Over the past few months, we have published a number of articles discussing the expected impact of the COVID-19 pandemic on market data sources and the greater physician-hospital employment landscape. With the recent release of Medical Group Management Association’s (MGMA) annual Provider Compensation and Production Survey 2021 Report (MGMA Survey), we can now start to see the actual impact on market data. The report is based on 2020 data, and as predicted, was significantly affected by the pandemic.
We would be remiss in discussing the pandemic’s impact on the MGMA data without also noting other significant changes impacting productivity-based compensation plans, specifically, compensation per WRVU. MGMA is the first of the three major market data surveys to report 2020 data; however, we expect that the American Medical Group Management Association (AMGA) Provider Compensation and Production Survey: 2021 Report based on 2020 data; and the Sullivan Cotter Associates (SCA) Provider Compensation and Production Survey: 2021 Report based on 2020 data, to show similar trends.
Additionally, as discussed in our previous article, The Road to Tomorrow, hospitals employing physicians are also dealing with an increase in work RVU (wRVU) weights for Evaluation and Management (E&M) codes in the 2021 Medicare Physician Fee Schedule (MPFS) (please see our Road to Tomorrow article for additional information).
The combination of market data anomalies along with E&M wRVU weight increases has significant implications for hospitals who employ physicians on productivity-based compensation plans, including financial and compliance risks.
In this article we will provide an updated picture on where we stand and what we have learned since our previous article.
Market Data Update
Preliminary analysis of the 2021 MGMA Survey affirms what we anticipated: COVID-19 related slowdowns and shutdowns resulted in a decrease in wRVUs, while hospitals and health systems held physicians harmless in terms of their compensation. The combination resulted in a significant increase in compensation per wRVU among many specialties. The table below summarizes the newest results (please note, the percent change includes only physician specialties reporting numbers in both the 2020 and 2021 MGMA survey).
Total compensation stayed relatively flat while wRVU productivity was down. As a result, we are seeing a significant increase in compensation per wRVU. The increase in compensation per wRVU was even more pronounced among the primary care and medical specialties, which increased 11.4% at median and 15.6% at the 75th percentile.
Impact on Productivity-Based Compensation Plans
Our early analyses related to the 2021 MPFS and included E&M wRVU weight increases show that providers in primary care and medical specialties specifically, are seeing wRVU productivity increases ranging from 5% to 21% for the same work effort. For more detail regarding wRVU weight changes, please reference our Road to Tomorrow article linked above.
What does all this mean for hospitals and health systems who rely on wRVU weights and published compensation per wRVU ratios? To illustrate the potential impact on physician compensation, we have developed three hypothetical scenarios, as presented in the tables below. (These scenarios are based on a specific Family Practice physician’s coding patterns and productivity.)
Scenario 1: Increased wRVU weights, flat conversion factor
The first scenario reflects the impact for hospitals/health systems that adjust to the current year 2021 MPFS weights, but do not necessarily update their conversion factor on an annual basis. The below table presents the impact of only the weight increases with all else (productivity and compensation per wRVU) held equal. As presented in the table below, this results in a compensation increase of $57,783, or over 20%.
Scenario 2: Increased conversion factor, flat wRVU weights (stay at 2020)
In Scenario 2, we assume that the hospital/health system is aware of the weight changes and chooses to stay at the 2020 weights so as to avoid additional wRVUs for the same level of work performed. However, in this scenario, they utilize the newly published 2021 market data to increase their conversion factor from $51.00 per wRVU to $56.60 per wRVU. As presented in the table below, this results in a compensation increase of $31,500 for the physician, or almost 11%.
Scenario 3: Increased conversion factor and increased weights; “Cruise Control”
In our final scenario, we look at the impact to a hospital/health system on “cruise control.” This hypothetical employer somewhat blindly updates to the new weights, and also follows the market data trend and increases their compensation per wRVU conversion factor. This hospital may be setting themselves up for an unpleasant surprise when they take a hit of nearly $100,000 per physician FTE.
Implications for Hospitals/Health Systems
Based on the 2021 MGMA Survey results, we see the following as the key takeaways for hospital and healthcare systems:
- Hospitals/health systems that fail to take any action are setting themselves up for significant increases to physician compensation.
- Medicare and other payer’s increases in professional reimbursement will not fund these compensation increases. One of the original goals of wRVU based productivity compensation plans was to align incentives, but the changes in weights and market data do not align with reimbursement.
- As hospitals/health systems implement these increases, the increases then become part of the next year’s market data. If systems continue to benchmark against new market data in future years, it could result in a point of no return for physician compensation increases.
- For systems paying at the higher end of Fair Market Value (“FMV”) these significant increases could potentially create compliance issues if and when the market data returns to pre-pandemic levels.
For assistance as you navigate these changes and to ensure you are setting up your organization for success, contact the CBIZ Healthcare Consulting Team:
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