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Pay incentives for hospitalists

February 2004

Published in the February 2004 issue of Today’s Hospitalist

While many in medicine are talking about ways to link physicians’ pay to their performance, a growing number of hospitalist programs have started doing just that.

Hospitalist services report using a variety of techniques to pay for physician performance, from productivity measures that track RVUs to strategies that monitor how well hospitalists are following clinical protocols. While the specific strategies may differ, the goal is typically the same: Reward physicians who work hard and support the goals of the program.

Hospitalist programs are far from alone when it comes to creating income-based incentives. A number of health plans and payers including Medicare, for example, are examining ways to reward physicians for on-the-job performance, and a handful have started paying bonuses based on those measures.

Current figures show that roughly half of hospitalist programs pay their physicians a salary with no additional bonuses or incentives. But the number of programs turning to incentive programs appears to be growing, says Kurt Mosley of Merritt Hawkins & Associates, an Irving, Texas-based health care recruiter.

As evidence, Mr. Mosley points to a survey conducted by the National Association of Inpatient Physicians. The group found that 49 percent of hospitalists receive a salary, 34 percent receive a base salary and incentives, and 10 percent work in a fee-for-service practice. A small number of hospitalists work under capitation, Mr. Mosley says, but that number is shrinking quickly.

Mr. Mosley explains that productivity- and quality-based incentive compensation programs are on the rise for a simple reason. They give hospitalist groups, which often struggle with costs, a way afford the top-performing physicians that are critical to their success.

In part because hospitalists work long shifts in what can be a stressful and intense environment, Mr. Mosley says, hospitalists tend to receive $25,000 to $30,000 a year more than general internists. “To be able to afford that higher rate of pay,” he explains, “most groups need to get the most out of their hospitalists without burning them out. Some sort of incentive program is one way to do that.”

To get an up-close view of incentive programs for hospitalists, we talked to two practices about pay incentives. Here is a look at their take on physician pay and performance.

Eagle Hospital Physicians

Large hospitalist groups tend to use incentive programs more than smaller services, and for a good reason. “The smaller practices simply do not have the staff needed to monitor, audit and manage an incentive-based compensation program,” says Mr. Mosley.

Eagle Hospital Physicians, a hospitalist practice with more than 60 physicians serving the Southeast United States, is an example of a large organization that has studied the issue–and the challenges of designing effective incentives.

“Like all people, our physicians would like to be rewarded for working hard, for improving the quality of the service we provide, or for greater productivity. We would want to reward that as well. Any incentive program should be good for the individual and for the practice as a whole,” says Talbot McCormick, MD, associate medical director for Eagle.

Here are the factors that Eagle recommends considering when designing an incentive program for hospitalists:

“¢ Quality. A key component of any incentive program, Dr. McCormick explains, should track patient and family satisfaction. Programs should aim to meet the standards of groups like the Joint Commission on Accreditation of Healthcare Organization and the Centers for Medicare and Medicaid Services. They should also track the satisfaction rates of hospitals and other organizations where hospitalists work.

“¢ Productivity. Productivity measures should ideally track the work that hospitalists perform and the services they provide.

“¢ Best practice. Programs need to track how well physicians use evidence-based medical practices and how well they follow key protocols.

“The ideal incentive program would be based on how well the performance of each individual physician and team helps the practice achieve overall goals,” says Dr. McCormick. “Having objective metrics that give a true measure of the performance of physicians is a challenge for most practices.”

DeKalb Medical Emergency Associates

At DeKalb Medical Emergency Associates LLC, the nine-physician hospitalist group at the DeKalb Medical Center in Decatur, Ga., part of the physicians’ income comes from a two-pronged incentive program. The group uses an RVU-based productivity bonus and a quality-based bonus, says Robert Holloway, MD, the group’s medical director.

When physicians log a certain number of RVUs, they receive a bonus that comes from an incentive pool. Once they reach 150 percent of that RVU benchmark, they receive a larger bonus, and so on. Dr. Holloway estimates that incentives can account for up to one-third of his physicians’ total pay.

The group also pays a quality bonus that is based in part on patient satisfaction and physician satisfaction surveys. In addition, it monitors measures like length of stay and readmission rates.

Flexibility is a key part the program. “Our bonuses are quarterly, and we adjust the quality incentive measures on a quarterly basis,” Dr. Holloway explains. “That allows us to set specific goals or address specific issues each quarter.”

“If we decide that we want to look at coding compliance in a certain quarter,” he adds, “we add a coding compliance component to the incentive schedule. If we decide that we need to address medical record issues, we can add a component to the quarterly program that looks at the timely completion of medical records.”

Other benefits

While incentive programs affect physician pay, bonuses also give the hospitalist program some distinct benefits. Incentive targets tend to get physicians’ attention and encourage them to improve their performance in specific areas that may not be their greatest strength.

Dr. Holloway explains that for some physicians, the realization that they are not meeting the program’s goals in one area causes some hospitalists to take a close look at their performance in other areas. “The incentives act as a catalyst to encourage the physicians to improve their performance across the board,” he says. (Dr. Holloway adds that no physicians at DeKalb have faced suspension or dismissal as a result of poor performance.)

