Current Topics in Physician Employment John C. Forester WV United Health System Autopsy of an Income Statement How to Herd Cats with Only Minor Scratches How to Pull Out Your Hair in 30 Days or Less Current Industry Trends More physicians are being employed – 50% of residents that graduated in 2011 were hospital/health system employed 2012 Review shows that 63 percent of Merritt Hawkins’ recent search assignments featured hospital employment of the physician American Hospital Association has indicated that the number of physicians employed by hospitals has increased 34% from 2000 to 2010 Some research suggests that truly independent physicians now only comprise about 33% of the total physicians practicing Current Industry Trends The Private Practice Model is Becoming Unsustainable Shrinking reimbursement and an uncertain future More complicated billing/regulatory environment Revenue cycle risks – living check to check The costs of education – the median four year cost to attend medical school for the class of 2013 is $278,455 at private schools and $207,868 at public schools, according to the Association of American Colleges Practice costs are increasing – EMRs, SW&B, supplies Good help is hard to find - tough employment environment Pressures on Clinical Time and Administrative Time… Practice Maintenance and Upkeep Work / Life Balance Charts… Bills… SCANNING!!! Some Physicians Try to Stay Ahead… So, as hospitals employing physicians – what issues do we face??? Physician Employment Environment – Do these issues sound familiar? Shrinking reimbursement and uncertainty Average practice loss per physician FTE was $189,560 in 2011 – over $200,000 for new physicians in the first few years of practice Practice costs increasing and physician shortages in areas of the country continue to drive salaries upward Hard to find good help… Variance in production – private practice vs. employed Production/practice operations impacted by operating environment So, why employ Physicians? Because, they make it rain. They examine and diagnose our patients They place orders and refer patients for diagnostic testing, procedures, and treatment They prescribe medications They perform surgeries and procedures They are integral in the quality of the service we offer They are an integral part of our financial performance more than ever They make it rain So, before employing that physician, let’s think through a few things… Physician Needs Assessment Business Plan – who, what, why, and how much Proforma Assessment: Compensation Practice Expense Contribution Recruitment or Acquisition Operational Metrics Future Topics Needs Assessment, Business Plan, & Proforma Physician Needs Assessment: New service or a replacement? Can you obtain info from an existing physician(s)? Specialty Statistics – population and prevalence analysis Internal Analysis – Discharges/Transfers/Ancillary Revenues and Services Medical Staff Input and Issues: Physician needs per capital, mortality and morbidity rates Look for trends and opportunities – can tell you a lot about your physician relationships Physician Reputation and Personality Delineation of Privileges and Hospital Services – can you deliver the physicians expectation? Call Coverage Community physician support – what does the landscape look like? Practice Structure – three primary models Community Based Private Practice Community Based with Internal/External MSO support Employment Self Supporting Becoming more rare Some start up support via income guarantee? Proforma Analysis for the practice and the hospital Practice Proforma Volume Assumptions - Y1 Ambulatory Encounters Office Inpatient Hospital Outpatient Nursing Home TOTALS Mix % Gross Revenues per Encounter Office Inpatient Hospital Outpatient Nursing Home Medicare 2,150 210 415 2,775 44% Medicaid 689 70 110 869 14% Medicare Medicaid 140 1,950 1,045 - 135 1,856 1,032 - Net Revenues per Encounter