The future of physician compensation in a changing regulatory landscape: 4 things to know

Hospitals can improve their financial standing and the overall well-being of their physician network — now and beyond the pandemic — by ensuring they have an optimized physician compensation strategy. 

During a Feb. 23 webinar hosted by Becker's Hospital Review and sponsored by Ludi, physician alignment experts discussed the importance of automating key processes that drive a hospital’s physician compensation strategy. They also outlined why hyper-focusing on a specific financial metric – physician spend – is critical to their entire approach.

The speakers were: 

  • Michelle Harmon, chief strategy officer at Nashville, Tenn.-based Ludi
  • Aurora Young, national managing director and service line leader of physician and advanced practice provider services at Rolling Meadows, Ill.-based Gallagher

Four key takeaways from the presentation are: 

1. Hospitals should prepare themselves for the 2021 Final Physician Fee Schedule if they haven’t already. The 2021 Final Physician Fee Schedule has been released, with several changes making it different from last year, Ms. Young explained. Updates were made in key areas, such as documentation, work RVU values, telehealth and reimbursement. It's essential for hospitals to understand these changes, analyze the potential impact and how these changes align with their philosophy around physician compensation, and then have a plan to implement.

2. So much can go wrong when paying physicians. Beyond the changes from CMS, Ms. Harmon explained that hospitals should be prepared to address another area of physician pay: the compensation contracts themselves, which often have complex calculations, duties, billing cycles and time tracking provisions. Of the tens of thousands of contracts Ludi has evaluated, nearly 60 percent were flagged by Ludi for potential documentation or payment risks, Ms. Harmon said. This is often due to manual, paper-based processes and the reality that physician compensation can span multiple, siloed departments within a hospital. 

3. Physician spend matters. The total dollar amount spent on physician contracts – also known as physician spend – roughly equals 5 to 10 percent of an average hospital's net patient revenue, with a projected annual growth of 5.4 percent, Ms. Harmon said, citing a study published in Health Affairs. This is precisely why Ludi encourages their hospital clients to hyper-focus on physician spend: it’s a big number with a big impact on a hospital’s bottomline. And while almost all (96 percent) of healthcare organizations have indicated that physician spend has some level of influence on budget discussions (according to a 2020 survey conducted by Ludi and HFMA), those same executives also indicated that the processes that drive their physician compensation strategy are difficult and fragmented. Ms. Harmon pointed out that, if that’s the case, these organizations are likely not getting an accurate view of their spend when they’re making budget decisions. 

4. Why automate physician payments? Access to the physician spend data is essential, yet can be challenging to pull meaning from. Regularly monitoring these arrangements – and specifically the data and calculations within each contract – to ensure they are still relevant requires a cultural shift. Automating physician payments can help answer critical questions about physicians (such as which physicians am I paying and what am I specifically paying them for, etc.), ensure the ability to benchmark across markets or service lines, analyze work performed and pinpoint cost drivers and outliers. Making a financial investment in payment technology is a 2021 priority for many hospitals, with about 36 percent of healthcare organizations indicating they are in the market for technology that automates the physician pay processes, according to the Ludi and HFMA survey.

For more information about Ludi, click here. To view the full webinar, click here.

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