Case Studies and Testimonials
System-Wide Assessment and Redesign of Employed Physician Compensation Plan for Diverse Pediatric Subspecialty Hospital System and Performance Review Program Development
A 22-hospital health system providing nationally recognized pediatric subspecialty care was seeking assistance with ongoing physician compensation planning. The system had entered into a range of relationships with its medical staff members, including members of affiliated faculty plans as well as non-academic employed pediatric subspecialty physicians. They desired greater consistency and market relevance among the range of compensation approaches being utilized.
In addition to extensive due diligence with representative medical staff members and leadership, the system sought significant assistance with ongoing national Advisory Committee and Board Education and Compensation Committee action. A key concern was the relative affordability of any proposed changes and accountability for any corresponding performance review system accompanying global compensation plan changes. The system sought national expertise with significant compensation planning and fair market value (FMV) assessment experience, as well as access to published and proprietary data in support of the ultimate findings and recommendations.
EthosPartners provided, and continues to provide, assistance to system leadership, including the key board governance committees and National Advisory Committee.
Our assistance includes collaborative planning initiatives requiring ongoing assessment of prior compensation plans and/or designs and results, facilitated review of alternative compensation plans and establishment of updated FMV ranges for respective physician positions and performance. Significant due diligence was completed, including a system-wide survey and interview process of the key stakeholders. Additional primary and secondary research was completed, including contact with multiple leaders within other systems providing similar services.
Our compensation plan, FMV findings and recommendations have been approved by leadership for two consecutive years, including the recommendation to include revisions of the compensation ranges and caps for greater than 0.5 FTE employed physicians. Physician recruitment and retention have improved, and the organization has been able to increase overall internal equity and external competitiveness. Furthermore, our team is assisting the organization with its physician performance review processes with goals of increased productivity, efficiency and assistance with medical manpower planning.
Physician Service Valuation and Fair Market Value Determination Assistance for Multihospital and University Faculty Plan Negotiations
A five-hospital health system in the Northeast sought assistance with ongoing physician compensation planning relative to its relationships with its medical staff members, including members of distinct faculty plans associated with a local university system. Ultimately, the health system and the university determined that joint planning was needed to identify the full range of compensated relationships; assess options for consistent valuation of provided services; and enhance education and consensus among the physician participants. Rather than engaging in individual negotiations between the system and the respective practice plans, the parties desired third-party assistance to evaluate fair market value (FMV) ranges of compensation for the respective clinical, teaching and administrative services provided. The parties further sought “market perspective” regarding key trends and FMV considerations valuing physician services provided by practice plans to the health system.
Members of EthosPartners provided extensive assistance to the parties through a collaborative planning initiative. Work performed included an inventory of the parties’ reported service relationships; FMV assessments of the varying clinical, teaching and medical administrative and/or leadership services; and joint presentation of the results. In addition to assessing the reasonableness of potential FMV ranges of compensation, we summarized key market trends and industry approaches for comparison to the services provided.
Presentations of our FMV assessments were made both individually and collectively to the parties. General principles of agreement were reached at the senior leadership level. The parties are currently working to apply the agreed-upon principles to the practice plan relationships. The parties are also working to develop more coordinated efforts for joint planning as it relates to the valuation of current and future physician services provided by the faculty plan members to the health system.
Compensation Review of a Primary Care Network
A large academic healthcare system in the Northeast employed approximately 100 primary care providers in their network. Although the faculty in the network provided extensive teaching hours, their primary focus was providing clinical care in multiple locations throughout the region. The network losses per physician full time equivalency (FTE) were significantly greater than national benchmarks. System leadership was unclear on the exact cause of the losses and the opportunity for financial improvement. System leadership wanted to continue the strategy of employing the primary care faculty, but with an updated business plan to ultimately reduce the level of subsidy per physician.
The consulting team from EthosPartners recommended a review of the current situation with an emphasis on the following key areas:
- A detailed evaluation of the network’s expense structure, including physician compensation, support staff costs, supply and facility costs and other costs incurred by and assigned to the network by the system.
- A review of the network’s management structure in terms of span of control, individual qualification, areas of responsibility and accountability, and decision-making authority.
- Assessment of the network’s organizational structure and relationship to the broader system.
- A review of the provider staffing levels in light of community and strategic needs, and a review of all provider recruitment and retention policies.
- A review of the physician and mid-level compensation programs as compared to market standards.