Medicare Medicaid Office Inpatient Hospital Outpatient Nursing Home Admissions Discharges LOS Ambulatory Surgical Cases Ancillary Testing Bad Debt % of Gross Revenue Charity % of Net Revenue 65 852 685 110 110 3.32 809 1,200 3.0% 2.0% 50 802 605 - BC/BS 725 30 81 836 13% BC/BS 150 2,088 1,048 - BC/BS 82 1,652 858 - Workers Managed Commercial Comp Care 135 210 987 15 35 50 20 90 185 245 1,112 3% 4% 18% Workers Comp 145 1,855 1,030 - Managed Commercial Care 141 148 1,898 1,925 1,101 1,085 - Workers Comp 70 1,410 700 - Managed Commercial Care 70 85 1,588 1,620 825 920 - Other 210 5 43 258 4% Other TOTAL 5,106 365 809 6,280 100% Average 135 1,905 1,154 - Other Average 60 1,400 615 - Professional Gross and Net Revenues can be derrived Develop hospital gross and net revenues per Inpatient, Surgical, and Ancillary Stat Practice Proforma Proforma Income Statement Example PATIENT SERVICE REVENUE - By POS and Payer CLINICAL REVENUE INPATIENT REVENUE OUTPATIENT REVENUE TOTAL PATIENT SERVICE REVENUE LESS: CONTRACTUALS - Payer Breakdown Contractual % Y1 Y2 Y3 730,464 695,445 842,751 2,268,661 782,327 720,215 820,355 2,322,897 630,895 420,125 492,213 1,543,233 (907,465) 40.0% 3 Year Totals/Averages 2,143,686 1,835,785 2,155,319 6,134,790 (1,010,460) 43.5% (671,306) 43.5% (2,589,231) 42.2% NET PATIENT SERVICE REVENUE OTHER INCOME NET REVENUE 1,361,197 1,361,197 1,312,437 1,312,437 871,926 871,926 3,545,560 3,545,560 EXPENSES: PROFESSIONAL SALARIES SALARIES & WAGES PAYROLL TAXES EMPLOYEE BENEFITS RENTAL EXPENSE MEDICAL & NURSING SUPPLIES OFFICE EXPENSES PROF ED.,DUES,LICENS.,SUBSCRIPTIONS MALPRACTICE INSURANCE INSURANCE EXPENSE CONSULTING FEE LEGAL FEES DEPRECIATION TELEPHONE REPAIRS & MAINTENANCE COMPUTER EXPENSE ADVERTISING TRAVEL UTILITIES TAXES - OTHER OTHER EXPENSES PURCHASED SERVICES BAD DEBT LESS RECOVERY TOTAL EXPENSES 792,000 242,461 39,242 87,435 40,000 20,000 12,000 7,000 44,000 1,000 500 800 14,000 5,000 1,000 12,210 2,000 2,000 4,000 250 2,500 35,000 68,060 1,432,458 815,760 249,735 40,420 90,058 41,200 19,284 8,500 7,000 44,000 1,000 500 800 14,000 5,000 1,000 12,500 2,000 2,000 4,000 250 2,000 36,050 69,687 1,466,742 485,000 168,000 24,772 55,193 42,436 12,811 6,500 3,500 22,000 1,000 500 800 14,000 5,000 1,000 6,500 2,000 1,000 3,500 250 2,000 23,950 46,297 928,009 2,092,760 660,196 104,433 232,685 123,636 52,095 27,000 17,500 110,000 3,000 1,500 2,400 42,000 15,000 3,000 31,210 6,000 5,000 11,500 750 6,500 95,000 184,044 3,827,209 INCOME (LOSS) FROM OPERATIONS ADMINISTRATION ALLOCATION NET INCOME (LOSS) (71,261) 78,892 (150,152) (154,306) 70,000 (224,306) (56,082) 36,000 (92,082) (281,649) 184,892 (466,540) Practice Proforma PATIENT ENCOUNTERS CLINICAL INPATIENT OUTPATIENT TOTAL ENCOUNTERS REVENUE PER ENCOUNTER STATS CLINICAL INPATIENT OUTPATIENT TOTAL REVENUE PER ENCOUNTER TOTAL PAID HOURS TOTAL FTE's TOTAL ENCOUNTERS PER FTE NET PATIENT REVENUE PER ENCOUNTER TOTAL EXPENSES PER ENCOUNTER OPERATING INCOME (LOSS) PER ENCTR NET OPERATING MARGIN PROJECTED WRVUs TOTAL OFFICE PRACTICE DAYS AVERAGE OFFICE ENCTRS PER DAY TOTAL SURGICAL DAYS AVERAGE SURGICAL CASES PER DAY PROJECTED GROSS REVENUE CONTRIBUTION PROJECTED NET REVENUE CONTRIBUTION PROJECTED CONTRIBUTION PROJECTED TOTAL OPERATING CONTRIBUTION PROJECTED CAPITAL OUTLAY 3-YEAR RETURN ON TOTAL INVESTMENT PAYBACK PERIOD (MONTHS) 5,106 365 809 6,280 5,208 360 750 6,318 4,200 210 450 4,860 3 Year Totals/Averages 14,514 935 2,009 17,458 143.06 1,905.33 1,041.72 361.25 150.21 2,000.60 1,093.81 367.66 150.21 2,000.60 1,093.81 317.54 147.70 1,963.41 1,072.83 351.40 14,560 7.00 897 217 228 (11) -5.2% 10,676 165 31 47 17 6,832,220 3,826,043 1,298,122 1,226,861 155,000 14,560 7.00 903 208 232 (24) -11.8% 11,057 165 32 47 16 6,570,686 3,548,170 1,248,430 1,094,124 10,000 10,400 5.00 972 179 191 (12) -6.4% 8,262 165 26 47 10 4,061,956 2,112,217 771,772 715,690 - Y1 Y2 Y3 39,520 6.33 919 203 219 (16) -7.9% 29,995 494 29 141 