Tell us about your career and background in valuation and compensation services.
My consulting career started at Health Care Futures, where my focus was physician-hospital alignment and ambulatory care strategic planning. I developed many of the common arrangements between physician/medical groups and hospital/health systems. I also worked on professional services agreements, management services agreements, and clinical comanagement. Eventually, I ended up being recruited by Integrated Healthcare Strategies, now Arthur J. Gallagher, and was able to deep-dive into provider compensation, becoming a subject matter expert.
While at Gallagher, I was brought into a lot of physician group acquisition/alignment engagements, particularly in oncology. I also started to work with healthcare organizations under investigation by federal and state governmental agencies, providing expert opinions related to physician compensation.
I built a very successful consulting practice, but knew at some point I needed to make a move. I wanted to be part of a consulting firm that was dedicated to healthcare. I’d always admired ECG—I would hear from colleagues in the industry about its consistent focus on culture. I also deeply admired ECG’s breadth of expertise. To get the best results for my clients, I need to work with colleagues who are experts in other areas. So when the opportunity to lead the Valuation Services practice was presented to me, I jumped on it! Being five months into my new role, I can’t imagine being anywhere else.
The healthcare industry has been experiencing a multitude of changes. How do you expect the 2021 Medicare Physician Fee Schedule rule changes will impact organizations and valuations in 2021?
Well first, the COVID‑19 pandemic has caused an interruption in revenue over the past year that has required many organizations to shift priorities. At the same time, the 2021 MPFS changes have decreased the Medicare conversion factor while increasing the WRVU value for E&M codes that are most often associated with primary care services. These two events have driven health systems across the nation to reevaluate their relationships with patients, payers, and physicians.
Generally, many clients are still fatigued by the pandemic. Most organizations we work with have decided to keep administering physician productivity-based compensation on the 2020 Medicare Physician Fee Schedule—mainly to buy time.
The 2021 Medicare Physician Fee Schedule changes will have near- and long-term effects on market compensation and benchmarks. First, moving through 2021, compensation agreements will need to be reviewed and adjusted to balance the financial and compensation-related impacts of these changes. Second, benchmark values for WRVUs and collections will not represent the market and are likely to be unreliable until 2023, at the earliest. Third, the financial impact and revenue shift will drive physician groups to consider tying total group compensation to professional fee revenue. And, lastly the dual shock of COVID-19 and the 2021 Medicare Physician Fee Schedule changes will enhance the attractiveness of a diversified compensation model, especially if there is more emphasis on value-based components.
From a valuation perspective, we are recommending that organizations not pick winners and losers. At the moment, organizations tend to be prioritizing professional services arrangements over their employed networks. For professional services arrangements, it is common for us to be asked if it is reasonable to allow the 2021 Medicare Physician Fee Schedule to go into effect—in most cases meaning increased WRVUs—with no adjustment to the compensation per WRVU rate. Our immediate question to the organization is, how are they treating their other professional service arrangements and employed networks? We strongly recommend consistency. An equitable and fair plan will minimize the risk of disgruntled physicians and thus the increased risk of a qui tam complaint (e.g., whistleblower). Physicians have generally been accepting of the delay in implementation of the MPFS changes—mostly due to the goodwill most organizations provided through compensation guarantees in 2020 because of the pandemic. This goodwill appears to be waning and will completely dissipate if there is a perception of unfairness.
How have the recent changes in the Stark and antikickback regulations impacted organizations’ approach to compensation arrangements and risk tolerance?
It has started to level the playing field for nonprofit healthcare systems in how they can compensate their physicians under value-based arrangements. Private/for-profit organizations have long had the advantage of tying physician compensation to improved cost savings and quality goals. The regulatory change allows nonprofit organizations to compensate physicians for value-based activities for a target patient population without requirements of fair market value or restrictions on volume or value of referrals.
The regulatory changes have increased the risk tolerance for many around some key opportunities—gainsharing/shared-saving arrangements, capitation, joint ventures. ECG has a proprietary financial model that quantifies the value of moving patients from fee-for-service to value-based arrangements based on a hypothetical market participant. This model is assisting in practice acquisitions in primary care and encouraging physician compensation models to be aligned with total-cost-of-care goals.
Can you describe how COVID-related waivers have impacted organizations’ need for third-party FMV reviews?
On March 30, 2020, CMS issued blanket waivers to temporarily exempt healthcare providers from fair market value considerations for compensation paid from an entity to a physician for medically necessary patient care services when directly impacted by the COVID‑19 pandemic. The purpose of the blanket waivers is to ensure that sufficient healthcare items and services are available to meet the needs of individuals in the emergency area and that healthcare providers that furnish such items and services in good faith may be reimbursed for such items and services and exempted from sanctions for such noncompliance. This waiver eliminated fair market value considerations for COVID‑19 purposes, such as securing the services of physicians to furnish medically necessary patient care services, including services not related to the diagnosis and treatment of COVID‑19, in response to the COVID-19 outbreak in the United States.
In our experience, while many organizations have relied on the waivers for various arrangements, there has been little to no impact on the need for third-party reviews/opinions.
What suggestions do you have for organizations to ensure compensation models remain compliant with all these changes occurring?
The quick answer is having a solid provider compensation governance and administration process.
Due to all the uncertainty with the regulatory changes and lasting effects of the pandemic, many of our clients are pausing and reevaluating their existing compensation governance and administration process. Essentially working to align with regulatory requirements while minimizing the unnecessary need for third-party reviews and their corresponding costs. Currently, we are working with two the nation’s largest nonprofit organizations to strengthen their internal policies and management processes for reviewing and administering physician financial arrangements and meeting compliance needs. Our recommendations aim at balancing workload and standardizing administrative processes related to physician contract reviews and renegotiations, and are informed by ECG’s experience reviewing hundreds of examples and serving as an expert witness in federal and state investigations, as well as our database of cases and settlements.
What else is ECG doing to help clients tackle these changes?
While some organizations are leading the market in value-based care arrangements, others are still relying on a primarily fee-for-service reimbursement environment. There is a need to ensure that, as fee-for-service reimbursement declines, compensation plans and provider incentives are aligned with actual reimbursement methodologies. These value-based care arrangements not only align with the future of payer reimbursement but they also incentivize the right care for patients.
In addition to the work I mentioned earlier, we are assisting with a full-scale compensation redesign and alignment toward a common philosophy. Within this organization, there is a continued need for systemness—a more connected, fully integrated collection of health services for which an organization assumes full risk for health, well-being, and costs, while competing against top national organizations as well as many “disrupter” organizations that are new to the market. A unified philosophy and compensation framework will help align provider arrangements with the overall goals of the organization. Additionally, by ensuring no stakeholder is siloed, the framework will contribute to competitive compensation, transparency, and overall provider satisfaction.
Healthcare organizations have an immediate opportunity to capitalize on recent market changes and align provider compensation with the future enterprise strategy. This alignment will ensure an increased level of systemness that is required for long-term success of any physician enterprise.
Published March 22, 2021