This content was published prior to the merger of equals between BKD and DHG on June 1, 2022. See all FORsights for the most up-to-date articles, webinars, and videos.
COVID-19 Crisis – Road Map for Navigating Key Physician Compensation Issues
It is becoming apparent that for affected communities, the SARS-CoV-2 virus and the incidence of COVID-19 (COVID-19) pandemic response efforts will create a surge of demand for providers within relevant disciplines such as emergency care, critical care, hospitalists and others. Concurrently, the social distancing and stay-at-home practices likely will reduce demand for nonemergency patient services such as elective surgeries, minor procedures, check-up visits for stable conditions and other “deferrable” services. These factors will create different pressures, including a significant underlying financial pressure for physician employers. Various organizational stakeholders should be included in these discussions, as there are obvious operational, compliance, legal, HR and financial issues on the table for any sort of direct contracting action, as described below.
The process outlined in this article was developed to assist organizations with employed physicians and advanced practice providers (APP) in addressing critical operational, financial and compliance challenges as they relate to the COVID-19 pandemic. The items below are meant to assist those organizations in developing a plan of action to appropriately respond to this time of crisis. To that end, please use this guide as a template and edit it to fit your organization’s needs.
- Define Objectives: Step one is to define the goal of addressing physician compensation concerns related to the crisis. Below are starting-point suggestions for factors to consider:
- Provide financial security to employed physicians and APPs and compensate physicians in a reasonable manner
- Balance transitional compensation terms with long-term financial stability
- Pay in a manner that is commercially reasonable and consistent with fair market value
- Obtain Necessary Data for Impact Analysis: Step two is gathering key historical and contract information and organizing an analytical “sandbox” for evaluating current state financial performance, pay practices and other key variables in creating projections and impact scenario analysis. Items of relevance include:
- Obtain employed provider roster and compile key information on a provider-by-provider basis:
- Specialty roll-up
- Compensation model type (salary, hourly, base plus bonus, panel payments, etc.)
- Contractual minimum work effort (hours per week, shifts per year, etc.)
- Earnings summary, including base pay amounts
- Summarize incentive shift pay for hospital-based specialties
- Obtain physician clinic data:
- Recent financial results
- Budgeted financial results
- Create links from providers to clinics that allow them to analyze the parallel effects of clinic financial performance and physician compensation
- Obtain employed provider roster and compile key information on a provider-by-provider basis:
- Estimate Changes to Clinical Work Effort & Related Activity: Step three is completing basic projections of the COVID-19 crisis impact at a clinic and provider level. Identifying this effect will allow for an appropriate response specific to the scale and magnitude of impact.
- Estimate expected volumes by provider and other work effort
- Estimate financial effect of changes, considering:
- Practice Expense
- Provider Compensation
- Project estimated volumes and associated changes in provider compensation for likely shutdown periods (six weeks, 10 weeks, etc.)
- Summarize “Do-Nothing” Effect on Pay & Net Income Based on Changes to Employed Physician Compensation: Step four is creating a baseline scenario. Essentially, the compensation plan models stay the same and idle physicians will have either short- or long-term (or both) reductions in pay resulting from underperformance relative to productivity or minimum work effort standards, e.g., if the 36 hours per week requirement is not met, base pay must be reduced proportionally if outside of paid-time-off benefits.
- Timing and amounts of disruption to routine physician paychecks
- Effect on physician clinic net income (loss)
- Consider preserving baseline financial performance in relation to net actual impact, as lost revenue may be important in current or future relief via government action
- Consider a Transitional/Crisis Compensation Plan to Manage Financial Impact on Providers & Health System: Step five in this process aims to help you determine what actions to take to meet the objectives defined in step one. Our key considerations and process for this are as follows:
- Using information from steps two and three above, define an impact threshold or other criteria for a temporary provider compensation adjustment period
- Sort providers individually, or by section, into one of the following categories:
- Essential Providers – Providers actively participating in COVID-19 surge strategy (see below for a breakout section on considerations for the surge strategy approach). These providers will be subject to existing or temporary compensation plans
- Nonessential Providers – Providers that will be idle or significantly under capacity during the crisis; these providers will need to be put on “continuation” compensation plans
- No-Change-Needed Providers – Providers that, for whatever reason, are not part of the surge strategy and have little effect on compensation
- Define relevant time periods:
- Immediate post-crisis
- Post-crisis “normal”
- Identify temporary pay practices for providers subject to the continuation compensation plan. Consider the following in doing so:
- Identify fair market value pay principles and other compensation plan culture considerations, such as incentivizing team-based care, citizenship, etc.
