Latest / Off the Chart: A Business of Medicine Podcast / S1 Ep165: The four forces reshaping physician pay, with Tynan Kugler of PYA
Transcript
- Speaker 1 0:00 And I think one of the challenges is when you know compensation is set it creates a floor and then once that compensation rises it becomes the new floor and so that new floor you know is always hard to kind of step back down once you've stepped up you Austin Littrell 0:32 Welcome to Off the Chart, a business of medicine podcast featuring lively and informative conversations with healthcare experts, opinion leaders, and practicing physicians about the challenges facing doctors and medical practices. My name is Austin Luttrell. I'm the associate editor of Medical Economics, and I'd like to thank you for joining us today. And I hope you all had a safe and happy Fourth of July, and enjoy the long weekend. In today's episode, I sat down with Tynan Kugler, a principal in PyAnce Consulting Practice, to talk about the four forces pulling physician compensation in competing directions. We get into why a competitive offer is now necessary, but no longer enough. How rising pay creates a floor that's very hard to step back down from, and what physicians tend to misunderstand about how their offers actually get built and evaluated. Tyn and Coogler, thank you again so much for joining us. And with that, let's get into the episode. Tyn and Coogler. Thank you so much for joining me today. Speaker 1 1:25 Happy to be here. Austin Littrell 1:26 So we can kind of jump into it here to the meat of what we'll be talking about. What are the biggest forces that are shaping physician compensation today? Speaker 1 1:35 So they're really, I'd say four forces, so supply and demand imbalance is one continued shift to employment and system affiliation is another or alignment with private equity backed organizations, we're still seeing that reimbursement pressure can't not have a conversation about compensation and talk about reimbursement pressure, and then the continued interplay between productivity and value, so compensation paid versus on a productivity basis, or paid based on outcomes and quality, for example, and I'm happy to go into sort of a little bit of detail on each one of those, if that would be helpful, so supply and demand, you know, that's that is an area where, especially in primary care, we continue to see some persistent shortages, and that puts upward pressure on compensation, right, so when we do provider needs assessments, for example, we see pretty drastic, not drastic, but we see, you know, significant shortages. I guess some of the providers would say they're drastic in shortages in primary care, so family medicine, internal medicine, and OB, but then also some of the other specialties where we really see some, some shortages are neurology, rheumatology, gastroenterology, hematology, oncology, or some of the medical specialties that we typically see are NRC shortages, hospital-based specialties too, so anesthesiology and radiology, and the latter two, you know, honestly, are some of those are needing financial assistance for the first time in that specialty's history, so that's been an interesting trend. Affiliation and employment, you know, many independent practitioners have sought employment, but some are still continuing to seek employment or affiliation, depending on the specialty, for, you know, quality of life, financial pressures, and it's both revenue and expense pressures, recruitment, I mean, the inability for independent practitioners, for example, to recruit and develop, you know, succession plans effectively, that's another area that, that you know, creates obviously pressure on compensation, and then you know we're also seeing hospitals and health systems want to go into developing primary care concierge practices, so that's another area that we're starting to see, and then I guess the final thing on, you know, sort of employment affiliation is that we're seeing also a lot of academic health systems, who historically maybe had, you know, more sort of more closed models, are now going out and looking at community health affiliation strategies. So that's a way that independent practitioners are, are also interacting or affiliating reimbursement, I mean declining reimbursement, payer mix pressures, you know, those those two are, you know, obviously compressing margins and impact compensation, and it's not just, you know, how much can somebody sustainably pay as it relates to, you know, compensation to keep everybody happy, but it's also how much. From a commercial reasonableness perspective, it's how much can somebody sustainably lose, so it's not just it's the financial and economic impact, but it's also the regulatory impact on the, you know, hospital employed side for private practices. It's a challenge because, you know, oftentimes it's the difference of them being able to recruit that into that next provider to fulfill a succession plan, or having to go request an income guarantee, or other financial assistance from a hospital or health system, so you know Medicare for some specialties, you know, there's always the Medicare routine adjustments to the Medicare physician fee schedule. Speaker 1 5:42 I think one of the things from a primary care perspective, the, you know, the conversion factor increase for 2026 and the fact that even though there