14 17,464,862 9,486,431 3,318,324 3,036,675 165,000 415% 8 Recruitment and Retention Internal or External Recruitment: Must have an individual focused tenaciously on recruitment Recruiter must have a good track record and be trustworthy Recruitment Package – get it all together Compensation and Model Benefits – have a document with all benefits offered including CME, dues and subs, licensure, CME, relocation Other Topics: Call requirements spelled out clearly Staffing and Practice Operations – who does what and what is the physician’s role Fair Market Value assessment of the package Malpractice Coverage Non-competes, moonlighting Medical records system(s) and expectations Expense reimbursement policies Private Practice to Employee Concerns Recruitment and Retention Interviewing: Identify Interview Process, Team, and Itinerary – be organized and prepared Phone interviews first before travel? CEO, Practice Manager, employed physicians, supportive community physicians (same specialty, if possible) Tours and visits to key hospital areas/individuals Key things to listen for: Long term commitment language Production expectations Check references AND check with your other physicians – it is a small, small world Why are they interested in you? If there is a spouse, what do they think??? Interests or hobbies? Community Tour: Focus on schools, if applicable, recreation and culture – do your homework Offer and employment: Know how far you are willing go with an offer Determine the process for the offer – who makes the decisions and communicates with the candidate Have contracts completed accurately and ready to go – employment agreement, loans, sign-on’s, relocation agreements Get the deal DONE Recruitment and Retention Life balance – a significant part of the physician mindset Be upfront and candid about what it is like to be an employed physician Set clear and obtainable goals and allow physicians to be a part of the decision making process [as much as possible without relinquishing total control of the practice or your organization] Compensation Strategies and Physician Alignment An effective compensation model must: Be simple, easy to understand, measurable and easy to manage Be real – goals should be reasonably achievable Be aligned with organizational goals and be relevant Production – minimizing practices loses Quality and satisfaction for both the practice and the hospital Have a big picture approach – what are we trying to achieve and what challenges do we face. Are we rural? Bad payer mix? What is the supply and demand for this particular specialty? Several different models each with variations: Eat what you kill: cash collections minus expenses = physician compensation Pure base salary: base salary negotiated at each term Base plus profit sharing: base salary and a profit share that is typically a % of cash minus expenses Pure Worked Relative Value Units (WRVU): typically a rate per WRVU model or some variation Base plus incentives (WRVUs, quality, satisfaction, operations) Compensation Strategies and Physician Alignment How “RVU”??? Compensation trends have been moving towards Relative Value Unit based models Medicare physician fee schedule reimbursement was implemented as part of the Omnibus Budget Reconciliation Act of 1989. The practice expense, physician work, malpractice expenses associated to a specific Current Procedural Terminology code is scored under the RBRVS system and payment is determined. Typically the Worked Relative Value Unit is used in production based compensation models Implementation plan Physician input can help with buy in of the program Board driven Modeling Clear Timeline Communicate clearly, consistently and often There are pluses and minuses to all models – there really is no silver bullet with compensation Compensation Strategies and Physician Alignment PRODUCTION COMPENSATION EXAMPLE Base Salary per Annum: WRVU Payment Rate: