Contributed by Sherry Elliott and Leslie Fox
ACCORDING TO THE American Medical Group Association’s 2006 Medical Group Compensation and Financial Survey, physician compensation increased for most specialties, even as medical groups posted an average loss of $1,264 per physician.
Financial managers face a tough choice: get out of the group medical business or make their practices profitable, without shifting the focus away from patient care.
The best way to keep physician compensation in line with reimbursements is to base doctors’ pay on the same metric that Medicare and insurance carriers rely on – the Resource-Based Relative Value Scale, or RBRVS.
RBRVS took hold in 1992, when the Centers for Medicare & Medicaid Services implemented a new payment schedule based on the physician work, practice expense and professional liability insurance required for procedures. Each Current Procedural Terminology code is assigned a specific relative value unit, or RVU, and Medicare pays a set amount, called a conversion factor, for each RVU.
The RBRVS system recognizes, for instance, that getting a flu shot is far less expensive than undergoing quadruple-bypass heart surgery. It also quantifies, per RVU component, how much more expensive it is to practice medicine in San Francisco than in rural Nebraska.
Now, 15 years later, most insurance carriers negotiate their reimbursement schedules as a percentage of Medicare, making RBRVS the de facto method of calculating medical payments in the private sector.
RBRVS is not perfect, which is why the American Medical Association and specialty advocacy groups fight to correct undervalued RVUs.
That said, RBRVS is a fairer way of accounting for physician revenue and expenses than many of the less scientific methods that many practices rely on. For example, compensation survey data leads doctors to expect compensation that is close to the national average for their specialties, even though these benchmarks may not accurately reflect the revenues these specialties deliver today.
In addition, charges models are especially problematic because the practice’s published prices have no bearing on what insurance carriers actually pay. Patient volume is not sufficient, because it does not account for the differences in effort between an office visit and a major procedure. Finally, revenue is not completely fair, because some patients have poor insurance payers. Should a doctor who treats indigent AIDS patients be punished for the good deed?
Setting bonus compensation can be equally arbitrary. Some practices simply split whatever profit the group produces – essentially robbing high performers of the greater share they have contributed and rewarding those who don’t work as hard.
Another common bonus scheme is simply deducting a percentage of each provider’s receivables for overhead and adding the rest to base pay – even though actual expenses may be higher than the agreed-upon percentage.
For these reasons, many experts now advocate RBRVS as the most equitable way to divide revenues and expenses, so physician compensation makes business sense.
Until recently, it was impractical for most practice managers to report on RVUs. Analyzing RBRVS is not brain surgery, but without automation in place, it can be time-consuming. Administrators can easily spend a few hours per week looking up billing data and manually tweaking spreadsheets. For example, it takes several calculations to answer the question, “Which providers actually billed enough work RVUs to cover their own salaries and benefits?”
For starters, practice managers must determine their own “internal conversion factor,” which is the amount of revenue per RVU required for profitability. A hypothetical practice with total expenses of $5 million per year, a desired profit margin of 10 percent and 125,000 RVUs actually needs to collect $44 per RVU, or 116 percent of the rate paid by Medicare.
Then, administrators need to calculate and contrast how each physician stacks up in terms of how many RVUs they are actually producing, compared with how many they should be producing to reach the desired profitability level.
Only the very largest medical groups have the IT resources and can justify the expense of high-end billing applications that conduct in-depth RVU analyses. However, Web-based applications have emerged as a cost-effective alternative for smaller practices. These web-based medical practice optimization solutions enable financial managers with limited computer savvy to log into a Web site where they can upload or input billing and patient data. In minutes, these systems generate detailed charts, graphs and reports that summarize each physician’s RVU output in relation to their compensation costs.
The best way to build equitable physician compensation plans is to tie incentives to RBRVS, the only universally accepted metric that determines how medical procedures get paid. Financial managers now have access to Web-based tools that can arm them with the right data, so they can correlate physician pay with RVU-based productivity.
Sherry Elliott is associate professor and vice chair of operations for the department of radiology at Virginia Commonwealth University in Richmond.
Leslie Fox is product manager at PracticeSense, a Web-based practice optimization solution from the PortBlue Corp.