The group’s incentive program helps this process by identifying specific areas that need to be addressed. “We track length of stay, readmission rates, coding compliance and denials, and other quality indicators,” says Dr. Holloway. “When one physician has different numbers, we’ll do an intervention in the form of education.” If a DeKalb hospitalist has a problem in a particular area, another physician who is particularly strong in that area will team up to provide some guidance.

In addition to direct interventions, the physicians at DeKalb participate in quarterly billing and coding audits, monthly peer reviews, and monthly length-of-stay and cost-of-discharge meetings.

Dr. Holloway also sees his incentive program as an effective tool to implement standardized approaches to patient care that are cost effective and provide better care to the patients. Because most of the order sets have been standardized, physicians generally treat patients the same way, which has improved patient care and made patient hand-offs more efficient.

“Patient care often comes down to the individual preferences of each doctor,” he says. “With nine or 10 doctors in our practice, it can be frustrating trying to get all of them to agree on a single approach.”

Again, that’s where the incentive program comes in, by providing a mechanism for effective change. “We can document the success of a standard pneumonia or CHF pathway,” Dr. Holloway says. “Our doctors have both a financial and professional incentive to adopt our methods.”

When incentives go wrong

One of the biggest dangers of an incentive program, experts say, is creating a situation in which a physician is being rewarded for doing the wrong thing.

“I have seen programs that reward physicians for activities that I thought were counterproductive to the practice, that increased length of stay or that were simply inefficient,” says Dr. McCormick “If your program rewards a physician for making more visits than are necessary or for keeping patients in the hospital longer than necessary, it’s not a good thing for the patient or the practice.”

To prevent this type of scenario, programs can balance each productivity measure with a corresponding quality measure. “With a quality bonus, we can look at denial rates as a measure of how well a doctor is doing,” says Dr Holloway. “A physician may record a lot of RVUs but have a high denial rate. Our program will pick that up.”

DeKalb also uses patient and physician satisfaction surveys to spot potential problems with its incentive program. “With the checks in our system,” Dr. Holloway explains, “I can say for sure that our physicians are not cutting corners to make a couple of bucks.”

Audits can also help catch problems. “I see incentive programs where the physicians have to make the choice between making the proper medical decision or putting money in their pocket,” says Mr. Mosley from Merritt Hawkins. “Audits can help eliminate this problem.”

CPT codes, he explains, should become less complex over the course of treatment. “A good audit can identify cases where that is not true and reveal patterns that indicate that a physician is probably making personal financial decisions and not medical decisions,” he says.

“To make an incentive program work, you need to have a great office manager,” Mr. Mosley says. “Smaller groups tend to pay salary only because they don’t have the staff to do the audits and track the information.”

Dr. Holloway agrees that incentive programs require a significant amount of effort, but he is convinced that they more than pay for themselves. His program, for example, employs an administrative assistant to track data. While some information can be tracked automatically, he adds, coding and billing audits are done by hand.

“All the effort is worth it,” he says. “It’s all part of doing a good job.”

Michael Krivda is a freelance writer specializing in health care. He is based in Perkasie, Pa.

In recruiting hospitalists, incentives can offer a mixed blessing

When it comes to recruiting hospitalists, pay incentives can be something of a mixed blessing. While medical directors think that performance-based pay can help attract the best and brightest candidates, some physicians may wonder whether the bonus they’re being promised today will materialize tomorrow.

“Because of our incentive program, our base salaries are lower” than starting pay at some other programs, says Robert Holloway, MD, medical director at the DeKalb Medical Center in Decatur, Ga. “When a doctor I’m trying to recruit compares us to another group, the other guys probably look pretty good because they’re offering a larger guaranteed salary.”

While he often ends up providing documentation to prove that his program actually does pay bonuses, Dr. Holloway says physicians tend to quickly see the upside of performance incentives. “If physicians are sophisticated enough, they will realize that our contract package is better than another package that might be strictly salary,” he says, “and that they will be rewarded for working hard and doing quality work.”

He notes, however, that because some hospitalist programs are under considerable financial scrutiny, it’s a good idea for job-seekers to ask lots of questions. “Many of the hospitalist groups can’t stand on their own financially,” says Dr. Holloway, “so physicians might have trouble collecting on bonuses in some cases.”

When you’re looking at an incentive program, you need to be certain that the group has not set the bar so high that it is virtually impossible to achieve the levels necessary to ensure a bonus. Another red flag? Situations where the bonus is based on factors that are out of your control, such as the group’s ability to collect payment or the financial viability of the group.

Despite these concerns, many recruiters say the pros of pay incentives far outweigh the cons.

“We had a client practice where a new physician came in, and within a month he had the entire group using handheld computers and PDA-based discharges,” says Kurt Mosley of Merritt Hawkins & Associates, an Irving, Texas-based health care recruiter. “The group was totally paperless, despite the fact that some physicians in the group were definitely opposed to a paperless environment. That is the kind positive change that comes out of an incentive program that rewards not only hard work, but also innovative thinking.”

And at DeKalb Medical, Dr. Holloway says that incentives can actually increase hospitalists’ job satisfaction “and improve retention rates. “Our incentive program helps us keep our physicians,” he explains. “Our physicians know that if they work harder and better, they will be rewarded. Conversely, they also know that if the doctor next to them is not working as hard, he or she is not going to be paid as well.”