NEVADA MEDICAL GROUP MANAGEMENT ASSOCIATION

Physician practice losses: Red ink from the misuse and abuse of physician compensation survey data

29 Jan 2019 8:11 AM | Cathy Herring (Administrator)

Date: January 29, 2019

This installment of the article series runs counter to popular trends when it comes to setting physician compensation for physicians in health system practices. Many health systems pay their physicians solely based on data from physician compensation survey data or on valuations prepared using such data. Sole use of survey data in setting physician compensation levels, however, can lead to practice losses. Health systems that fail to consider the full range of physician practice economic factors are at-risk for never-ending red ink from their physician enterprise.

We should first note that practice losses resulting from survey usage is not the fault of the survey data. It’s a user problem! Survey data are designed to provide information in statistical format (also known as descriptive statistics) about respondents to the survey. As such, surveys are highly useful for general benchmarking, providing a range of data for comparison purposes relative to the survey cohort.

The problem arises, however, in the ways survey data are used in physician compensation-setting for health system practices. Two broad approaches for using survey data are observed in today’s marketplace.

In the simplest approach, a specific percentile for compensation is selected as the appropriate level to pay a physician. Typically, the median or 75th percentile is selected for total compensation or the compensation per wRVU ratio. In practice, these rates may be blanketly used for all physicians with no consideration of the facts and circumstances for the physician’s practice. Such blanket use of this or that percentile is usually supported by claims about market conditions, regulatory guidance, or appeals to common practice (e.g., “this is how everybody does it”).

The second approach attempts to match compensation with a physician’s production, typically based on wRVUs. A highly common form of matching involves paying a physician at the total compensation percentile that corresponds with the physician’s benchmark level of wRVU production. For example, a physician whose wRVUs benchmark at the 65th percentile for wRVUs is paid at the 65th percentile for total compensation.

Another form matches the compensation per wRVU ratio to the benchmark level of wRVUs. Under this variation, the physician’s whose wRVUs benchmark at the 75th percentile is paid at the 75th percentile compensation per wRVU ratio. Yet another form uses the median compensation ratio for the quartile of production level for the physician as the blanket rate for paying a physician.

This second approach is based on the belief that production is the only critical driver of compensation levels in the marketplace. No other economic factors impact market compensation for physicians. So, if you can track or benchmark a physician’s wRVU production, you can predict the market compensation for that physician.

This view, however, doesn’t square with the reality of the data. Below is a scatter-plot diagram taken from MGMA’s pay-to-production plotter report from the 2016 Provider Compensation report for non-invasive cardiology.

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