The New Era of Physician Compensation: Beyond RVUs

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Daniel Marino:

Welcome to Value-Based Care Insights. I am your host, Daniel Marino. On today's program, we're going to dive into physician compensation, and not really talking about the models per se, but really talking around the growing challenges, the growing complexities that we're seeing in physician compensation, especially as organizations are continuing to grow, and continuing to employ physicians and other providers. One of the things that we often hear, or that I often hear when I talk to physicians, and even with CFOs, is incentives, the goals, aren't necessarily aligned. And I've always believed that form follows function. You need to have a good structure in place, and that we need to have the right level of incentives that create the right level of behaviors that align performance around all of our goals. If all of those things align then, you know, you've got people who are happy, you're able to hit your financial targets, and, you know, the organization and the individual can prosper. Easier said than done, though. In a lot of the compensation models, they have become very complex. You know, in some cases, a lot of them are very RVU, productivity-focused. We're starting to see elements of compensation that are driving efficiency and reducing costs. We're seeing components in there that maybe are more and more aligned with value-based care, and especially as organizations assume some level of risk, those elements have to be built into the compensation model. And not only is the compensation model becoming more complex. How we manage that compensation with the physicians to ensure mutually aligned success is something that I think many organizations are struggling with, and frankly, I believe are under-resourcing within these large hospitals and with these health systems.

So, I'm really excited today to have two experts in the field, two great guys that have been working in this space for quite some time. Jon Morris is a colleague of mine, who has tremendous amount of experience working with large physician enterprises. He has 15 years of experience helping organizations design high-performing, incentive-driven incentive models, and has done a great job of putting these compensation structures in place. My second guest is Alex Krouse. Alex is an Associate General Counsel of a large health system in the Midwest. He's focused on aligning a lot of the legal strategies with the financial and the performance components, tying that into compensation for physicians. He is also the board chair of the AAPCP, which is an organization that provides support to physicians around, and to leaders around compensation. Alex, Jon, welcome to the program!

 

Alex Krouse:

Thanks for having us.

 

Daniel Marino:

So, Jon, maybe we could start with you. Given your experience working with physician enterprises, seeing, you know, being part of a system that has really experienced a lot of growth, bringing on new physicians. What have been a couple of the challenges that you've seen around the growth of compensation and really alignment around the compensation models with the goals of the organization?

 

Jon:

Well, you know, I… I think, I feel like I've seen a lot of organizations, at this point. You know, 10 years in consulting, 5 years on the leadership side. For a large Catholic health system, and then coming back to consulting now, I have a slightly different perspective, you know, approaching these problems, having, you know, been on both the side of advising people on how to deal with the problems, and then actually dealing with them myself. You know, so… It's, I would say that I'm trying to, you know, in my approach to things, and as I advise clients through issues, really strip things back to, you know, why are our organizations functioning this way? And the more I look at it, I think about how physician employment has developed over time.

 

Daniel Marino:

Right. Well, it has. I mean, it's really… it's changed. I mean, it used to be straight salary. Then it's gone into building these employment models around RVU-based, strictly productivity, and now you're seeing a lot of value-based care influences, where quality is being tied in, efficiency, cost reduction, all of these things, creating quite the complex structure of compensation.

 

Jon:

Sure, and you know, the organizations have gotten more complex, too, and I think that's one of the biggest issues that people overlook, is 20 years ago, fewer than 50% of physicians were employed, and now you have over 80%, you know, employed. So the scale of these issues have gotten much larger, where.

 

Daniel Marino:

Absolutely.

 

Jon:

You could be managing these things in Excel workbooks with a small team, and it wasn't that big of a deal at that scale, but now where you have health systems that have kind of continuously merged and acquired other systems and gotten bigger and bigger, and have a larger, you know, group of employed physicians, the complexities just kind of multiply.

Daniel Marino: Yeah. It's gotten more challenging, absolutely. Alex, let me turn to you for a second. You know, working with a large health system and speaking with your colleagues, you know, I think one of the things that I've seen, and I think you've begun to work through this, is, I think the health systems are under-resourced. And they have, really, a lack of structure to really, not only build the right level of compensation, and aligning the goals with the compensation model, but making sure that the ongoing administrative support is there to allow for that success over time.

 

Alex Krouse:

Yeah. Yeah, well, and I think to your point, I mean, from an organizational standpoint. The biggest mistake I think health systems make Is treating provider compensation as a compensation problem. Now, I know that sounds kind of odd. But provider compensation is actually just a phrase that represents what I view as enterprise governance, operations, financial, and workforce strategy, all in one bundle. And so, the organizations, quite frankly, that are managing this best are ones that are building mature infrastructures, rather than just simply, you know, kind of tweaking the compensation formula every year. And part of that is, and we can get into this. Part of that is complexity of models. And part of it is… The infrastructure to support that complexity, and that strategy. Alex Krouse: So, those are kind of the two pieces that I view this as.