Based on our findings and recommendations, EthosPartners consultants created a detailed plan to readjust compensation levels to reflect market rates of pay. These findings and recommendations, along with a process to monitor the transition of the plan, were presented to system leadership for implementation. The plan is currently in place and has been embraced by the providers. The network is experiencing significantly reduced losses on a per FTE basis.
Assisting Outside Legal Counsel with an Office of the Inspector General (OIG) Investigation
A major medical center was under investigation by the Office of the Inspector General (OIG) for providing excessive payments to physicians performing testing interpretations at the hospital-owned lab. Although the hospital made multiple adjustments to the payment methodology during the 15-year period in question, the OIG asserted that the payments were above market rates because they were set at 100 percent of a negotiated fee schedule. The parties had not consistently adjusted the fee schedule during the 15-year period and had incomplete documentation related to charges and collections for services performed.
EthosPartners was retained by the hospital’s outside counsel to assess whether payments made for interpretation services were consistent with fair market value (FMV). As part of our engagement we created detailed financial models, comparing payments made by the hospital to published national fee schedules.
In addition to our quantitative analysis, EthosPartners assisted the outside law firm in exploring various methodologies to defend the hospital against the OIG’s claim. We jointly decided on the key negotiating strategies that provided a framework for settlement talks with OIG staff.
Based on our analysis and assistance, we were able to demonstrate that the payments made by the hospital were well within a FMV range of payment. Although the hospital did pay physicians 100 percent of scheduled fees, the payments were well below market norms for the interpretation services performed. The hospital decided to settle with the OIG for certain aspects of the investigation, but their liability was significantly reduced due to the FMV work performed by EthosPartners.
Regional Subspecialty Hospital: Organizational Affiliation Strategies and Models, Governance, Compensation, Incentives and Performance Standards
Due to state corporate practice of medicine restrictions, this western region hospital was unable to directly employ physicians, but elected to sponsor a captive professional corporation (PC) model to recruit and retain subspecialty physicians within the community. The captive PC employed the physicians; however their respective medical practices were managed under related hospital departments and programs, and were effectively not managed as a group practice. Significant misunderstanding and lack of ownership existed relative to physician responsibility for the efficient operations of the practice. The employed physicians negotiated individual compensation agreements that included minimum accountability for personal or group productivity and performance. Participation within and understanding of the group’s governance structures were very low. The historically physician-friendly philosophy and culture resulted in significant physician resistance and resentment to change and enhanced accountability for individual and group performance.
Our consulting staff was initially engaged to complete a limited practice assessment and to provide recommendations for potential operational and financial improvement. Our assessment resulted in several operational findings and recommendations, including the development of centralized Management Service Organization (MSO) support for the practice as a group, enhanced benchmarking for practice operations, enhanced benchmarking for physician productivity and compensation, revision of the compensation program to include base salary minimum work standards and productivity incentives, revision of the group bylaws to enhance the role and authority of the employed physicians in the governance of the group, and participation in the strategic and financial management of practice operations. We were engaged to provide additional assistance in the revision of the group governance structures and to assist the group in the development of a revised compensation program.
The hospital elected to continue affiliation and financial support of the PC. Revised governance structures have been implemented. We assisted the parties in the joint recruitment of a new medical director – with dual accountability to the group board and the hospital CEO. Significant enhanced education and understanding have been achieved with a greater number of the group leaders, resulting in additional physician “ownership” and accountability for operational and financial improvement. A revised compensation plan developed by a compensation committee over a 12-month period was approved by the group’s board of directors and is in the process of being fully implemented. Physician productivity and practice revenues have already increased; modest physician attrition has occurred; and a higher degree and spirit of partnership exists between the hospital and its affiliated captive PC physicians.
Regional Health System: Physician/Hospital Collaboration; Affiliation Strategies and Models
In anticipation of a mutually desired but uncertain merger with a health system, and during intense competition with the system’s flagship hospital, a Kansas-based hospital was confronted with several threatened resignations from employed physicians. More than 50 employed physicians announced that they were prepared to terminate their relationships due to concerns regarding their role in the current hospital and in the proposed new system, as well as failures to resolve internal compensation program inequities. In essence, the core group of employed physicians desired recognition in another structure that was not under the hospital. However, Kansas has a strict corporate practice of medicine law – effectively limiting opportunities to employ physicians by hospitals, other groups and/or physicians and managed care organizations that are duly licensed healthcare providers. We were retained to provide assistance with all of the above.
