1. ellise l.g. hayden, Senior Associate, OPEN MINDS Friday, August 16, 2013

2. Trends In Clinical Compensation ◦ Productivity Based Compensation models Regulatory Requirements Steps For Building A Performance-Based Compensation Plan ◦ FQHC/Integrated Health Models Compensation Models for Clinical Staff 2

3. 3 Trends In Clinical Compensation

4. Declining reimbursement environment and lower margins; recession budgeting challenges Many providers assuming an increasing amount of financial risk through financial risk sharing reimbursement arrangements Rising human resource costs (salaries and benefits) Increased competition for consumers Increased pressure on organizations and their boards of directors to be responsible for public dollars 4

5. Heavy emphasis on human resource departments across the nation to transition from being transaction-focused to being departments that help drive organizational productivity Developing processes to maximize employee productivity Determining how to calculate productivity Determining how to manage productivity and whether or not to establish productivity incentives Determining how to address low-productivity in some employees 5

6. Are We a Good Steward of Public & Private Dollars? Do We Provide Better Value for These Funds Than Other Organizations? Do We Provide Better Value Than Other Organizations? What Services Should We Provide to Best Fulfill Our Mission? All of these concerns create a stronger mandate for high productivity and demonstration of quality outcomes. 6

7. Radiologist: $395,606 Orthopedic Surgeon: $384,707 Anesthesiologist: $364,689 General Surgeon: $318,048 OB/GYN: $264,254 Emergency Medicine: $239,758 Hospitalist: $214,708 Psychiatrist: $200,330 Internal Medicine: $195,709 Family Practice: $173,945 Pediatrics: $159,041 7

8. Performance based incentive plans are on the rise ◦ 92% of group practices offer incentive plans ◦ 63% of hospital groups ◦ 67% of integrated health systems Productivity remains the most common 8

9. 9 Other Things We Sometimes Mean By “Productivity” Client-care time versus administrative or other time staff time Face-to-face client time versus other staff time Productivity is a touchy word, i.e., “What do you mean my other time is not productive?” If we mean BILLABLE time, let’s say it!

10. A compensation plan must: Work for the entire group Clear and consistent Be equitable Must be based on reliable data Promote trust Promote group incentives/objectives (goals, on-boarding, etc. 10

11. The goals of any compensation plan should: Comply with business objectives Promote physician satisfaction Be competitive based on physician labor market Match compensation with services provided 11

12. 12 Productivity Model Example

13. Based on 40 hour week, 2080 annual hours The clinician is considered a full time employee and will be paid bi-weekly or 26 paydays annually Billable hours required: ◦ 65% - 1,352 ◦ 70% - 1,456 ◦ 75% - 1,560 13

14. The clinician is expected to provide1352 billable services annually (65% model) The contract requirements need to be monitored quarterly to ensure financial stability Quarterly requirement @ 65% = 338 14

15. If the clinician provides exactly the number of required hours in a given quarter, the salary will remain at the base amount Clinicians providing more than the required hours will be able to accrue hours Can be used for “Paid time off” or continued to accrue for bonus The “Bonus” is paid at 50% of actual revenue received for hours exceeding the requirement 15

16. If a clinician provides less than the required billable services in a given quarter, the base salary will remain the same The adjustment in the following weeks will be as follows the difference between the anticipated hours and actual hours billed will be multiplied by the anticipated revenue, this amount will be subtracted from the gross pay in the subsequent pay periods The reimbursement plan may be initiated prior to the end of the quarter if the clinician falls more that 50 hours behind the required billable services 16

17. Reward for seniority/tenure Credit for continuing education credits Increased productivity for higher bi-weekly salary What to do about FMLA Compensation for licensure Paid time off continues to be an issue 17

18. Credentialing & paneling of clinicians limits individuals to reach productivity goals Clinicians movement to private sector Increase challenge to achieve financial margins with complicated payer requirements 18

19. Formula for benefits, healthcare, short & long term disability, dental Change language for bonuses Initial contract term extended to ensure financial goals achieved Language included for end date of AR 19

20. 20 Regulatory Requirements

21. Regulations are the basis for all compensation planning. Each has its own effect: Tax-Exempt Organization Law Anti-Kickback Statute Physician Anti-Referral (Stark Law) False Claims Act 21

22. 501(c)(3) public charity or a 501(c)(4) social welfare organization Prevents “excess benefit transactions” ◦ Any transaction in which an economic benefit is provided by an applicable tax-exempt organization, directly or indirectly, to a disqualified person that exceeds the value of the consideration (including the performance of services) received by the organization. ◦ A disqualified person is any person who was in a position to exercise substantial influence over the affairs of the organization 22

23. Criminal offense to knowingly and willfully solicit, receive, offer, or pay any remuneration to induce referrals of items or services paid by a federal health care program. Government must prove intent to induce referrals ◦ The statute is violated even if one purpose if remuneration paid under a business arrangement is to induce referrals 23

24. Prohibits a physician form making referrals for “designated health services” to an entity with which physician (or immediate family member) has a direct or indirect financial relations hip unless a specific statutory exception applies. ◦ Also prohibits entity and physician from billing for services provided pursuant to a prohibited referral ◦ Any violation of stark, even unintentional, results in liability 24

25. What is a financial relationship? ◦ Defined to include any direct or indirect ownership or investment in an entity furnishing designated health services ◦ Compensation arrangement – with an entity furnishing designated health services ◦ Financial arrangement is a protected if activity falls within an exception. 25

