discussing these types of alliances at the AHLA Annual Meeting in New York City on June 30 – July 2, 2014. “Joint Operating Agreements: Everything Old is New Again” will discuss the JOA model and other approaches health care providers are using to work together to consolidate operations, coordinate care and develop risk-based contracts. Our presentation is one of ten presentations at the AHLA Annual Meeting on how providers are meeting the challenges of health care reform through joint ventures, consolidations, clinical integration and payer contracting strategies.

Docs Don’t Like Electronic Health Records

The authors of a recent physician satisfaction survey heard this loud and clear. They didn’t include any questions about EHRs in their initial written survey, but it became a focus after open-ended interviews revealed what a dissatisfier EHRs have become for physicians. The opportunity to earn Meaningful Use dollars has incentivized health systems and large physician groups to invest in EHRs. Physicians complained EHRs are difficult to use, require them to perform clerical tasks, can’t be used to import data from other providers, and are expensive. Most troubling to me are the physicians’ concerns that the inclusion of template-based notes makes the record unreliable. The templates make it easy to add information to an EHR, but increase the inaccuracy of the note, which is an issue for patient care and can make it easier to commit fraud. If we tell providers to stop using the template-based notes, this will make the EHR less useful. We need a way to improve the accuracy of the templates without sacrificing efficiency.

National Wise Health Consumer Month

In his most recent blog post, Nick Valeriani, Chief Executive of West Health, describes three steps you can take to become a smarter health care consumer: exercise more, protect your healthcare data, and demand transparency in pricing and quality. I have a relevant example from my own life on the importance of transparent pricing. I had a surgical procedure done at a surgery center jointly owned by the surgeons who practice there and their hospital employer. The center told me what my co-payment would be and asked that I pay this amount up front, which I did. A few weeks after the surgery, the center sent me another bill for twice the amount I had already paid. The center had underestimated the number of procedures that I would undergo, and unlike the hospital that employed the surgeon, the center did not accept the rate my insurer was willing to pay for the procedures that were performed, which increased my co-payment. I objected to the bill and made the point that I could have elected to have the surgery done at a facility wholly owned by the hospital, which would have reduced my bill considerably. The center’s billing company agreed to reduce my bill to ten percent of the billed amount.The surgery center had not been transparent, but I was able to leverage my expectation of transparency to reduce my total bill.