It may be time to change the way organizations set physician compensation rates, according to healthcare valuation and transaction advisory firm VMG Health.
In a Dec. 2 article, VMG Health explained why current rate-setting methodology may be overly complex and outdated:
1. Because of elective surgery delays and cancelations, work relative value units and collections reported by physicians in 2021 surveys (based on 2020 data) could be significantly lower than the metrics reported this year based on 2019 data. Physician compensation levels, however, are more likely to remain flat in 2021 surveys; many organizations provided compensation guarantees of some sort during the pandemic.
These two factors could drive increases in compensation-per-wRVU and compensation-to-collections ratios — which many organizations use to set physician compensation rates for the next year — to far exceed the typical 1 percent to 3 percent annual growth.
2. Most organizations pay physicians at least partially based on the number of wRVUs they generate. Using likely-inflated metrics to calculate compensation rates for 2022 could leave organizations overpaying physicians relative to productivity.
Because CMS' 2021 physician fee schedule includes significant increases for evaluation and management services, physicians will report an average of 10 percent more wVRUs in 2021 than they reported under the 2020 fee schedule — despite no significant aggregate revenue change, according to VMG Health.
3. Many organizations are choosing to use the 2020 fee schedule to calculate 2021 wVRUs for providers on productivity-compensation plans, meaning "the 2022 surveys will likely be a mix of 2020 and 2021 values," VMG Health said. Even if all organizations report wVRU values using the 2021 fee schedule in 2022 surveys, the surveys won't be published in time for use until 2023, at the earliest.
4. Meanwhile, the rise of value-based care is calling into question the assumption that compensation and productivity levels are always perfectly aligned.
"With more revenue being tied to things like management of diabetes or chronic kidney disease, other process or outcomes based quality metrics, and utilization," VMG asked, "does maintaining a pure focus on compensation per wRVU or compensation as a percent of collections continue to make sense?"
5. Survey firms differ in how they calculate compensation and compensation-to-productivity ratios, making it critical for organizations to carefully review what goes into the metrics (a task far easier said than done).
"Simply using a survey's median compensation or compensation to productivity ratios and stacking other compensation components on top of that rate could result in compensation levels that exceed fair market value," according to VMG Health.
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