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The different ways hospitals pay

Incentive compensation aims to improve quality, productivity

From the October ACP Hospitalist, copyright © 2010 by the American College of Physicians

By Jan Bowers

With demand for hospitalists outstripping supply in many areas, the compensation plans offered to doctors have become more competitive, and more complicated.

“A number of hospitals started their hospitalist programs just paying a fixed salary, and now they're finding that that model doesn't align incentives as much as they'd like,” said Leslie Flores, principal and co-founder of Nelson Flores Hospital Medicine Consultants in La Quinta, Calif.

Photo by Getty Images.

Photo by Getty Images.



Because many hospitalists seek the security of a guaranteed income, most compensation packages still feature a fixed base salary as the largest component. Few rely on guaranteed salary alone, however. A growing number of plans offer a mix of salary plus incentives based on performance, productivity, or both. Beginning with specific quality, financial or other goals, employers are fashioning innovative compensation plans that use incentives to shape physician behavior and reward high achievers.

A new survey of 443 U.S. hospital medicine groups, conducted jointly by the Society of Hospital Medicine (SHM) and the Medical Group Management Association (MGMA) and released in September, found that only 21% of respondents pay their hospitalists a straight fixed salary, while 56% combine a fixed salary with productivity and/or performance incentives. Almost a quarter (23%) use a variety of other compensation models.

According to the survey, hospitals tend to favor salaries a little more than other hospitalist employers. Hospital-owned groups that used incentives (53.5% of respondents) paid, on average, 82% base salary, 12% productivity incentives and 6% performance incentives. For non-hospital-owned practices, compensation comprised 69% base salary, 27% productivity incentives and 4% performance incentives.

“Hospitals want to feel that the hospitalists care about the things they care about, whether that's quality improvement, effective resource management, cost per case, or helping to build market share and grow the program. They want to feel that the hospitalists are on the same page as they are and are well-aligned with their interests,” said Ms. Flores.

Types of incentives

Hospital medicine groups frequently use work Relative Value Units (RVUs) to measure productivity, but many also incorporate a per diem or shift rate for less busy times, such as night shifts. Other productivity measures cited on the SHM-MGMA survey included gross charges, adjusted charges, collections, number of encounters and size of a physician's patient panel.

Performance incentives can include process measures, such as core measures for heart failure, pneumonia and acute myocardial infarction; quality/safety committee participation; use of order sets; medication reconciliation; and transitions-of-care measures. Some employers pay based on outcome measures like mortality and readmission rates. “Service” or “citizenship” metrics are also common and can include patient, nurse and physician satisfaction and committee participation and leadership.

Many hospitals fashion their specific priorities into performance incentives, Ms. Flores said. “For example, if the docs aren't doing a good job completing their medical records on time, there might be a bonus for that. Do the hospitalists discharge the bulk of their patients before noon—that's a big one. Do they respond to the ER within 15 minutes of being paged?” Ms. Flores said. “You can incentivize anything you can measure.”

However, employers need to be cognizant of laws and regulations designed to protect patients when developing an incentive-based compensation plan, she said. Length-of-stay shouldn't be incentivized, for example, because there's a federal prohibition against denial of medically necessary care, and the Centers for Medicare and Medicaid Services (CMS) might think the hospital is paying physicians to reduce care to Medicare patients.

“Also, you wouldn't want to bonus physicians for increasing their level of CPT [Current Procedural Terminology] coding because you could argue that they might be tempted to fraudulently upcode,” Ms. Flores said.

Productivity-based model can enhance flexibility

Northern Colorado Hospitalists, a Fort Collins-based group of 13 full-time-equivalent (FTE) hospitalists working at two sites, moved from a fixed-salary compensation model to a productivity-based plan nearly three years ago.

The aim was to provide hospitalists with scheduling flexibility and fair compensation for the shifts they work. “When you're on a straight salary and a fixed schedule, everybody has to work the same because they're getting paid the same,” said Christine Lum Lung, ACP Member and the group's medical director. “A couple of years ago, we concluded that we needed to accommodate those who wanted to take time off without making them work a ton of extra shifts to pay back what they didn't work. Others wanted the opportunity to make extra money, and were willing to step up and do the extra work.”