Members of our firm were engaged to provide strategic development and implementation assistance. The merger was completed and our strategies were applied to the new health system and the medical center. We initially recommended a reorganization of the medical center that did not violate the corporate practice of medicine. In effect, a physician services organization (PSO) was developed as a parallel division to the other hospital services divisions. The PSO included the oversight of all integration relationships. We encouraged the utilization of a “mixed model” approach to provide integration and affiliation opportunities (and movement between the models) for interested and qualified physicians. Within the PSO were the fully integrated practices (employed and foundation practices) under the organization. Additionally, we assisted in the development of a hybrid organization to conduct turn-key practice management services for affiliated practices and to serve as a joint-contracting arm for managed care relationships beyond the dominant healthcare plans owned by the health system. We further recommended a unified compensation program based upon productivity, qualitative and managed care performance.
The health system retained most of the core employed physicians over the four years and grew the organization to more than 180 physicians with continued positive impact on the ability to deliver desired services and enhance the health system’s market position. Through a policy of flexibility, physicians who have elected to leave the employment model have remained affiliated with the system and continue to enhance the premier provider network.
Physician Compensation Redesign for a Hospital-Owned Medical Group
A hospital-owned, multispecialty group historically utilized a compensation model with a high base salary and minimal incentive opportunities. The group grew significantly over the years and was starting to see a wide variance in physician productivity and motivation levels. Furthermore, many of the physicians had research and/or administrative responsibilities in addition to significant clinical roles. The hospital wanted to evaluate alternate compensation designs that would emphasize the mission of the hospital system and enhance the physicians’ contribution to the organization.
Based on past experience and success, we recommend that hospitals include significant physician input during the compensation redesign process. When the results of this input (gathered during physician interviews and/or a physician survey) are coupled with a quantitative analysis, the result is typically a plan that is acceptable to both the physicians and hospital leadership.
EthosPartners assisted the client with all aspects of a compensation redesign process, including assessing the goals and objectives of the group, interviewing the physicians and key administrative staff creating alternate compensation models for consideration and facilitating the selection of a revised compensation system. After evaluating the group’s culture, and a significant quantitative analysis, EthosPartners recommended a salary and productivity model based on Work Relative Value Units and credited time for research and/or administrative responsibilities. In addition, the group created performance expectations that clearly communicated the requirements to earn base salary and engaged the physician.
After approval from the board of directors, the group implemented the revised compensation model. The physicians appreciated the diligent process of addressing their concerns and have welcomed the opportunity to earn incentive compensation. The group has significant growth objectives for the next two years and is better positioned to provide attractive compensation, structured in a market-competitive manner, and aligned with the motivations of the group and employed physicians.
Community Hospital: Hospital-Physician Collaboration Governance and Compensation
A hospital system just south of Chicago assembled a group of physicians (predominantly primary care physicians) as a major component of their Integrated Delivery System (IDS) strategy. The physicians were increasingly concerned and frustrated with their hospital relationship. Their level of trust and confidence in the system’s management services organization (MSO) was at low ebb. The physicians were very concerned with the contractual and financial terms of their contracts and their level of involvement in the system’s strategic prerogatives. Pressure to dissolve the relationship was mounting.
EthosPartners’ consulting staff was retained to work as the physicians’ advocates in exploring potential remediation and resolution of the issues and frustrations at hand. We worked with the system leadership and its retained counsel to assess the history and the intentions of the affiliations. We created a physicians advisory group to gain input and sensitivity to the complex issues and to explore multiple options for resolution. The system supported the formation of a physician governing board and the election of strong and responsible leadership. The physicians began to assume responsibility and accountability for their group’s operations and performance. We recommended revised contracts and compensation formulas. We recommended a new level of communication and interaction with the system leadership and their boards in the areas of strategic planning, system vision and market activity.
New physician employment and compensation documents were developed and activated. The physician governing board took responsibility for managing the conversion of all members to the new plan. The new board also took major responsibility for participating in the system’s planning, marketing and strategic positioning. The operating deficit of the group was reduced by 50 percent in the first year and has continued to improve. The physicians have developed a significant sense of partnership and stakeholder responsibility with their IDS sponsorship.
Community Hospital: Physician Leadership Realignment
This regional referral hospital needed help defining the role and accountability of its designated physician leadership. Of key concern were perceptions and misunderstandings regarding physician leadership authority and entitlement to compensation for activities generally required by the Joint Commission of the Accreditation of Healthcare Organizations (JCAHO). Additionally, the organization was not adequately addressing inappropriate, but non-clinical, physician behavior. Although the hospital provided compensation for leadership positions, there was a significant lack of results and accountability. There was also a high degree of real and perceived inequity regarding the level of compensation.
