Be involved in the transition to value-based compensation models
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As physician compensation transitions from a fee-for-service model to a value-based model, compensation models have numerous factors that determine the fair market value for the work and productivity of orthopedic surgeons.
A common method is using work relative value units (wRVU) to define the work effort of the surgeon, then determine what each wRVU represents in terms of revenue after overhead costs. As an overall benchmark, the 2019 Physician Inpatient/Outpatient Revenue Survey by Merritt and Hawkins found the average net annual revenue generated by an orthopedic surgeon is almost $3.3 million.
The wRVU method is widely used, however, there are flaws in the system. Many practices provide a salary plus an incentive bonus based on wRVUs. The primary incentive is to maximize the generation of wRVU units, which is most effectively done by performing as much surgery as possible and to include every possible code in the billing process associated with the surgical procedure.
Fair market value
Currently, few practices have a method to monitor the indications and outcomes to determine if surgery is the best value for each patient. Oversight can be limited, and the higher-volume surgeon may be considered a greater value to the hospital, health care system or private practice because of generated revenue. In unbundling, there must be a system that accounts for the codes and associated wRVUs billed to the episode of care to avoid inflation of valueless wRVUs.
These considerations are important if the compensation process is to be consider fair. The wRVU system has an advantage in that is it independent of the patient’s insurance, variable fee schedules, ability for the revenue cycle team to collect reimbursement, and the recognition of variable complexity and work related to diagnoses and treatments. However, some methods blend the wRVU concept with collected revenue and projected overhead, which creates variables in revenue cycles, which can lack transparency.
Another concern is the selection of benchmarks to determine the fair value for the work performed. The survey selected to provide the benchmark significantly impacts the value of wRVUs. The Association of American Medical Colleges reports data on medical school faculty. The Medical Group Management Association has the largest survey participation with more than 165,000 physicians from all specialties providing responses. Their wRVU calculation considers numerous factors, including ancillary services and the cost of malpractice. OrthoForum, a national physician specialty organization, surveys more than 90 of the largest privately owned orthopedic practices, which represents almost 4,000 surgeons. Their RVU calculation also considers numerous factors, with ancillary services contributing a significant amount to calculated value.
There is a wide discrepancy in the formulas generated by these inputs, which accounts for significant variation in compensation models even within the same community. The greatest impact on variation is ancillary service revenues. The highest ancillary contribution to compensation occurs in practices that have a high investment in surgical sites of care. Other ancillary services that provide significant contributions include radiology, physical and occupational therapy, as well as durable medical equipment.
Identify incentives
When establishing a compensation model, it is important to identify the incentives of all shareholders. Models are being developed that attempt to align desired physician performance with value-based concepts, including overall physician behavior and patient outcomes. For example, productivity may be considered 70% or more of the compensation, with the other 30% dedicated performance, citizenship, on-call responsibilities, patient experience or satisfaction scores, academic and educational contributions, leadership efforts, compliance with group responsibilities, and distribution of profits. Critical to this effort is an objective and transparent scoring system with tiered levels of partial and full credit, developed by a group of physicians who are engaged in the culture of the practice.
For practices beyond a small group of single specialty physicians, the creation of a compensation committee, which is led by a representative group of physicians and supported by financial experts, may be the most important mechanism to establish a model that achieves physician buy-in, engagement and sets the organization’s culture and incentives. Orthopedic surgeons generate top-level revenue and profits, therefore, multispecialty groups should include representation of the orthopedic service line in the process. When efforts are displaced to the management of the hospital, health care system or physician group practices without fair representation of orthopedic surgeons, dissatisfaction and attrition may follow.
With the transition from a fee-for-service model to a culturally and value-based model, orthopedic surgeons need to be involved to ensure the compensation program follows the principles of fair market value. It needs to use appropriate benchmarks for the work, transparent use of financial data and alignment with the incentives and vision for the orthopedic service line to achieve the program’s defined goals.
- For more information:
- Anthony A. Romeo, MD, is the Chief Medical Editor of Orthopedics Today. He can be reached at Orthopedics Today, 6900 Grove Road, Thorofare, NJ 08086; email: orthopedics@healio.com.
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