was an efficiency adjustment that that that Medicare made for work RV use so effectively, if you're a surgeon, you know, if you do surgeries, or you're a proceduralist, or imaging, or diagnostic, you, you could be hit too with the impact of that efficiency adjustment, because it, you know, reduces work RVU values, but primary care hasn't been impacted as much by those efficiency adjustments, and so the two and a half percent increase is actually somewhat of a nice win, depending obviously on the on the mix of patients you see, but the other, you know, sort of positive I think the physicians would say is positive is, you know, in 20, starting in 2027 the obstetric, the global obstetric codes, so global obstetric billing, those are going to be unbundled, so a series of CPT codes that have historically been bundled are going to be itemized into service level reporting, and so that's going to, you know, again, we're trying to go towards sort of some of these models where payments are bundled, but this is an area where they're unbundling, and you know, I think you know the rationale has been that it's intended to be more modern, promote team-based care, individual, individualized care plans, and, and I think for OB-GYN it's expected to have a positive impact, so it's not always all bad news, but it changes, you know, changes changes every year, and I guess the final one is just the, the interplay between, you know, productivity and value, and you know, work RVU still remain in an employed model still remain the dominant metric, but I think what we're really, what we're really seeing is that shift to more of a hybrid approach, where you've got, you know, base compensation that's competitive but supportable, and then a movement towards really making some additional compensation at risk, and you know, for example, some specialties are not as forward thinking in moving as quickly. I think primary care has been primary care has been pretty good about adopting quality metrics. There's an organization, the American Association of Provider Compensation Professionals, and they did some research that, that showed that, you know, approximately or close to three quarters of primary care organizations have adopted, you know, value-based incentives, so some, some good movement there, but, but others are a little bit lagging on the independent side, I think the movement towards quality is really to help show payers that you know practices are committed to improving outcomes, and that ultimately, even though there's not as much leverage from a negotiation perspective, you know, can translate into financial savings with outcomes. So that was a lot, lots of trends, but but compensation is is impacted by all of those. Austin Littrell 9:04 How are medical groups trying to keep physician pay competitive while also managing rising costs? Speaker 1 9:11 So that's that's like walking on a tight rope. If we're thinking about employed providers, I would say the most effective organizations, the way that they're approaching that is they're not just, you know, simply raising salaries, so they're not on a, you know, okay, we're going to just every year raise salaries, or within the, you know, every contract period raise salaries, it's just not sustainable, and so I think the things that we're seeing there is organizations are really looking at how do we redesign our compensation model, so it's really doing a deep look at what are the things that we can do within the framework we've created to sort of redesign those models, it's leveraging productivity again. And sort of care optimization, which we can talk about, and then it's obviously it's thinking about the cost structure, so it's it's those three things, they're not rocket science, but every time we have sort of discussions about compensation, we always go back and say, what are the things that you can do to sort of get your house in order, reevaluate things that you haven't looked at in the past, and on the, you know, on the comp redesign side, we talked a little bit about that, it's transitioning into more of a hybrid model, I'd say, for, you know, primary care on the, you know, employed side, it's it's really making sure that the base salary is competitive, you know, while it's market aligned, but then also including a work RVU based incentive or value based metrics, and I think the way it's different than it's been in the past is there's probably on the hospital side more focus on that value or quality, and you know, in areas of things like panel size, so what are we doing to manage our panel size at various access metrics, so things like the next non-emergent appointment, time to the next, you know, non-emergent appointment, or time to the first new patient visit, so things like that, that are measurable and that are meaningful, and you know that an organization has some control over, from a, you know, from an outcomes perspective. The other thing is shorter guarantee periods, so you know, I mean, one to three years is a, you know, typical, I think three years has historically been what a lot of organizations use, but I think to mitigate some of that cost, ratcheting that down to one or two years, and that still allows for some ramp up if that's needed, but also mitigate some of that expense, and then targeted sign on both bonuses, so bonuses that are utilized instead of, you know, just