Becker's Hospital Review

58 Executive Briefing: Physician Compensation • Chicken and egg — Most employers or their valuation con- sultants rely, at least in part, on production benchmarks to establish fair market value compensation (i.e., for a physi- cian employed by an entity receiving the physician's re- ferrals). Such benchmark information is readily available (i.e., via published surveys of production data). To date, the industry lacks solid sources of benchmark data upon which to base comparisons of value. Without this informa- tion, how does an employer determine FMV compensation related to quality? • Quantifying quality — To quantify value requires specific measurements. Can you reasonably compare the value created by two physicians by comparing their performance against a single metric (or a uniform set of metrics)? To measure the value created by a physician accurately may require a specific set of measurements tailored to the ser- vices provided by that physician. At present, individualized quality metrics certainly complicate the administration of compensation programs. Potential components of a future value-based compensation model Many within and outside of the healthcare industry are endeavor- ing to overcome these barriers. As the pendulum swings further toward value-based reimbursement for physician services and our industry compiles more and better data on outcomes, we believe new compensation models will emerge that shift the financial in- centives for employed physicians to encourage both volume and value simultaneously. Obviously, we have learned how to incentivize volume effectively. This development will continue to be useful going forward as the population ages and the number of physicians available to treat that population continues to decline. However, our ability to create incentive systems that reward employed physicians equally for the production of volume and value will be fundamental to reduc- ing future healthcare spending. Perhaps surprisingly, the employ- ment compensation models of a value-based world may not look all that different on the surface from the models utilized today. Today's compensation plans might pay an employed physician $40.00 for each personally performed wRVU produced by the physician. Additionally, the physician may be eligible for a $15,000 "quality bonus," which is awarded based on performance against core measures and scores from patient satisfaction and internal physician satisfaction surveys. If the physician produces 5,000 wRVUs per year, the quality bonus represents about 7 percent of the physician's compensation. Contrast today's model with a future production-based model that, in totality, offers the same $40.00 per wRVU, which still encour- ages the physician to maintain or increase production. However, in the future model, the physician is guaranteed to receive only $25.00 for each wRVU produced; the remaining $15.00 funds the physician's value-based incentive pool. To add incentive for superlative performance, the employer contributes an additional $5.00 per wRVU to the incentive pool (i.e., for a total of $20.00 per wRVU). Collectively, the employer and physician review normal- ized outcomes data and develop a set of individualized metrics that appropriately measure the physician's creation of value. The incentive pool is then awarded as follows: • Physician fails to meet acceptable standards for a particular metric: no bonus tied to metric • Physician meets acceptable standards for a particular metric: 50 percent of bonus tied to metric • Physician meets superlative standards for a particular metric: 100 percent of bonus tied to metric Such a future model creates incentives to produce both volume and value. In fact, by producing a high level of value, the physi- cian may earn even more than under today's volume-incentive model. Conversely, those physicians with high volume but low value would see significant reductions in income. Necessarily, the ability to implement such a future model hinges on our ability to measure quality outcomes objectively and consis- tently. Furthermore, the ability to drive the highest levels of com- pensation to those physicians who create the most value, rather than the most services, is dependent upon a continued shift to value-based reimbursement for physician services. As these de- velopments indeed unfold, the landscape of compensation mod- els for employed physicians will continue to evolve. n HealthCare Appraisers, a nationally recognized valuation and consulting firm, provides services exclusively to the healthcare industry, including: busi- ness valuation (e.g., ASCs, hospitals, physician practices, dialysis centers, home health, diagnostic/treatment facilities, and intangible assets); fixed asset appraisals for furnishings, machinery and equipment; fair market value opinions for compensation and service agreements (e.g., employment, ED call coverage, medical directorships, collection guarantees, equipment lease/use arrangements, and service/co-management arrangements); consult- ing and advisory services (including valuation for financial reporting); and litigation support. www.HealthCareAppraisers.com | info@hcfmv.com | (561) 330-3488 DELRAY BEACH | DENVER | DALLAS | CHICAGO | PHILADELPHIA Not all things are created equally. We are not your average Healthcare Valuation Firm. With over 12 years in the business and thousands of fair market value opinions rendered, HealthCare Appraisers has assembled a diverse, highly experienced team to help you navigate through a myriad of valuation needs and dilemmas. HealthCare Appraisers - Redeening Healthcare Valuation Since 2000 Perhaps surprisingly, the employment compensation models of a value-based world may not look all that different on the surface from the models utilized today.

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