Compensating for More

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Designing a physician payment plan is tough, but pushing beyond the traditional work RVU model is paying off for one health system.

Do you want peak performance from a physician? Well, physicians are motivated by an innate desire to provide excellent care, and to outperform their peers and they respond well to money. Sounds reasonable, but building a compensation plan around these three needs has been vexing at times for both hospitals that employ physicians and those who manage physician groups.

For Louis Papoff, CFO of physician services, Chicago market, for Vanguard Health Systems, designing compensation plans that effectively reward physicians is a mantle he has happily taken up. Papoff, who joined the Nashville-based for-profit hospital operator in July 2008, says "Vanguard is very interested in implementing new ideas." To that end, while some hospitals are beginning to employ physicians once again, Vanguard has taken a slightly different approach.

Several years ago, Vanguard bought Chicago-based Weiss Memorial and Berwyn, IL-based MacNeal Hospitals and last year carved out their 100 employed physicians into two separate LLCs that are now owned by the system. The two multispecialty groups, MacNeal Physicians Group and Lakefront Medical Associates, are set up to closely affiliate with the two hospitals.

Early this summer, Papoff rolled out the first incentive plan for the MacNeal OB/GYN physicians. The payment plan is based on a relative value unit model, but adds a couple of layers of incentives that are too good for physicians to resist. In the past, says Papoff, the two groups were paid a percentage of collections, which wasn't working.

"The problem with that method is it shifts a lot of the risk onto the individual doctor." Furthermore, the OB/GYNs saw a patient mix that was on average 40% Medicaid. Putting physicians on a percentage of collections would mean they were "taking one for the organization," says Papoff. While he knew he wanted to move to a wRVU model, Papoff also realized it was important to build in an extra layer of incentive.

So Papoff decided to base physicians' compensation on how their peers were doing across the country, using the Medical Group Management Association as the primary benchmark. Instead of paying the median range per RVU by specialty, physicians are paid at the level at which they produce. For example, if physicians are producing at the 60th percentile, they are compensated at whatever the payout is per RVU at that level. In essence, the more RVUs they generate, the more they are paid per RVU. Compensation is adjusted by region, size of practice, and specialty. "One RVU is not going to make an enormous difference. But for every RVU they do, they increase tightly how they perform percentile-wise to the MGMA benchmark," says Papoff.

While many of the more sophisticated medical groups are moving toward RVU-based compensation, Papoff says, "This takes it one step further because it adjusts the amount we pay per RVU based on the individual's, not the group's, performance." So far, Papoff says physician reaction has been positive. "They have become less focused on the implications of the higher Medicaid proportion of their payer mix and are more engaged in addressing and resolving group practice issues and objectives," he says, noting that a number of other non-OB physicians have requested this compensation option.

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