a flat out salary inflator, so that those are some ways I think that that hospitals are mitigating that care optimization, and this goes for both independents and, you know, hospital employed providers are really looking at the advanced practice provider strategy, so they are just central to care delivery now, and you know how either an employed model or independents are using advanced practice providers. I think is it can impact compensation, it can impact job satisfaction, it can impact accountability. You know, and one of the challenges there, though, is that you know advanced practice provider compensation models have not historically been tied to productivity, so there's kind of a little bit of a lag there, and then sometimes physician compensation models have not taken into consideration, you know, the work effort related, you know, over and above when there's, you know, kind of over and above management to collaborate with APP, so it's kind of that push pull of use an advanced practice provider and a physician to the top of their license, but recognize there's some levers that need to be pulled to manage both, you know, compensation and overall professional satisfaction for both, Austin Littrell 13:22 when finances are tight. Why is physician compensation such a difficult area to pull back on? Speaker 1 13:30 Yeah, you ask me hard questions, Austin, and you know this is one I think about a lot, just because you wish there was an easy answer, and there was sort of an easy solution, you know, but the challenge is, you know, physician compensation, really kind of compensation in general, but physician compensation, you know, there's there's an intersection of market dynamics that have to be taken into consideration, so you know, supply and demand, which we've talked about, you know, legal and regulatory considerations, so you know what constitutes market compensation is a consideration when compensation is set, and then just the operating realities of care delivery, and I think one of the challenges is when you know compensation is set, it creates a floor, and then once that compensation rises, it becomes the new floor, and so that new floor, you know, is always hard to kind of step back down once you've stepped up, and so that's one of the reasons why really setting base compensation and looking at kind of what your, you know, your fundamental compensation model is really critical to an organization's success, and how they approach comp design, and it's not just for one specialty, but it's kind of philosophically across the organization, because you know the reality is that when demand exceeds supply then. And providers have other options, and employers have limited leverage to reduce pay, so it creates a situation where physicians can go elsewhere for either a different model, a different, you know, comp model, or lifestyle, or quality of life model, and it's difficult, then for employers to reduce pay. They have to just constantly ratchet up, where if reimbursements flat or ultimately decreasing or expenses are rising, you just can't ever get ahead of that curve. So you know the other, the other factor in that is that from a legal perspective in the employed model, you know, changing agreement terms, you know, is is a process, it's not just something that that happens on a dime, so you know terms require renegotiation, you know their regulatory inputs that got how often you know compensation can change, so they're just challenges there. The piece on the market data that's important is that you know even if you had a provider that said, okay, we want to ratchet compensation down. If you go out and you look at a variety of different, you know, data surveys, so benchmark data for physician compensation, and you look, you know, if you, if you looked at one or a couple, but if you looked over the last couple years, you know, you and we do this, we look at the compound compound annual growth rate, and you see that, you know, it's flat, or sometimes it'll decrease a little, but it's usually flat or increasing, and so when you've got again, you know, benchmark data is one starting point, it's not the end all be all, but when you've got that as sort of an anchor in many ways, it's hard for a health system to say we're going to reduce compensation when we know the market is flat or increasing, so it is definitely a conundrum, but you know there are things that organizations can do to, and we talked about a couple of them to manage that, that increase and still retain their, their provider workforce. Keith A. Reynolds 17:22 Hey. there, Keith Reynolds here, and welcome to the p2 management minute. In just 60 seconds, we deliver proven real-world tactics you can plug into your practice today, whether that means speeding up check-in, lifting staff morale, or nudging patient satisfaction north. No theory, no fluff, just the kind of guidance that fits between appointments and moves the needle before lunch, but the best ideas don't all come from our newsroom. They come from you. Got a clever workflow hack, an employee engagement win, or a lesson learned the hard way? I want to be true. Shoot me an email at K reynolds@mjlifesciences.com with your topic, a quick outline, or even a smartphone clip. We'll handle the rest and get your insights in front of your peers nationwide. Let's make every minute count together. Thanks for