The group's plan awards about 70% of a physician's compensation in the form of payment per RVU. The remaining 30% is earned in shift-based pay. Since night shift physicians have less of an opportunity to bill for RVUs, they are provided with an additional per diem for nighttime shifts. Daytime shifts that may require additional time, but have fewer RVU billings, may also be assigned an additional per diem, albeit a smaller one than for night shifts. The group hired an external auditor to match each physician's chart against the CPT coding, to ensure the number of RVUs is appropriate for the care delivered.

In addition, physicians can earn a quality bonus based on metrics, like compliance with coding measures, that change each quarter. The bonus usually amounts to about 10% of the total compensation package.

“We always base 50% of each quarter's quality metric on professionalism—how you get along with the group, are you stepping up,” said Dr. Lum Lung. “The executive committee votes on that aspect.”

Each member of the group also evaluates every other member annually on aspects of group participation such as handoffs, communication and teamwork, she said. The group didn't use core measures at first, because patients may be seen by more than one hospitalist during their stay, Dr. Lum Lung said.

“This year, we are able to appropriately assign a specific core measure to a specific hospitalist, so we are starting to do [core measures],” she said.

The compensation plan, which was developed in consultation with Nelson Flores, required about two years of data-gathering, modeling, and refinement, Dr. Lum Lung said. “While we were still using the old system, we tracked what people would have made under the new system to help with the buy-in,” she said.

“At first there was some trepidation that if you had a slow month, you would basically have no money that month,” Dr. Lum Lung added. “But after the first couple of months, when people saw how much they were actually making, and how that related to what they were doing, they had no issues with it.”

Elizabeth Yoder, ACP Member, joined Northern Colorado Hospitalists under the old fixed-salary plan and said she prefers the flexibility of the productivity model. “I like to take several weeks off at a time. It's very difficult to do that if you have to pay back the shifts by working extra time before or after your vacation,” she said. “Also, I would argue that our salaries all went up when we instituted productivity-based pay because now we're getting paid for the actual work that we do.”

Salary-based plan rewards new admits

Striking the right balance between productivity and quality incentives is critical to a successful compensation plan, said Kirk Mathews, chief executive officer and co-founder of Inpatient Management, Inc. (IMI), a St. Louis-based hospitalist management company. A plan based entirely on productivity incentives would incentivize longer lengths of stay instead of shorter ones, he noted.

“So maybe the hospital is meeting one goal of providing coverage for unassigned patients or for primary care physicians who don't want to come in, but they're hurting themselves on the other side with utilization issues,” Mr. Mathews said.

IMI pays hospitalists differently at different practice sites, but most start with 85% or more in base salary, Mr. Mathews said. The remaining 15% includes both productivity and quality incentives. Productivity can be measured in work RVUs. In some locations, physicians receive a fixed dollar amount for each history and physical and each initial consult they perform. “That's part of the behavior we want to incentivize. We want to foster a culture of, ‘Yes, we'll take your patient’,” Mr. Mathews said.

In order to receive a quarterly productivity bonus, IMI physicians are also required to hit specific quality targets. “Let's say in a given quarter a hospitalist builds a $3,000 [productivity] bonus but his patient satisfaction scores come in below the target. In that case, he loses 10% to 15% of that bonus,” Mr. Mathews said.

Other components of the bonus might be performance on selected core measures or timely completion of medical records. “We talk to our client hospitals and ask what physician behaviors are really important to them, and then try to build those into the quality section of the incentive compensation,” Mr. Mathews said.

Incentives can support quality, not just quantity

A concern for the quality of service, as well as productivity, drove the creation of the compensation model at Sound Physicians, a Tacoma, Wash.-based hospitalist management firm with 437 physicians at 39 sites, according to Chief Executive Officer Robert Bessler, MD.