 

Daniel Marino:

So when you… when you think about…the infrastructure that goes into not only building the compensation model but also then administering it and making sure that it's successful ongoing, right? Because things change, and the compensation model should evolve with the changing environment. You know, I sort of think you've got to have a strong financial team to do the financial modeling, right? You've got to have the legal support there to make sure that it's reflecting… the model is legally reflecting what has been discussed from a business and, you know, from a structure standpoint. What are some of the other elements, though, from an infrastructure standpoint, that you're seeing that maybe organizations are missing, or that should take into consideration as they're really driving these models?

 

Alex Krouse:

Yeah, yeah, well, and I'd like to hear Jon's thoughts on this as well, because I know, you know, he spent a lot of time working on this. I mean, I think big picture, an integrated provider compensation, and maybe that's… we're narrowing it a little bit, but a provider compensation and workforce strategy department. It needs to exist within organizations. Now, certainly, it can't be, we can't lose sight of big versus small organization. But I think one of the historical problems we've had in this space is…Well, finance does this, operations does this, legal makes sure, you know, we're following the Stark Law, and then.

 

Daniel Marino:

Yeah, everybody has their silo and their bucket, right?

 

Alex Krouse:

Yeah, yeah, let's talk about that, but…This… what we're talking about today from an infrastructure standpoint, really sits at the intersection of all of that. Yeah. And so organizations need to rethink their workforce…through this lens, and I don't know, I mean, Jon, I know we've talked about this a lot.

 

Jon:

I mean, that's 100%… Where my mind is at, too, you know. People always think of it as just provider compensation, but that's really just the tip of the iceberg, and these organizations have usually a bundle of people in the back office, kind of filling in the gaps in between all the different departmental silos. And the…

 

Daniel Marino:

Why don't… let me ask a quick question here, Jon. Why don't think organizations have moved forward with becoming… creating more of an integrated model? Is it because this is the way they've always done it? I mean, is it really that big of a paradigm shift?

 

Jon:

Well, I think it's a few things. One, I don't think there's any shortage of crises to manage in healthcare right now.

 

Daniel Marino:

Well, that is true.

 

Jon:

I can understand if you're, you know, a CEO or a president of… or someone in operations managing and responsible for, you know, the ultimate bottom line performance of an organization, that you're not immediately thinking about, man, I really gotta get my team doing better than managing this work in spreadsheets or something. You know, it's a…Not the top of mind thing, but that it's, I think, surprising how impactful you know, that piece of the business really is to performance, and that's where I'm trying to actually draw real, you know, numbers to that. If you have a certain percentage of your physicians who are actually leaving the organization early, and your attrition's higher because it's cumbersome to work there. They're not getting clear or transparent communication about their pay, or they don't understand how they're paid, or just processing everyday things about their employment is difficult. You know, you might think that that's an HR issue, but a lot of the times, some of those problems that they experience, or frustrations that they're having in the organization, are coming from provider employment issues, and it could cause them to sometimes want to leave early, and every single physician who leaves an organization has a major, cost impact to, to, to, you know, the bottom line, and that's something that…you know. I think few organizations really track enough and do something about. The second reason, I think, is just that this space is pretty new. Like, when you think about how new work RVUs are in the context of history, and how that's really sort of propelled the beginning of this industry as a whole, like, why do we have physician compensation experts? A lot of it has to do with… it's because it's more complex than…managing salaries, right? But…

 

Daniel Marino:

Well, it tracks… it tracks to some level of performance, which, at the end of the day, most of our hospitals and health systems, I mean, they start out, and many still are, very fee-for-service driven, so…

 

Jon:

Absolutely. I think…the other thing is, it's a little young, and there haven't yet been major milestones made in bringing it all together the right way. Like, I… out of all the, you know, organizations I've advised or worked in in healthcare, I don't think anybody has it fully figured out. There's some who are definitely further along than others, and, you know, on the level of maturity in managing that work, but I don't think anybody has it figured out yet. I don't think that, like, there's really anyone who's like, yep, this is the gold standard. Everything should look like this, you know?

 

Daniel Marino:

If they figured it out today, it changes tomorrow, and then they're reinventing themselves.

 

Alex Krouse:

And one thing quick that I wanted to mention with this is, you know, why… number one, we are seeing the evolution of this. So, you know, just do a quick job search for physician compensation or provider compensation, and you're gonna see…anywhere from SVP, VP roles to analyst roles, so systems are doing this, you know, and the biggest organizations in the country are doing this, but you gotta think about it this way, and maybe an analogy is good. You know, if you think about cybersecurity in large corporations. A decade ago, different departments handled different pieces of that. You had IT managing the software systems, legal handling breaches, you know, HR managed the training related to it. Now you have chief information security officers. Because it doesn't make sense…

 

Daniel Marino:

It's all brought together, yeah.

