Compensation Outlook: Its No Small Change

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compensation_1340814313.jpg - Money Tree
The fee-for-service payment model has drawn fire in recent years for rewarding volume rather than value. The Relative Value Unit (RVU) that serves as a foundation for many physicians’ compensation also has landed in the cross hairs of critics who argue its use encourages doctors to perform more procedures, regardless of need. Cardiologists have fared relatively well under this system, but with the growing emphasis on patient-centered and quality care, this payment model likely will change. And so may compensation.

The RVU model, like many programs designed to meet federal needs, is rife with acronyms and complexity. It was designed within Medicare’s Physician Fee Schedule in the early 1990s as a way to determine the cost associated with a particular service to set physician fees. RVUs take into account physician work, as well as practice and malpractice expenses. Many private payors and hospitals have adopted the RVU model for determining reimbursement and as a component in negotiating compensation.

The Centers for Medicare & Medicaid Services (CMS) relies on an expert advisory committee of 31 medical professionals, many of whom are appointed by specialty societies, to collectively make recommendations to CMS for RVUs that are linked to physician billing codes. The committee, known as the Relative Value Update Committee (RUC), surveys members’ professional peers for estimates of factors such as the time it takes to perform a procedure. Results are then used to deliberate recommended RVUs.
Cumulative Wealth Potential by Career*
Cardiologists $5,171,407
Primary care physician $2,475,838
MBA graduates $1,725,171
Physician assistants $846,735
*From college graduation through retirement at age 65
Source: Health Affairs 2010;29[5]:933-940

Productivity and profits

The RVU is a product of the fee-for-service world and all its associated flaws, says James C. Blankenship, MD, director of cardiology for Geisinger Medical Center in Danville, Pa., and the American College of Cardiology’s member on the RUC. “If you see a patient in clinic or do a procedure that has an RVU value to it, the value is true whether the procedure is done well or badly, or whether it is needed to save a life or is unnecessary,” says Blankenship, who has served on the RUC for about 12 years. “It doesn’t reward quality; it rewards volume without respect to quality.”  

This model also skews in favor of specialists who perform procedures—such as some cardiologists and cardiology subspecialists—compared with less procedure-focused doctors such as primary care physicians. And the resulting financial gap can be huge. In an analysis of accumulated lifetime wealth, researchers at Duke University in Durham, N.C., calculated that an average cardiologist’s career wealth would exceed $5 million while a primary care physician would amass approximately $2.48 million. The totals included income starting at college graduation through retirement at age 65 as well as living, education and tax-related expenses (Health Affairs 2010;29[5]:933-940).

“For doctors who make their money from procedures, far and away their time is better spent doing procedures than in doing evaluation and management services,” says the study’s senior author, Kevin A. Schulman, MD, MBA, a professor of medicine and business administration at Duke. “The dollar per hour is far greater.”

At the same time, the current U.S. payment model encourages overutilization, which may be the antithesis of quality care. “Obviously, one of the best measures of quality is to always do the right thing and not too many things,” Schulman says.
Pay, RVU Annual Averages
SPECIALTY MEDIAN
Physician Compensation (More Than 1 Year in Specialty)
Cardiology: Electrophysiology $532,380
Cardiology: Invasive $467,715
Cardiology: Invasive-Interventional $528,454
Cardiology: Noninvasive $431,740
Physician Work Relative Value Units
Cardiology: Electrophysiology 11,548
Cardiology: Invasive 8,622
Cardiology: Invasive-Interventional 9,524
Cardiology: Invasive-Interventional 6,634
Source: Medical Group Management Association’s Physician Compensation 2011 Report Based on 2010 Data

Time for a correction

In 2006, researchers from RTI International in Research Triangle Park, N.C., explored the “time creep.” McCall et al noted a shift toward longer RUC-generated estimated times for surgical procedures compared with the initial study used to establish RVUs. Comparing operating room data with the RUC’s physician-reported median times, they found the RUC estimates overstated time, with an average difference across 60 procedures of 31 minutes (Med Care Res Rev 2006:63[6]:764-777). The RUC estimate for CABG, for instance, came in 69 minutes longer. The RUC estimates didn’t account for efficiencies over time, were potentially subject to bias and often had low response rates, according to the authors.

CMS and the RUC have developed processes in recent years to refine estimates and tilt incentives away from overutilization, Blankenship says. For instance, CMS has implemented screens to identify potentially misvalued services and flag procedures that have increased rapidly in volume. A few years after a new technology is introduced, the RUC automatically re-evaluates the work effort to assess if and how much gaining competency changed the time and effort to complete a task. For surveys, the RUC now requires a large sample be sent out to ensure a random population of respondents and the results are scrutinized.

Cardiology has not been immune to the effort to squeeze value from a fee-for-service structure. For instance, a recent bundling of cardiac catheterization codes led to a back-and-forth exchange between CMS and the RUC, multiple surveys and an eventual 10 percent cut. The overall hit to cardiologists in the 2012 Medicare Physician Fee Schedule was a reduction of 2 percent in payments, according to the ACC.

“CMS is clearly under pressure to reduce expenditures,” Blankenship says. That need has reinforced several proposed alternative models such as pay for performance or the medical home that may open the door for more quality- and patient-focused care. However, in these scenarios, it remains questionable if and how the RVU system will continue to play a role in physician compensation.