WRVU Target: Quarterly WRVU Target: $ 160,000 Usually a % of Expected Production Compensation (based on previous years) $ 30.00 5,333.33 (Base / WRVU Payment Rate) 1,333.33 Quarterly Production Compensation Reconciliation Actual WRVUs 1st Quarter Produced Dr. A 1,410.00 Targeted WRVUs 1,333.33 Production Variance 76.67 Rate per WRVU $ 30.00 Production Compensation $ 42,300 Actual Compensation Reconciliation Paid * $ 39,452 $ 2,848 * Actual Paid can be prorated on the number of Workdays, Calendar Days, Months in the Quarter, etc. Actual WRVUs 2nd Quarter Produced Dr. A 1,200.00 Targeted WRVUs 1,333.33 Production Variance Rate per WRVU (133.33) $ * A Production Shortfall has occurred. What do you do??? 30.00 Production Compensation $ 36,000 Actual Reconciliation Compensation * Paid $ 39,452 $ (3,452) Compensation Strategies and Physician Alignment Production Shortfall Options (all need to be clearly stated in the agreement or compensation plan): Withhold from a future pay(s) Withhold from the next reconciliation Withhold at the end of the compensation year Adjust the base salary at the beginning of the next production compensation period Adjust the base at the end of each reconciliation period Operational metrics Setting expectations and measuring operations Tool to communicate with physicians and office Helps to have realistic and achievable metrics Can be a simple P&L to scorecards with benchmarks Benchmark data: MGMA, industry analysts, industry consultants, recruiters, trade journals, previous performance Make sure you are comparing apples to apples – private practice vs. hospital owned, years in practice, region Be careful of sample sizes Scorecard Example… 2013 Scorecard Report KEY: = POSITIVE VARIANCE PHYSICIAN Month-Year = NEGATIVE VARIANCE Volumes/Conversions/Production Number of Clinic Days Office Visits 2012 MONTHLY AVERAGE Office Visits per Clinic Day No Shows No Show % Business Development Surgeries/ Procedures Surgeries/ Procedures Conversion as a % of Referrals Number of Referrals WRVUs Earliest Office Number of Appointment Weeks Out for for New New Patient Patient Appointment (MM/DD/YY) Next Surgery Block Time Open (MM/DD/YY) Number of Weeks to Next Open Surgery Block 177 15 11.80 27 15.3% 31 54.4% 432 57 2.1 2.1 1,284 180 7.13 120 9.3% 360 50.0% 5,400 720 3.0 3.0 2013 MONTHLY TARGETS 107 15 7.13 10 9.3% 30 50.0% 450 60 3.0 January-13 106 15 7.07 9 8.5% 31 56.4% 455 55 2/14/13 2.0 2/10/13 1.4 February-13 115 14 8.21 9 7.8% 33 54.1% 461 61 3/21/13 3.0 3/20/13 2.9 March-13 125 15 8.33 11 8.8% 38 60.3% 495 63 4/15/13 2.1 4/15/13 2.1 2013 ANNUAL TARGETS 3.0 April-13 May-13 June-13 July-13 August-13 September-13 October-13 November-13 December-13 YEAR TO DATE or AVG. 346 44 7.86 29 8.4% 102 57.0% 1,411 179 2.4 2.1 YEAR END PROJECTION 1,384 176 7.86 116 8.4% 408 57.0% 5,644 716 2.4 2.1 PHYSICIAN Financials and A/R Performance Month-Year Charges Collections Contractual Adjustments Collections % Total A/R A/R > 90 Days % of A/R > 90 Bad Debt & Days Charity W/O's Denials 2012 MONTHLY AVERAGE $ 87,737 $ 31,775 $ 44,983 36.2% $ 114,000 $ 27,100 23.8% $ 9,451 $ 1,488 2013 ANNUAL TARGETS $ 1,650,660 $ 624,000 $ 1,057,404 37.8% $ 110,000 $ 15,000 13.6% $ 30,744 $ 13,200 2013 MONTHLY TARGETS $ 137,555 $ 52,000 $ 88,117 37.8% $ 110,000 $ 15,000 13.6% $ 2,562 $ 1,100 January-13 $ 138,554 $ 45,453 $ 85,450 32.8% $ 115,454 $ 14,541 12.6% $ 2,102 $ 250 February-13 $ 138,505 $ 58,545 $ 90,151 42.3% $ 102,899 $ 13,541 13.2% $ 1,845 $ 503 March-13 $ 149,051 $ 68,556 $ 92,565 46.0% $ 112,345 $ 15,856 14.1% $ 3,897 $ 32 April-13 May-13 June-13 July-13 August-13 September-13 October-13 November-13 December-13 YEAR TO DATE or AVG. $ 426,110 $ 172,554 $ 268,166 40% $ 110,233 $ 14,646 13.3% $ 7,844 $ 785 YEAR END PROJECTION $ 1,704,440 $ 690,216 $ 1,072,664 40% $ 110,233 $ 14,646 13.3% $ 31,376 $ 3,140 Downstream Impact Measuring the contribution margin of all physicians