 

Alex Krouse:

Correct. And so, I think now we are seeing a recognition of…Hey, you really shouldn't have…payroll over here, the strategy and design over here, the compliance aspects, this, let's bring it all together. And that's… that department is gonna partner with your physician leaders, your operational leaders, to really advance the strategy of the organization. In a, I think a very, different way than it historically has been.

 

Daniel Marino:

Absolutely, and I tell you, that makes so much sense, because physicians drive the clinical activity within hospitals and health systems. They are the connector between what patients need and driving that level of performance, and I think providing that level of support, absolutely key. I mean, it just makes perfect sense. If you're just tuning in, I'm Daniel Marino, you're listening to Value-Based Care Insights. I am here with Jon Morris, an industry expert, an advisor, working with many organizations across the country on physician compensation models. I'm also here with Alex Krouse, Associate General Counsel of a large health system in the Midwest. So I'm going to dive into one element that I think is important. When you're thinking about compensation models, there's some elements of that that have to be standardized, there's some elements that can be customized, right? How does the structure that we're talking about support that in such a way that you're creating an incentive-based model that's really fulfilling not only the goals of the organization, but really what the goals are and the aspirations of the physician? Alex, let's start with you.

 

Alex Krouse:

Well, so, I mean, I think one issue is, historically, organizations have built comp models for a world that really no longer exists. Meaning, the pure production era was where most physicians' care was, you know, episodic, procedural, fee-for-service, team-based care wasn't nearly as mature as it is today. APPs, 10 years ago, people didn't even, you know, recognize the term APP. Sure. So when Jon mentions new. Work RVUs aren't just new, the entire paradigm of where we are working within really is new, you know? I mean, it's… it's brand new, so…Physicians are being asked to do more, lead teams, work alongside with APPs, improve quality metrics, access. I mean, I just threw out 4 things where Work RVU wasn't one of them, and that's complex to manage.

 

Daniel Marino:

Yeah, it absolutely is. And Jon, you know, so when you've looked at this, how have you… have you… have you solved for both of those issues, right? The standardization versus customization, and really…But to make sure it's aligned.

 

Jon:

It's a constant battle. And I mean, I… because, I mean…we sometimes get engaged where people want to build, like, a new cutting-edge model, right? And then you look at…Okay, well, how much of your payer mix is tied to value-based care? Right? Well, it's still 90 plus percent fee-for-service, right? Does it really make sense to put in a new cutting-edge model, then?

 

Daniel Marino:

Or conversely, I was working with one organization, they had 30% of their revenue tied to value-based care and risk-based models, yet their compensation, their employee compensation model, 90-95% RVU-based. And what they were seeing was they were failing on the value-based contract performance because of overutilization, and it was that chair? Right?

 

Jon:

It is, and it is really hard to strike the right balance, but…I always start there, you know, let's think about how you're making money right now. Think about what your goals are, and how you want to, you know. What kind of patient experience you want to provide, and what, you know, your strategy is long-term versus short-term, and let's build a model that supports that idea. And then, second, how are you running your model? You know, what kind of team do you have to run it? Because if you build something that's too complex to actually administer, that doesn't help anybody. It makes things a lot worse. So, you know, especially when you have post-M&A or post-transaction type situations, where you're coming in and redesigning a compensation program. Or merging two together, you know, that's a really important time to really take a step back and say, is structural simplicity actually even more important than incentivizing all these things, you know? And in my opinion, the answer to that question is leaning yes more often than not, because if you're trying to administer a model that's too complex, and you have a team that's too small to support it, you're always just gonna be dealing with turnover issues and your own organization, and trying to keep it running.

 

Daniel Marino:

Alex, how much in these compensation models that you're seeing, how much is the physician shortage coming into play. How is it influencing the models? You know, one organization that I was working through, they, of course, are going out and they're recruiting primary care physicians, and of course, they're competing with every other health system in the country for the same primary group of primary care physicians, and their solution was, well, let's just build the incentives into the compensation model so, you know, we get these primary care physicians looking our way. How much does that influence the model, or should it influence the model?

 

Alex Krouse:

Well, I mean, I think you have… I mean, we've had the physician shortage as a general… concept has existed, you know, forever. We've not been in the non-shortage no space. Now, I think organizations, you know. I think one question is, there's obviously, without a doubt, a question of, you need to get physicians in the door.

 

Daniel Marino:

Yeah.