- In light of the above, develop temporary “floor” pay practices for affected providers that are now “idle” or greatly reduced in work effort. Pay reduction to disability levels (typically 50 percent to 80 percent of base salary) may be appropriate to provide an incentive to retain employees in an interim crisis period and maintain sustainable cash flow amounts on a system level
- Estimate the length of time needed for post-crisis “true up” of compensation, during which time providers may need to stay in the continuation employment plan to maintain an economic balance in meeting the organization’s financial needs. For example, practice operations leadership should be able to make estimates of volume “catch-up” through pent-up demand and timing of such for consideration in the true-up requirements of a temporary compensation plan
- Consider an “equity review” step in which work relative value units (RVU) would be tracked under current standards and a detailed analysis of the work RVUs or other relevant productivity metrics can be completed in light of reduced pay in the post-crisis normalized period. For this purpose, an equity review would attempt to identify any providers that “outwork” the continuation plan terms. Compensation for performance above the proportional work expectation for reduced pay could be made if, for example, a provider is successful in productively using telemedicine. This analysis could be used to determine if the overall effect of the continuation plan is equitable, accurate, attributed to the correct provider and consistent with the reimbursement for services
- Consider suspending and/or reweighting quality metrics directly affected by the crisis
- Evaluate Various “Active Mitigation Efforts”: Step six is summarizing key determinations and setting forth a plan of action for senior leadership and/or governance approval. There may be other key organizational or geography-specific considerations not listed here, but consider the following:
- Adopt a provider redeployment/COVID-19 surge strategy (see below)
- Use a “telehealth” strategy to keep patients engaged and nonessential providers active
- Consider terminating underperforming providers
- Approval & Implementation: By including key stakeholders in this process, senior leadership and governance notice and consent procedures can be streamlined.
- Circulate preliminary process results and the path forward with key stakeholder team
- Provide key plan detail to relevant governance/oversight bodies for approval
- Provide key plan detail to affected providers
- Work with counsel to determine documentation for key regulatory considerations, such as contract addendum signatures, etc.
- Develop program plan documents and a calendar of key dates, triggering events, true-ups, etc., to create a reviewable process and overall program
Provider Redeployment/COVID-19 Surge Strategy
The following recommendations are a starting point for compensation aspects associated with obtaining access to sufficient professionals to meet patients’ needs during this crisis.
The goal of a proposed COVID-19 surge strategy is to create a new panel of essential physicians (highlighted in item III below) that can be used to surge physician services as needed and provide the standard of care expected within the communities served. This strategy consists of taking physicians out of other (likely less urgent or productive) roles and redeploying those individuals to support COVID-19 preparation and response efforts at a community level.
This program would last during the crisis and immediate post-crisis period described above (until operations normalize).
- Essential & Nonessential Providers – For purposes of redeployment, and as described above, classify physicians as “essential” and “nonessential.” Subject to clinical leadership input, essential physicians will likely include primary care, urgent care, hospitalists, pulmonary, critical care, intensivist, emergency medicine, general pediatric, pediatric hospitalist, pediatric pulmonary, pediatric critical care, pediatric emergency medicine, internal medicine, telehealth ICU, infectious disease, occupational health, anesthesiology, behavioral health and any other specialties deemed particularly relevant to COVID-19 crisis-related measures. Nonessential providers include all other physicians and APPs.
- Pay for Essential Providers – During this emergent period, a potential starting point is for essential physicians to be paid per current compensation terms. This includes excess shift rates if the physician volunteers to provide excess shifts. If an essential provider does not have compensation contract terms that provide for excess shift compensation, excess shift pay amounts could potentially be developed and paid. For example, this could include hours worked beyond 40 for a 1.0 full-time equivalent commensurate with medical group standards, if any, or otherwise market rates/rate premiums.
- Essential Provider Care Panel – Consider a provider volunteer program to allow physicians classified as nonessential to participate in an Essential Provider Care Panel (EPCP), and set service and pay guidelines. One example of such service guidelines for a physician on the EPCP is if the physician’s base obligation of shifts is set at the hospitalist’s (or applicable specialty area) level, and they also could commit to providing excess shifts in any care role required for coordinated clinical response, e.g., hospitalist shift, ICU shift, telehealth, urgent care, clinic or temporary locations. The benefit of a physician opting in to the EPCP could be base pay on the hospitalist (or similar) compensation plan for similar work, e.g., 15 12-hour shifts per month.
- EPCP Participation Incentive Pay – To incentivize participation and secure necessary access to providers, consider bonuses for participation. The bonus might be a pure sign-on incentive or be distributed in various tactical amounts and intervals.
Our hope is the above process will help health systems balance the diverse needs of delivering care in this time of disruption with the significant negative financial impacts on their outpatient physician clinics and employed medical staff.
As a compliance rule, compensation should be commensurate with work effort for the type and scope of work to be performed. Other key regulatory tenets of fair market value include consideration of:
- Stacking: A physician can only be paid for one thing at a time
- Existence: Payments must only be for work actually performed
- Necessary: The work performed must be a needed service or otherwise rational in light of the organization’s mission
- One-Person Test: The sum payments for each individual service need to be reasonable when considering all in aggregate
- Commercially Reasonable: The business arrangement makes sense in the absence of a referral relationship, including consideration of partner selection and business rationale
These compliance guideposts can be met, in addition to balancing financial sustainability concerns, through careful planning and action based on the recommendations outlined in this article.
Due to the rapidly changing information regarding COVID-19, all guidance contained in this article is current as of the date of publication. If you have questions or need assistance, reach out to your BKD Trusted Advisor™ or use the Contact Us form below.