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Developing sound rate-based physician compensation plans

May 04, 2022

The Centers for Medicare & Medicaid Services implemented its most significant changes in decades to the Medicare Physician Fee Schedule in 2021, but some hospitals and health systems have held off implementing the new fee schedule until gaining a better understanding of the impact on their system.

With the changes now in effect, healthcare systems can use the information gathered to systemically update or redesign their compensation plans.

The rate-based approach should allow your organization to adapt a more predictable spend on physician compensation that is both financially sound and compliant.

Rate per wRVU

When people think of a target rate per wRVU (work relative value unit), some only consider the rate as it relates to a productivity incentive, and each of the compensation components are separate pieces summing to total clinical compensation. Yet, an overall target rate per wRVU inclusive of all clinical forms of compensation (productivity, performance, APP supervision, etc.) can be used to effectively manage the compliance and spend of a compensation plan.

Below are two figures illustrating two different methods for designing a rate per wRVU based compensation plan. In general, we consider Figure 2 to illustrate a more appropriate approach to compensation, whereas Figure 1 has some pitfalls as described below.

Developing sound rate-based physician compensation plans

Figure 1

If your productivity rate per wRVU is the “target” rate per wRVU, it ends up being a considerably higher spend than originally targeted as compensation is layered on top of the “target.” It also leaves potential for overspending and compensation reaching the upper levels of fair market value (FMV). 

Developing sound rate-based physician compensation plans

Figure 2

In contrast to Figure 1, if the total rate per wRVU is the “target” rate per wRVU, the compensation plan works down from the potential total spend into the individual components that make up the total. For example, the productivity rate per wRVU would be 90% of the total rate per wRVU, the quality rate per wRVU would be 8% of the total rate per wRVU and 2% of the total rate per wRVU would be the other rate per wRVU. This method of setting up the compensation plan allows for the spend to be controlled from the top down and can support compensation being FMV.

When setting up compensation rates via the methodology in Figure 2, administrators and physicians can jointly determine the total rate per wRVU by picking a dollar value or a market survey percentile to tie to the rate. Then, the percentage distribution among the components can be balanced system-wide by specialty or by individual among other categories.

Here are other key details about the primary components of the rate-based compensation approach.

Productivity rate

  • It can ensure rate is FMV at a productivity incentive wRVU threshold, if rate is a percentage of total rate per wRVU.
  • It can tier rates to correspond to different levels of productivity.
  • If guaranteed salary or base draw is part of compensation plan, the productivity rate per wRVU and base can determine the wRVU threshold needed to be earned before productivity incentive can be earned.

Quality rate

  • It can be tied to a minimum productivity level in order to earn.
  • It can include a cap on earnable dollars.
  • Partial amounts can be earned based on the achievement of predetermine metrics.

Collections per wRVU

Developing a compensation plan based on a target rate per wRVU should not be done in a vacuum. Each organization needs to understand and determine what is financially viable for them, how to maintain long-term financial health and how it fits with the financial strategy of the organization.

There are examples of organizations setting rates per wRVU within their compensation plan without considering the collections (both professional and technical). In order to generate a comparison of compensation and collections, organizations can compare the targeted or effective compensation per wRVU to the collections per wRVU. If a service line has compensation per wRVU outpacing collections per wRVU, the service line is running a deficit.

As part of compensation plan development, decision-makers should know what the collections per wRVU are for a specialty or service line, and once this information is validated, rates can be set at levels that allow for organizations to have a financially healthy compensation plan.

How Wipfli can help

Calculating and adapting to a new compensation plan for your healthcare system can be complex. Wipfli’s healthcare team of professionals is experienced and knowledgeable to guide you through the design and implementation process. Learn more Wipfli’s healthcare offerings.

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Andrew Cadger
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