watching, and I'll see you in the next p2 management minute. Austin Littrell 18:13 Where do organizations typically have the most flexibility when structuring physician compensation packages? Speaker 1 18:21 So fundamentally I would say that you know organizations have flexibility really in the totality kind of how they design their physician comp model, as long as they meet regulatory requirements, so you know when you think about flexibility and organization can say here's how. Here's how I want to set my compensation structure, or my model, as long for, as for example, it doesn't take into consideration, you know, the volume or value of referrals. The challenge is very few organizations are at a point where they can, you know, sort of start from scratch, and so what they end up having to do is, is think about what changes and what levers they can pull, you know, to make movement to redesign and to move, move the model forward. So, you know, ideally you start from scratch, and you, you have the flexibility to do that. Most don't have that flexibility, they have to kind of look and say, okay, what do I have and what do I need to do. So least flexibility is probably with base and possibly productivity metrics, and you know some of that's due to the fact, as we talked a little bit about that, there's that strong correlation to just general market data, but I would say these are the main metrics that most physicians are, that's important to most physicians. So, what's my base? You know, what's my base compensation? What's my opportunity for a bonus? But, interestingly, you know, some are more focused on what's my base, some are more. Focused on what's the value of a work RV use. Some of some are more focused on how many work RV use is going to take me if it's a work RVU model to get that bonus, and what does that look like. So you're even, you're managing a lot of considerations there, depending on what's important to that provider that's either in a system, or that you're trying to recruit, you know, even into an independent practice. I think where we see more flexibility is in those incentive compensation options. So, you know, I know, I know, there's a tendency to think that sort of paying for quality is a little bit nebulous. You say, okay, we'll give you payment for quality, whereas productivity, it's a little bit more well defined, but, but I think there's opportunity for flexibility and compensation development with quality metrics, because oftentimes it's collaborative, hospital has to meet a, you know, has is trying to move certain outcomes and they need provider assistance to do that, and so the collaboration in terms of how we set those quality metrics can often be where there's some flexibility, recruitment and retention is another one, so how you structure and manage the relationship of a signing bonus, a forgivable loan, you know, relocation expenses have a tendency to be pretty standard from a what's offered and sort of what that dollar is, but there is flexibility in in how signing bonuses are set, both in terms of of the dollars and the same thing with with forgivable loans, so you could have a situation where it's again being consistent, not being inconsistent with market data, or with a situation that's going to create a commercial reasonableness issue, but allowing some flexibility there to meet the needs of the providers that you're trying to recruit. Austin Littrell 21:59 What should physicians understand about how compensation offers are evaluated, Speaker 1 22:05 so most hospitals and health systems, if we're thinking about, you know, an employed model and independent practices, is, you know, a little bit different, but most, sometimes not, though, most hospitals and health systems will have a compensation philosophy, or a, you know, compensation guidelines, so they will actually have a, you know, here is our compensation model, here's how we set compensation, here are, here's how we review offers, here's how we review compensation, here's how we would, here's how we determine what we're going to offer, here are our guard rails, and that's often approved by leadership and by boards of directors, and so there is a framework from which offers are created, determined, and evaluated, so you know, again, sort of those high-performing organizations will have that process in place, which you know makes it more streamlined for the purposes of what can we offer, but sometimes that's difficult. If a physician has never negotiated a contract with a hospital or health system, don't necessarily know that that's sort of what's out there. If, for example, they've been independently practicing or employed previously, and so the considerations is so after you kind of get past, hey, we've got these guidelines, then it's how do we analyze and come up with what the offer is going to be, and and there are multiple considerations depending on the different circumstances, so, and that physician or that provider situation, so for example, you could have, you know, an experienced physician who's moving into a new market, so into a new community that physician offer, even within those guidelines, could be evaluated differently than, you know, a new physician coming out of residency who may be coming into that same market, but that physician is going to be evaluated, and that offer is going to be evaluated differently