RVUs and you

Under the Resource-Based Relative Value Scale (RBRVS), RVUs—physician work, practice expenses and malpractice expenses—are multiplied by a conversion factor to create a dollar amount and then adjusted to account for geographical differences. Many private payors have adopted the RBRVS to determine payment for services, and many hospitals and other healthcare institutions use RVUs to track physician productivity, assess work and tie that to compensation.  

Compensation plans vary widely, but many include a base component spelling out expected productivity defined by a number of RVUs that, if met, translates into compensation of an agreed amount of dollars, says Kenneth T. Hertz, a principal consultant at Englewood, Colo.-based Medical Group Management Association’s Healthcare Consulting Group who specializes in physician compensation. There is typically a bonus incentive as well that links additional pay to increased production.  
RVUs and pay can go step in step. For instance, the median number of work RVUs for electrophysiologists in 2010 was 11,548, according to the MGMA’s Physician Compensation 2011 Report, while the median salary was $532,380. Noninvasive cardiologists, on the other hand, had a median of 6,634 work RVUs and a median salary of $431,740. But recently, quality measures may be included as a component in some compensation models, according to Hertz.

Adding quality to the compensation mix raises many challenges, including defining and measuring quality as well as paying for its attainment. “We need to know how much money it will take to get a doctor’s attention,” Hertz says. A miserly amount likely would be dismissed but a pool of money divided sufficiently for the effort might capture a physician’s eye.

An incremental approach

Given the tension between productivity and quality, Schulman argues for a proactive strategy. “Once the patient is in the cath lab and in the hospital, everyone is incentivized to perform a procedure,” he says. Consequently, patient care should begin with an overarching goal to prevent the need for such procedures in the first place. The challenge is how to achieve that goal.

Blue Cross and Blue Shield of Michigan asked a similar question, and beginning in 2004, it launched a potential solution in the form of the Physician Group Incentive Program. Working in concert with physicians, the payor developed a program that offers incentive payments through physician organizations that demonstrably are working to improve their care system or whose system changes have demonstrably improved quality and cost efficiency.

“We realized that we were paying out large sums of money for care where there were tremendous opportunities to improve cost performance and quality performance,” says David A. Share, MD, MPH, vice president of value partnerships at Detroit-based Blue Cross and Blue Shield of Michigan. “Trying to micromanage doctors and patients wasn’t going to do that. It struck us from a practical and philosophical standpoint that creating a common vision and empowering the providers to create better systems and then aligning reimbursement incentives, so that they would drive active interest in enhancing system development and system performance made perfect sense.”

The incentive program initially focused on primary care physician communities to develop a coherent system of coordinated care, particularly for patients with chronic illnesses and comorbidities. A key element is the creation of an incentive pool that is paid out annually, with approximately half going toward infrastructure improvements and half toward improvements in costs and quality measures on a patient population level. The insurer sets aside 4.2 percent of professional reimbursement for the pool—or more than $100 million annually, Share estimates—which will increase to 4.7 percent this month.

Practices in physician organizations that have developed medical home capabilities and achieve the cost and quality improvements are eligible for another 10 percent in evaluation and management fees, with a bonus 10 percent for demonstrating value in terms of cost. Those improvements could come in the form of infrastructure that links primary care and specialty physician offices or services for managing and coordinating care for patients with chronic illnesses.

Cardiologists may join physician organizations and then share in the incentive payouts if their community shows good value at a population level, such as achieving cost efficiencies. Beginning in February 2012, cardiologists affiliated with high achievement physician organizations were eligible for a 20 percent increase in their evaluation and management fees, which was expected to rise to 25 percent this month. Approximately 80 percent of cardiologists in the insurer’s network now participate in the Physician Group Incentive Program.        

“Rather than spend hundreds of millions of dollars on unproven approaches to transforming payment, we chose to develop a very incremental approach that moves away from unfettered and unbridled fee for service and moves toward an increasing proportion of professional payout being tied to quality and efficiency results so that it becomes a future fee-for-value-based payment,” Share says.

Future of RVUs

The RVU system is not likely to disappear, at least any time soon. For payors, fee-for-service claims-based payment provides the granular detail needed to ensure patients receive needed care and to perform risk adjustment for performance measures, Share says. Blankenship notes that many of the initiatives underway in the Center for Medicare and Medicaid Innovations rely on a fee-for-service system with an added component.

“CMS would like to migrate to a capitation system where it is not fee for service but one payment for a  period of time,” Blankenship says. “But in the transition, it is largely fee-for-service based.”

Miriam J. Laugesen, PhD, an assistant professor of health policy and management at Columbia University in New York City who studies the nuances of the RUC, CMS and physician fee issues, also anticipates that the RBRVS system will remain a critical element in payment models. “There is an impression among most healthcare policymakers that these values will be used in these other forms of payment,” she says.  

Share sees a tipping point in the transition from fee for service to fee for value, with RVUs still part of the equation but no longer as the powerful driver that rewards overutilization. “Once the proportion of fee-based payment is dependent on moderating procedures,” he says, offering as examples being judicious in the use of high-cost pharmaceuticals and optimizing quality, “once 30 percent or more of payment is dependent on that, providers will no longer be successful and thrive simply by doing more.”

Hertz, in his role as a consultant on physician compensation issues, says uncertainty and anxiety are high among physicians and providers as they juggle concerns about Medicare cuts, a changing healthcare landscape, evolving and sometimes conflicting reimbursement models and other demands. The pay process likely will never be perfect nor will it please everyone.

“No one is ever totally happy with their compensation,” Hertz says. “However, if they are a little unhappy, it is probably a reasonably good system.”