by Jonathan H. Burroughs
It is remarkable how much of a disconnect there is between an organization's strategic plan and how it compensates and incentivizes physicians. A typical 2015 organizational strategic plan includes such initiatives as:
- Cut operating costs by at least 10 to 15 percent
- Find new sources of operating revenue
- Build a culture of service
- Develop an infrastructure for population health
- Begin the evolution from fee-for-service to risk contracting and capitation
How do we typically compensate physicians? Salary guarantees, productivity incentives based upon wRVUs and contracts that are either no risk or minimal risk (5 to 15 percent). The potential impact of this compensation model on the organization's strategic plan is as follows:
- Increase operating costs by incentivizing inpatient procedures, ancillary services and elective procedures that may not meet medical necessity criteria
- Stifle new sources of revenue by rewarding existing physician structures that inherently discourage competition and maintain current vested interests
- Reward volume and not value or service
- Perpetuate a fee-for-service' model in which there is a negative incentive to drive down volume (e.g. unnecessary admissions, visits to the ED, ancillary revenues, or elective procedures)
Thus, we reward and incentivize physicians to defeat the organization's strategic plan by driving up operating costs and driving down new sources of revenue.
There is a better approach and it means aligning the strategic efforts, compensation models, and incentives of both executive management and physicians as follows:
- Create the organization's strategic plan together. Traditionally, the strategic plan was created by executive management and the board, and the medical staff was expected to accept whatever initiatives the organization determined with minimal input. Physicians are achievement-driven professionals who are happy to achieve even difficult goals and objectives IF they take personal ownership of those goals and objectives. Thus, physicians should play an active and proactive role in the development and creation of the organization's strategic plan so it is a shared plan and not a management/governance one.
- Develop a medical staff strategic plan that is informed by the organization's plan. The medical staff should independently discuss and memorialize its specific role in carrying out and achieving the organizationâ€™s strategic plan with a concise delineation of specific and measurable goals and objectives.
- Develop a medical staff operating plan. The strategic plan will inform the medical staff of the specific committees, activities, and collaborative programs necessary to accomplish its plan over the upcoming year. Many medical staff committees are irrelevant, whereas, the committees that are necessary to accomplish strategic goals and objectives (e.g. population health, culture of service, margin improvement etc.) are often non-existent.
- Articulate specific performance expectations that will drive operational goals and objectives and create performance metrics with targets to do the same.
- Memorialize performance expectations, metrics, and targets in all contracts and in ongoing professional practice evaluation. Focus on professional practice evaluation plans going forward so that everyone understand what is important.
- Convert all contracts into at risk documents (50 percent). That gives practitioners the opportunity to earn operative word) 90th percentile MGMA compensation based upon corporate policy. The difference between 10th percentile MGMA and 90th percentile MGMA is typically more than $300,000, depending upon the clinical specialty.
Contracts are a tool that supports the organization's strategic plan to optimize quality/safety/service and drive down operating costs. However, it can only do so if all physician based performance expectations and incentives are aligned with the organization and its executive leadership. Then the usual disconnect will be no more.
Jonathan H. Burroughs, M.D., is president and CEO of The Burroughs Healthcare Consulting Network. He's also a certified physician executive and a fellow of the American College of Physician Executives and the American College of Healthcare Executives.