Many different philosophies of how to measure contribution: The KEY is to get a model that everyone is comfortable with and agrees to Be careful with this information – it is prone to misinterpretation and misunderstanding Information must be timely and easily obtainable Must be comfortable with the measurement to set benchmarks and to eventually assist with decision making This is just a piece of the puzzle – need to consider all factors when making decisions based on this information (mission, community need, others) Example… Downstream Impact YTD 12/31/2011 Contribution Margin Analysis HOSPITAL NAME Dr A Dr B Dr C Dr D Dr E Dr F Dr G Dr H Dr I Dr J Dr K Dr L Dr M Dr N Dr O Dr P Dr Q Dr R Dr S Dr T Dr U Total Gross Inpatient Charges $26,468 $1,086,376 $298,570 $0 $411,674 $3,300,798 $0 $558,002 $0 $7,940 $24,865 $4,234,595 $0 $1,615,272 $0 $0 $35,846 $176,709 $0 $0 $0 $11,777,115 Gross Outpatient Charges $525,954 $1,529,875 $903,354 $80,153 $1,104,794 $24,556 $569,897 $1,563,776 $533,865 $988,899 $838 $366,858 $625,107 $633,695 $34,193 $1,002,426 $267,830 $1,666,039 $722,013 $504,376 $584,113 $14,232,608 CCRs Applied to Gross Charges by Cost Center Total Gross Charges $552,422 $2,616,251 $1,201,924 $80,153 $1,516,468 $3,325,354 $569,897 $2,121,778 $533,865 $996,839 $25,703 $4,601,453 $625,107 $2,248,967 $34,193 $1,002,426 $303,676 $1,842,748 $722,013 $504,376 $584,113 $26,009,724 Projected Net Direct Expense Revenue $265,024 $1,274,951 $621,160 $44,742 $861,309 $1,267,653 $304,677 $1,046,914 $256,104 $514,771 $9,779 $1,764,727 $277,558 $987,906 $17,993 $474,866 $160,861 $918,133 $364,195 $266,167 $279,449 $11,978,940 $122,853 $816,368 $293,453 $17,543 $385,146 $1,226,315 $124,732 $521,186 $116,846 $218,620 $9,947 $1,617,680 $136,816 $721,109 $7,484 $219,399 $70,193 $422,512 $158,025 $110,392 $127,844 $7,444,462 Projected Contibution Margin $142,171 $458,583 $327,707 $27,200 $476,163 $41,338 $179,944 $525,727 $139,258 $296,151 ($168) $147,047 $140,742 $266,797 $10,509 $255,467 $90,669 $495,621 $206,170 $155,776 $151,606 $4,534,477 Indirect Expense $75,508 $515,270 $181,869 $10,766 $239,478 $781,766 $76,547 $323,173 $71,707 $134,191 $6,357 $1,028,506 $83,963 $455,940 $4,593 $134,643 $43,295 $260,416 $96,979 $67,746 $78,457 $4,671,171 Projected Net Revenues Should be Actual Payments, if obtainable Projected Income (Loss) $66,663 ($56,687) $145,838 $16,434 $236,685 ($740,428) $103,397 $202,554 $67,551 $161,960 ($6,526) ($881,459) $56,779 ($189,143) $5,916 $120,824 $47,374 $235,205 $109,191 $88,029 $73,149 ($136,694) Net Rev % of Gross 48% 49% 52% 56% 57% 38% 53% 49% 48% 52% 38% 38% 44% 44% 53% 47% 53% 50% 50% 53% 48% 46% Gross Gross Margin Contrb Margin 26% 25% 18% -4% 27% 23% 34% 37% 31% 27% 1% -58% 32% 34% 25% 19% 26% 26% 30% 31% -1% -67% 3% -50% 23% 20% 12% -19% 31% 33% 25% 25% 30% 29% 27% 26% 29% 30% 31% 33% 26% 26% 17% -1% Arguments over Indirect Expenses and Incremental Costs The Big Picture: Alignment of Goals Maximize Practice Operations and Efficiencies Physician Compensation, Incentives and Alignment with Goals Physician Balance and Satisfaction Physician Integration into the Network – EHRs, Physician Referral Relationships and Communication Hospital Programming and Growth Inpatient Performance and Impact on Quality, Outcomes, and Satisfaction (HCAPS, Quality Blue, etc..) Downstream Contribution Preparation for the future… Future Topics Population Health – why are some people healthy and others aren’t? Health research driving policy Primary Care Medical Home – comprehensive, coordinated, accessible, patient-centered care Concierge Medicine Affordable Care Act (ACA) – Medicaid expansion, Health Insurance Exchanges, program costs & funding Big uncertainties Hospital and Physician Alignment – Value Based Purchasing and Surviving the Cuts Communication Coordination Let’s get comfortable – we’re going to be in this thing together Questions or Comments?