Practice Survival 101 (or maybe 501!): Optimize Provider Compensation – Here is How – Part 9 of 12

A word cloud of common terms around physician compensation.

Practice Financial Management – Insights & Tips From MedCV That You Need to Quickly Maximize Your Income

Financial Improvement

Hospitals and medical groups are finally shaking off the economic fallout of the Covid-19 Pandemic, but now historic inflation and looming economic uncertainties continue to place significant pressure on them to improve their financial performance. That’s why John Rezen (FACHE, MHA) in collaboration with MedCV has brought back this series of 2-3 minute reads on how You can assess and improve your practice financial performance in 12 essential areas. Each installment will help you and your team quickly add cash to your bottom line by allowing your practice to work smarter and harder. The following checklist of performance measures will help physician enterprises identify financial opportunities and accelerate their improvements. Below are the 12 topics, to read a previous segment, click on the name/link. The current segment is in Blue and upcoming segments are in Black.

Even if you are not directly responsible for the management of your practice, knowing this information will help you make sure you are making the income you and your team have earned. So let’s get started!

Tip 9 of 12 – Optimize Performance by Aligning Provider Compensation with Desired Results

Providers’ pay per wRVU:

a. Assessment: Provider pay per paid wRVU is a metric that evaluates provider pay in comparison to the expected revenue.

The following three sets of values should be considered when establishing target values and quantifying this opportunity:

  1. The organization’s current specialty-specific pay per wRVU for both physicians and APCs. 
  2. Specialty-specific regional benchmarks for pay per wRVU for physicians and APCs. You may also want to consider the cost-of-living index of your location compared to that of the region to provide a more precise comparison.
  3. The organization’s specialty-specific net revenues per wRVU for physicians and APCs. 

Setting a target for provider pay per wRVU will require balancing the need to be competitive in attracting and retaining providers while maintaining a strong financial position. Several factors will have an impact on this decision, including geographic location and the organization’s reputation. Pursuing each financial opportunity identified in these financial optimization blogs will serve to optimize your financial performance and reduce the burden of this balancing act.

The financial opportunity is calculated by multiplying the difference between the actual and the target provider pay per wRVU by the wRVU generated by each provider.

b. Improvement Action: One major reason for high pay per wRVU is low provider production combined with fixed compensation arrangements. Steps toward increasing production levels were outlined previously in the revenue improvement section. A compensation arrangement that sets base pay at a below-market level and then links additional pay to wRVU is a standard approach to putting an incentive on production. When implementing this system, the organization must have internal controls in place to assure the wRVUs attributed to each provider are for charges that are allowed and accepted by the applicable payors.

A major flaw in the payment per wRVU compensation system is its failure to recognize aspects of provider performance other than production. Organizations wishing to optimize their performance must institute a system that aligns provider compensation with the desired results. When considering desired results, a distinction must be made between specialties. For example, the desired result for primary care physicians and others who primarily manage chronic conditions is to maintain or improve patient health.

Applying the same focus on desired results in managed care negotiations will align provider compensation with payor contracts.

the 7 steps toward compensating primary care physicians for their true value HFMA whitepaper

To achieve these results, continuous monitoring and management of each patient’s health condition is required. The pay-per-wRVU system for this group focuses on incremental volume rather than health condition monitoring and management. A payment system based on a per-member per-month rate adjusted for the attributed population’s health and provider performance would align compensation with the desired results for this group of providers. (Note: Please see the 7 steps toward compensating primary care physicians for their true value HFMA whitepaper for the components of this compensation system).

Meanwhile, the desired result for providers who perform episodic interventions is the effective and efficient restoration of each patient’s health and functioning. While productivity is one desired result for this group, the optimal compensation system should also consider results around service, quality, costs, and citizenship. A pay-per-wRVU approach using an adjusted rate based on these other performance factors would align compensation with the desired results for this group of providers.  (Note: Please see the How to apply a value equation in setting compensation for specialty providers HFMA whitepaper for the components of this compensation system.)

How to apply a value equation in setting compensation for specialty providers HFMA whitepaper
Applying the same focus on desired results in managed care negotiations will align provider compensation with payer contracts.

As a physician, if this sounds like a lot of work and maybe even has your “business anxiety level” up a few notches, you are not alone. The great news is that your role in this should just be to make sure it gets done and that those who are going to be responsible and accountable for this can explain and report details about what the plan looks like and its status to you.

Share this article with your practice manager, group administration, or hospital administration to make sure they are working on this or see what resources they have to get at this work. If they need help in getting started, they should consider connecting with John Rezen at Value Health. The key is to be able to have your baseline, you would expect your team to report to you the improvement(s) made and the results.

Stay tuned for Part 10 of 12, Service Costs-to-Revenue next week. If you can’t wait that long, no problem, just contact John for the full 12-part series. Again, it’s in your best financial interest to make sure all of these 12 Key Performance Indicators are optimized. You should understand them and take action, even if that action is to share the series and your newfound business insight with your group or hospital administration.

President & CEO
Value Health, LLC

MedCV Advisory Board Member

John Rezen

Your Career is More Than Your Practice

MedCV is a Private Credentials Vault App built specifically for Physicians and Advanced Practice Providers where you can manage & control your most valuable career and practice documents, remind you of license and certification expirations, track your CME, and of course… even find your next great job! Additionally, MedCV includes important tips, tools, and resources to help you navigate the ever-changing “Business of Healthcare.” Join the MedCV community if you haven’t already!

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