than a physician owner who may be in private practice, but who said, "I don't want to be in private practice anymore, I want to affiliate with a hospital or health system. They're different considerations to think about there too, and if we just think about high-level examples, you know that experienced physician new to a market is going to have productivity, historical productivity, historical compensation, but that productivity might not directly relate to what that market is going to look like, so that insight has to be taken into consideration, and you know, insight factored, and then then thought about through the scope of the organization's compensation model, that new physician coming out of residency isn't going to have historical productivity or historical compensation. Origination, but is being recruited and maybe has significant student loans to pay off, so those facts are different, and the insights of that circumstance are then factored into and evaluated within that same scope of that organization's model, and then then if you go to that owner physician who's currently in the community has historical productivity in that community knows what he or she's been paid in that community, so we've got history there that we can then translate to what does this look like under this hospital employed model, you know, three different situations working under the same framework, but with different, you know, potential, you know, considerations, because of the perspective of what that physician has done and will be doing, so once those kind of, you know, facts and circumstances are identified, you know, usually what will happen is the historical compensation, if it's available, and productivity is it's evaluated and reviewed, and we, we do start with benchmark data, typically, you know, multiple benchmark surveys, and so that some that historical compensation can be benchmarked to say, you know, what's this provider made in the past, just to get a sense of, okay, where are they? The proposed model often gets, you know, benchmarked and looked at and reviewed to see where that falls, and if the benchmarks are favorable, again, benchmarks are a starting point, you know, a factor, but if, for example, compensation is supported by production, if the various other benchmark data points that we, that we would look at, for example, are in alignment, and then there are other facts and circumstances that we review to say, is the offer supportable, so is there a deficit for this specialty? Has the has the hospital been, or even the practice been looking to fulfill a position for a period of time? Speaker 1 27:11 So have they been having to use locums, and again, if it's it's deemed to be commercially reasonable, then the parties proceed, typically with, you know, a letter of intent, and onto a contract, but it usually starts with sort of what's our approach to comp, what's our comp philosophy, what's our model, and then how are we going to take these facts and circumstances and run them through the the model that we've developed that will result in hopefully a competitive compliant compensation model that incorporates both the provider needs, the hospital's needs, and ensures that from a retention standpoint that provider can be part of an organization for a period of time. Austin Littrell 27:58 Is there anything else that you think physicians should understand about this issue. Anything I didn't ask about might have glossed over. Speaker 1 28:05 Yeah, just a couple things, you know. Not all roles are equal, so compensation components are evaluated based on specific facts, so whether that's space salary, quality, recruitment incentives, so that's important to take into consideration, you know, alignment matters as much as compensation, so the goals of alignment are really important, understanding that the structure of a compensation model should align with how physician works, and then probably don't need to say this, but compensation is complicated, there are lots of different forces that go into play, and it's important that, that, that everybody go in with it, being knowing sort of what it is they're trying to get out of it, what what can give, what can't give, and collaboration is Austin Littrell 28:57 key. Excellent. Well, Ton and Google, I thank you so much for your time today. Speaker 1 29:00 Appreciate it Austin Littrell 29:17 once again. That was Tanya Kugler, a principal in PyAs consulting practice on behalf of the whole Medical Economics and Physicians Practice teams, I'd like to thank you for listening to the show, and ask you, please subscribe, so you don't miss the next episode. As always, be sure to check back on Monday and Thursday mornings for the latest conversations with experts, sharing strategies, stories, and solutions for your practice. You can find us by searching off the chart wherever you get your podcasts, and if you'd like the best stories that Medical Economics and Physicians Practice published, delivered straight to your email six days of the week, subscribe to our newsletters@medicaleconomics.com and physicianspractice.com Off the chart, a Business and Medicine podcast is executive produced by Chris Mazzolini and Keith Reynolds and produced by Austin Luttrell. Medical Economics and Physicians Practice are both members of the. Age life sciences family. Thank you. Transcribed by https://otter.ai