 

Alex Krouse:

You need to bring them into the organization, but I also think there is not enough focus, and I do think this is where Comp models are important, instability. Most individuals want stability in their work, stability in those incentives, predictability. So we… I think one mechanism is…as opposed to variability and complexity in models, you really need to have models that are built more around stability. So, I'll give you just some specific examples. you're gonna see higher base salaries, not pure work RVU models, you know, so that offers a stable base, but that…You're also going to see models where you don't have 10 different metrics in the bonus structure, because if you've got… if you're incentivizing everything, you're incentivizing nothing. And you're also focused on, I think, you know, and some do it through physician compensation committees. But some do it just through, you know, just having an open door of, let's talk with the physicians, let's talk with the advanced practice providers, not about how much we're paying, but what is working within these models. And I think when we talk about shortage of physicians. You're gonna have physicians gravitate towards that type of environment when you've…Kind of built transparency and stability within your models.

 

Daniel Marino:

So, Jon, have you seen that? Are you… is that what you're seeing within… when you're… when you're working with the health system? Is the stability factor, is that…Is it becoming even more important?

 

Jon:

I think what… I think what Alex is, what Alex is talking about here is… is very true, and…I would say is that I see it, most prominently when I'm looking at, generational differences between physicians. The new generation of physicians, and obviously that's also relevant and important when we talk about physician shortages, because the youngest generation of physicians is coming in to replace the generation that's leaving the workforce. And, you know. That is leaving a big gap in, to Alex's point, I see a lot of them more interested in stability, and I think there's a lot of good reasons for it. I mean, they have a lot of student debt, they have, you know, increased housing prices, all sorts of other things that they just want to make sure, am I going to be able to afford a life based on this, and what does that.

 

Daniel Marino:

Well, and a lot of the younger generations of physicians, I mean, they're interested in work-life balance, right?

 

Jon:

I know that, too. Call pay's been an issue on that front. You know, and getting call coverage, because…the physicians who have been in the workforce for a longer time will tell you that there is no work-life balance when you're on call. And, you know, the best you can do is try to get that panel up to a large enough number that you can kind of split the burden, you know, in a way that's a little better. I think that's… that's a good point.

 

Daniel Marino:

So, Alex, I want to give you a chance to talk about the APCP. You know, you've done a lot of work, you and Jon, on kind of developing this as a resource structure. Talk a little bit about what it does and some of the focuses and the support that you're providing to other healthcare leaders.

 

Alex Krouse:

Yeah, yeah, absolutely. So, the AAPCP is the American Association of Provider Compensation Professionals. You can find us at providercompensation.org. We are the leading national association focused exclusively on provider compensation and workforce strategy across healthcare. So, our members, you know, 225 healthcare organizations, large private practices, large health systems, alongside members from many of the leading consulting and valuation firms in the country. We have, not been around long, but, you know, as kind of Jon mentioned before, a lot of this is coming together, more recently. What we do is…we offer a space for these professionals. We have a national conference, each year in Nashville. We also have created, the first credential worldwide in provider compensation valuation, which is not just simply picking a number in a certain survey, but really is a holistic review of that arrangement. So, for anyone interested in getting involved, there's several ways to, you know, engage. Organizations become members and attend the conference and can participate. Individuals working in this space get the credential and education, and yeah, it's been…

 

Daniel Marino:

I commend you and Jon for being a part of this organization and creating that level of resourcing, because I think, you know, as we've talked about here, it's under-supported, it's something that is really needed, and I think if we're going to continue to drive strong partnerships with our physicians, we have to think about a different type of a model, different type of support structure to align around everything we've talked about. Well, gentlemen, thank you so much for joining today. Just real quick, I'll go to each one of you. If any of our listeners today are interested in getting in touch with you, how could they do it? Your LinkedIn address, or share your email, or something in that regard? Jon?

 

Jon:

Yeah, so, I mean, you can find me on LinkedIn, Jon Morris at ECG Management Consulting. And, you know, I'm pretty active on there, happy to connect to anybody who wants to talk.

 

Daniel Marino:

Wonderful. Alex?

 

Alex Krouse:

Yeah, I'd say the same thing. Find me on LinkedIn, Alex Krouse, send me a message, connect with me, follow me, happy to help.

 

Daniel Marino:

Wonderful. Well, thank you, gentlemen, for joining us today. Great discussion, and I think we've only scratched the top of the iceberg. So, thank you again, I really appreciate it, and a special thank you to all of our listeners for tuning in. Until our next Insight, I'm Daniel Marino, bringing you 30 minutes of value to your day. Take care.

About Value-Based Care Insights Podcast

Value-Based Care Insights is a podcast that explores how to optimize the performance of programs to meet the demands of an increasingly value-based care payment environment. Hosted by Daniel J. Marino, the VBCI podcast highlights recognized experts in the field and within Lumina Health Partners