In a world where physicians are being pressured to do more with less, they also have to learn how to share shrinking profits.
From hospitals to independent multispecialist practices, medical groups are looking for new ways to slice up the earnings pie. Many have implemented incentive plans to encourage more productivity.
"The days of fixed salaries irrespective of a physician's productivity are gone," says Richard Longo, vice president for provider initiatives at Pittsburgh-based Highmark Blue Cross Blue Shield.
But many medical groups are struggling with how to define productivity.
"This has been an ongoing three-year battle here," says Kevin McMahon, administrator of the Department of Surgery at the University of Wisconsin Medical Foundation, which has 500 doctors-about 75 of them surgeons.
A private, clinical arm of the medical school faculty, the medical foundation was formed three years ago out of 14 separate partnerships, each with its own compensation plan. A single plan was adopted, but the doctors reserved the right to create exceptions.
More than half of the original partnerships altered parts of the plan to more fairly reflect the needs of specialties like anesthesia and radiology that don't generate revenue the way a surgeon does.
Doctors in those specialties are "at the mercy of what comes in that day," McMahon says. So their compensation is based on their ability to perform regular atient-care duties "rather than actually how much work they generate."
Complicating things even more, less than two years ago, the foundation added another 227 physicians, about 30 of them surgeons, when it acquired Physicians Plus, a private doctor group in Madison, Wis.
The two groups still haven't integrated their financial operations because they have yet to resolve conflicts determining productivity.
"Our productivity is based upon cash. The more cash you bring in, the more money you get to keep. The group that we're merging with bases it all on RVUs (relative value units) and gross charges," says McMahon.
The two groups have tried unsuccessfully to resolve the problem, first with an integration team and later an outside facilitator. Now one of the medical foundation's public board members has offered to help.
Physicians Plus is loaded with primary-care physicians. The surgeons and specialists pay all the expenses because the primary care doctors can't generate enough money to cover their salaries plus pay expenses, says McMahon.
The group got into financial difficulty because it based gross production on charges submitted, without regard to whether they were collectible, he says.
"They were expecting a certain reimbursement or collection rate and they are getting less. And they paid their doctors based upon the anticipated rate. That's part of the issue we're arguing about."
Cindy Fears ran into that problem about eight years ago in St. Louis while she was administrator of a hospital-based medical group that eventually grew into Unity Medical Group.
The group wanted to assign a conversion factor--a dollar multiplier--to the RVUs, to make them reflect the values they thought were more appropriate, says Fears, now administrator of an eight-physician practice, St. Louis Pediatric Associates, in suburban St. Louis.
"So they just basically took the existing Medicare Relative Value Unit systems and adjusted them to suit their own purposes, and there was a lot of division--specialists vs. primary care," says Fears, even though the whole point of the RVU system was to fix the reimbursement system that gave more money to specialists than PCPs.
The hospital group also guaranteed physicians part of their previous compensation when it purchased a practice. But those doctors often went into overdrive, bumping up their contract base before they were acquired. Once they had salary guarantees, many doctors eased up. There was little incentive to put in more hours or to go after outstanding bills. In some cases productivity dropped 30 to 50 percent once the practice was purchased, says Fears.
In the practice Fears currently manages, "We're very much on a cash basis here," she says. The St. Louis practice has no productivity incentives; doctors are paid on what they bring in, minus expenses of the practice.
Consultants say that for practices to come up with a successful compensation philosophy, physicians must share a group goal and identity.
"The whole medical education process isn't conducive to that," says David Hofrichter, who is with Hay Management Consultants in Chicago. "What we see is that from college to medical school through internships, residencies, fellowships, etc., it's all about 'me.' It's all about the individual."
McMahon, of the University of Wisconsin Medical Foundation, also believes problems occur because medical groups tend to follow the latest trends as promulgated by consultants.
"(Consultants) think it's like corporate America, that getting bigger groups and merging with other entities is going to solve all your problems. But doctors like autonomy."
Still, autonomy only goes so far in an era of tightened resources. At Portland, Ore.-based Northwest Permanente P.C. Physicians and Surgeons, collaboration is
"We look at the entire results of the group, both in service and quality, and then we share it equally," says Harry Stathos, Northwest Permanente's business manager. "We just divide it up. We do that to keep the collaboration within the group strong."
Only about 45 percent of physician incentive is based on financial results, Stathos says.
"That's kind of important to us. We like to tell the marketplace that the incentives our physicians earn are primarily based on quality and service, at a higher degree than the financial results," he says.
The 50-year-old medical group consists of 600 physicians, 510 of them shareholders in the company. Ninety-five percent of the group's revenue comes from an exclusive contract with Kaiser Foundation Health Plan, providing medical services for the plan's 440,000 members in Oregon and southwestern Washington state.
Northwestern Permanente's compensation plan consists of a base salary with small, separate incentives tied to three outcomes: financial results, quality results and service results.
There is no individual incentive. The 510 shareholders as well as 30 senior physicians, who have completed three years with the group, share equally in whatever the year's financial incentive payment is. In a good year, says Stathos, that could be as much as $11,000.
"For a specialist who makes $250,000 a year, it's a nice amount of money, but it's not a huge amount, so it's not going to inappropriately influence them" to cut corners, says Stathos.
All group doctors, not just the senior physicians and shareholders, split service and quality incentives, which in a very good year may hit $8,000 per physician and in a bad year may be as low as $2,000.
For the most part, physicians are happy with the compensation plan, says Stathos. "That's why they came to work here. They know that's how we do things."
According to Ronald Vance, of compensation consultants Cejka & Co., one growing trend "is a significantly higher degree of accountability that is being placed at all levels, for individual effort." Vance is senior vice president in Cejka's healthcare consulting division in Atlanta.
But seeking accountability is easier said than done when there are often multiple, and sometimes conflicting, pressures.
David Thomas, chief executive officer of Midwest Physician Group in Chicago, says the challenge for group administrators is "to determine how to recognize the varying contributions of different kinds of physicians within a multispecialty group."
The 45 primary-care physicians at MPG are assessed a flat overhead rate on costs ranging from office personnel salaries to shared support services. The overhead rate is an attempt to recognize both their direct and indirect economic contributions, says Thomas.
But if a group over-recognizes their indirect contribution, he says, "then it runs the risk of overtaxing its high revenue-producing specialties and in so doing, could destabilize the entire group," meaning specialists or PCPs may leave.
Thomas says that at MPG, which has 160 full and part-time physicians, "We set standards. We look to our physicians to have a certain number of available hours." The group requires primary care physicians to have 36 outpatient billable hours per week. That means 36 hours of face-to-face patient encounters.
"And then we expect them to have 6,000 visits per year and we expect our specialists to be generating in the 75th percentile of productivity," says Thomas.
John M. Doyle is a Bethesda, Md.-based business writer.