26. Identify comparable data that reflects the services performed Centers for Medicare and Medicaid Services (CMS) ◦ “Reference to multiple, objective, independently published salary surveys remains a prudent practice for evaluating fair market value.” 26

27. In office ancillary services exception ◦ Must qualify as a “group practice”  Must meet performance, location, and billing requirements  Solo practitioners can refer and receive compensation from in-office ancillaries  Providers can refer designated health services within their “group practice” (even if owned by a hospital) and can receive compensation indirectly related to designated health services under certain specified criteria 27

28. Compensation is consistent with fair market value for the identifiable services Compensation is not determined in a way that takes into account the volume or value of any referrals by referring physician ◦ Directly or indirectly Agreements are commercially reasonable 28

29. Imposes liability on organizations who defraud governmental programs Federal contractors who overcharge the government for services, including health care services, can be held accountable 29

30. 30 Steps For Building A Performance-Based Compensation Plan

31. WHAT? – What performance results are you seeking to achieve? WHO? – Who is needed to achieve those results? HOW? – How do you motivate staff to achieve the results? 31

32. Revisit your strategic plan or business objectives: ◦ What are the quantifiable objectives sought? ◦ What is the timeline? ◦ What key performance indicators have been put in place to monitor progress and success? 32

33. Also, consider using measures that focus on routine operational standards ◦ Productivity or yield ◦ A/R collection rates 33

34. Does your staffing pattern have the right people in it to achieve your objectives? Sometimes you can link specific objectives with individual job positions or departments; for others you may want to “weigh” the degree to which several staff members are critical to effecting intended results ◦ E.g., You may deem the billing department team leaders as having greater influence an achieving collection goals and thus give them a bigger incentive 34

35. Plan Type: Team or individual based incentives? Plan Term: Time period for achieving objectives: ◦ Should the incentives be short-term or long- term? Plan Method: Calculation method Plan Periodicity: frequency in which variable pay is paid out 35

36. Lastly, predetermine the length of time the plan will be in place before modification. 36

37. The Communication Plan Answers These Questions: ◦ Why was the compensation program designed? ◦ What business goal is the program designed to achieve? ◦ How does it link to overall organizational strategy? ◦ How competitive is the program? ◦ What behaviors will it motivate? ◦ How are individuals affected? 37

38. 38 Compensation Models For Clinical Staff

39. Equitable compensation Fixed salary Base plus incentive/bonus Pure productivity Other responsibilities ◦ Managing partner ◦ Medical director ◦ Supervision of ancillary staff ◦ Non-clinical activities 39

40. Usually in single specialty practices Applicable to owners After expenses paid, additional revenues are equitably allocated Among owners 40

41. Pros ◦ Simple ◦ Promotes unity and team behavior ◦ Avoids Stark issues Cons ◦ High producers are not incentivized ◦ Low producers benefit ◦ Can result in conflicts 41

42. Income guarantee ◦ Common for new physicians or new to practice How to determine salary ◦ Salary surveys – objective data ◦ Expenses to revenue margin. 42

43. Pros ◦ Simple ◦ Security Cons ◦ No long term incentives ◦ Non-entrepreneurial 43

44. Fixed base salary (% of total compensation) ◦ Based on historical data or survey ◦ May be an advance against total compensation Incentive tied to ◦ Productivity (revenues vs. RVU’s) ◦ Non-productivity related measures (quality measures, outcomes, satisfaction) ◦ Meeting external quality measures – eRX/PQRI 44

45. Pros ◦ Rewards for hard work ◦ Security ◦ Can assist in directing behavior ◦ Rewards group objectives Cons ◦ Income risk ◦ Motivation 45

46. Determining available dollars for incentive ◦ Based on data collection  Expenses  By physician  Direct expenses  Ancillary expenses  Overhead allocation  Productivity  Charges  Net collections  RVU’s  Encounters 46

47. Allocation between owners vs. Employees % Reserved for practice development % Equal distribution % Physician productivity Allocation of DHS revenue ◦ Productivity bonuses ◦ Ancillary revenue pool equally distributed 47

48. Most complex Goal = enhanced productivity Competitive work environment Encourage overutilization of services Range from ◦ Formula with multiple factors ◦ Amount collected ◦ Quantity of RVU’s ◦ Amount billed 48

49. Gross professional charges Gross revenue Net collections RVU’s Days worked Patient encounters Points Customized systems 49

50. Clinical outcomes Evidence based guidelines, protocols or reporting performance Cost control Use of electronic health record PQRI reporting Patient satisfaction Leadership, participation, Call coverage Peer chart review 50

51. Hospital and Healthcare Compensation Services – Physician Salary Survey Report www.hhcsinc.comwww.hhcsinc.com Medical Group Management Association – Physician Compensation and Productivity Survey www.mgma.orgwww.mgma.org ECS Watson Wyatt – Hospital and Health Care Management Compensation Report www.watsonwyatt.comwww.watsonwyatt.com William M. Mercer – Integrated Health Networks Compensation Survey www.mercerhr.comwww.mercerhr.com 51

52. 52 Questions & Discussion

53. 53 2013 Executive Leadership Institute September 11-13, 2013 – Gettysburg, PA 2013 Technology & Informatics Institute October 24-25, 2013 – Philadelphia, PA 2014 Performance Management Institute February 13-14, 2014 – Clearwater Beach, Florida

54. www.openminds.com openminds@openminds.com 717-334-1329 | 877-350-6463 163 York Street, Gettysburg, Pennsylvania 17325 The market intelligence to navigate. The management expertise to succeed.