“First, the model is based on the idea that we want to see a reasonable volume of patients every day, with the goal of getting 60% of our discharges written before noon; be able to round on our patients multiple times per day; and have the bandwidth as a doc to sit down with families when they need it,” Dr. Bessler said.

“We don't feel that a high-productivity model would allow us to deliver that level of service,” he added. “The best way to make more [as a physician] in our practice is to work more days, because we don't want physicians seeing too many patients on a given day.”

The firm's physicians receive 80% to 90% of their compensation as a base salary that varies by market. Incentive compensation includes a productivity bonus earned when a physician exceeds a specific RVU threshold.

Quality incentives are negotiated with each hospital to align with institutional priorities, and may include everything from core measures to patient satisfaction to discharge order time. Quality bonuses are shared by the hospitalist team at each site.

Sound Physicians' plan was launched three years ago at an offsite management meeting facilitated by a former executive vice president at Southwest Airlines and JetBlue, Dr. Bessler recalls.

“We wanted to know how we could build the kind of enthusiasm and love for work,” engendered by those airlines, he said. “We set out to refresh our values and define the behaviors that support the values of quality, teamwork, integrity, innovation and service. Then we hired for those values, and in the orientation process we show our physicians what those behaviors are that support our values. They are evaluated and measured against those behaviors for the first 120 days before they can share with their team in the quality bonus.”

Evaluating a physician on teamwork, for example, means looking at whether she is attending team meetings, going out of her way to help partners who are extra busy, and helping improve patient flow by collaborating with team members, he said.

On service, physicians are evaluated by the chief hospitalist using data from patients, nurses and community physicians on metrics like whether nurses find the physicians helpful, and whether coworkers believe they help improve the process of care.

“We get very good information, and it all gets quantified,” Dr. Bessler said.

Do incentives work?

Data from the SHM-MGMA survey show a “significant correlation between the compensation model and both the level of productivity and the amount of compensation,” Ms. Flores noted.

“In other words, the lower the proportion of compensation that's paid as base salary—and the higher the incentive component—the higher both productivity and overall compensation tend to be,” she added.

Several physicians agreed that providing incentives for specific performance measures has yielded significant improvement. “DVT prophylaxis, in the pre-measurement era, was not as good as we wanted it to be,” said Vikas Parekh, FACP, associate director of the hospitalist program at the University of Michigan Health System in Ann Arbor.

“Once we started measuring and reporting and incentivizing, it certainly has improved. We've cranked up the bar as to what triggers an incentive over time, because we want it to be better. The same thing happened when we used blood transfusion as an incentive for a couple of years, and also primary care physician contact. That's very labor-intensive to measure, but also quite useful,” he said.

What do physicians want?

Incentives can also be useful as a tool for recruiting and retaining excellent hospitalists, Dr. Bessler said.

“The high performers were craving this because it's a way to ensure that they're recognized,” he said. “And we absolutely should be rewarding the people who are performing.”

But employers who try to reduce the proportion of guaranteed salary in favor of increasing incentive compensation may face the dual headwinds of physician resistance and high fixed salaries elsewhere, others warned.

“Hospitalists tend to want a fixed salary, particularly those just coming out of residency, and they're sort of insecure about any other salary element,” said John Nelson, FACP, medical director of the hospital practice at Overlake Hospital in Bellevue, Wash., and co-founder of Nelson Flores. “They want the incentive elements to be minimal, as a rule.”

Yet, taking a fixed salary leaves a physician vulnerable to being told by an administrator that he or she isn't working hard enough and needs to see more patients, he added. “That's why I think being paid, to a very large degree, based on your individual production, is desirable and liberating for the hospitalist,” Dr. Nelson said.

Dr. Yoder at Northern Colorado Hospitalists agreed, saying that most people who have been in a productivity-based plan for a while feel it's more equitable.

“It doesn't feel very good to have the person next to you working less than you are and getting paid the same,” Dr. Yoder said.

Jan Bowers is a freelance writer based in Evanston, Ill.

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