EthosPartners was retained to review the leadership positions, compensation and the inter-relationships between the medical executive committee (MEC), medical directors, vice president of medical affairs (VPMA) and hospital administration. We worked with a joint committee of MEC and hospital management representatives, providing information on market trends and lessons learned. We reviewed strategic and operational information, position descriptions, medical staff bylaws and related professional service and/or directorship agreements. We also interviewed physicians, hospital administrators, board members and general counsel. Our recommendations included the development of a more formalized medical directorship program, with criteria for the establishment and/or elimination of a directorship position and the revision of position descriptions, reporting responsibilities, compensation philosophy and methodology, work standards and reporting requirements. We further recommended revision of the VPMA role, with clearer oversight of the medical directorship program; development of a medical director’s council; formalized interaction between the VPMA and the MEC and accountability of the VPMA to the hospital CEO. We recommended revisions to medical staff bylaws, the clarification of the roles and responsibilities of elected officers and representatives. We also formalized reporting relationships and communication requirements between the parties involved.
Our recommendations led to enhanced role clarification, consistency regarding the compensation of physician leaders, increased involvement with hospital management, and greater physician ownership in improving the quality and efficiency of hospital programs. Two medical directorships were consolidated; one directorship was eliminated; one new directorship was created; hospital support for MEC stipends was increased; and the hospital budget for physician leadership support was modestly reduced.
An Academic Department Realignment
Organized within a university’s department of obstetrics and gynecology (the department), leadership of a clinic became increasingly concerned regarding the clinic’s subsidization of the department. The clinic desired assurances of future opportunities for development in light of a recent merger involving the university’s affiliated hospital. The key physicians were prepared to terminate their relationships with the university and the hospital to obtain greater financial security and autonomy. The result would be a significant loss of revenue. We were retained by the clinic to provide assistance with all of the above.
Members of our firm provided extensive assistance to the clinic, the department, and the university through an open and inclusive review of alternative strategic models. We collectively reviewed the range of options from reorganization of the department to complete separation. We recommended the development of a Center of Excellence model, simulating a separate academic department, sponsored by the dean, with ongoing obligations for the “dean’s tax,” and with ongoing, declining exit payments for the department.
After we facilitated significant negotiations between the parties, our recommendations were accepted by the department chair and the director for the center, and forwarded to the dean. The dean approved the jointly developed strategic/business plan recommendations and presented them to the board of trustees, who approved the plan. Consequently, the parties are more strategically aligned, with retention of millions of dollars in revenue and recommitment to joint development and implementation of market strategies to promote all aspects of the department and clinic services.
Medical Group Merger
Two orthopedic practices offered complementary specialty orthopedic services. They had the traditional problems of decreasing reimbursement, rising expenses, lack of access to capital, lack of leverage in hospital negotiations and competition for the best staff. There was mutual respect between the medical groups, but both were concerned with the loss of control they felt a merger would create. In addition, there was a belief that a merger would result in one party having to contribute a large sum of money. They also underestimated the opportunity they would have for jointly owning expensive ancillary imaging equipment, an outpatient surgery center and therapy services.
EthosPartners’ first step was to educate both groups on the market and financial and operational opportunities of a merger by performing an in-depth, operational assessment, preparing a financial pro forma of the merged entity and designing a governance structure, giving equal control to both groups.
Once the parties committed to the merger, our action steps included:
- Performing due diligence in the following areas:
- Clinical and administrative staffing requirements
- Practice management and accounting system integration
- Information Technology (IT) requirements, duplications and preferred infrastructure design
- Governance structure development
- Process reengineering opportunities and workload redistribution
- Human resource policies and employee benefits integration
- Working with legal counsel on structuring the deal with the requirement that a capital call was not an option
- Directing the development of merger documents to reflect the new entity’s design and governance structure
- Working with third-party payors to expedite provider credentialing into the merged entity
- Working with the practice management system vendor to integrate necessary modules, tables and data sets into the surviving system
- Working with physician leadership to establish policies for the merged entity
The merger was completed in approximately six months. Contributing factors to its success included physician leadership and commitment to the process, cooperation among administrative leadership and constant communication with all physicians and support staff. Experienced EthosPartners consultants were the guiding light in bringing the people and processes together within such a brief period of time.