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Most specialties see slight increase

Most specialties see slight increase

CMS changes are reason for stagnancy

Physician compensation for most specialties was mostly flat in 2007, according to the American Medical Group Association’s (AMGA) 2008 Medical Group Compensation and Financial Survey, which was compiled by RSM McGladrey, Inc.

Ninety-one percent of the specialties saw increases in compensation in 2007, with the overall average increase at almost 3.5%. This is compared to the 92% who enjoyed an average increase of nearly 5% in 2006.

Brad Vaudrey, MBA, CPA, director of healthcare consulting at Minneapolis–based RSM McGladrey, says the Centers for Medicare & Medicaid Services’ (CMS) reimbursement changes in 2007 were part of the reason for the flat year. This helped cause slow growth in relative value unit (RVU) production, net and gross production, productivity, and compensation because groups stayed with the old RVU figures.

“There was a lot of uncertainty, because a lot of groups are compensated in production-based plans and they didn’t know what rates to use, so they reverted back to the ’06 rates and ’06 values for a year until they figured how to address for it. A large number of the groups did that, and it kept salaries a little flatter than they typically would,” Vaudrey says.

The study reported an overall average of about 3.5%. When hospitalists were removed from the grouping, primary care specialties saw an approximate 3.2% increase in 2007, with other medical and surgical specialties averaging around 3.7%.

Although the numbers for primary care were flat overall in 2007, Vaudrey says compensation has increased in the past few years because of physician shortages and greater emphasis on hospitalists. Hospitalists did see a 7.32% increase in 2007 and have enjoyed an increase of nearly 20% since 2004. (See Figure 14 on PDF.)

Median physician compensation increases in 2007 ranged from less than 1% (allergy, endocrinology, and pulmonary disease) to 9% (dermatology). Vaudrey says he was not surprised by those numbers, because dermatology is a high-demand, high-profit specialty.

For surgical specialties, the percentage changes in 2007 ranged from .53% (emergency medicine) to 8.11% (cardiac and thoracic surgery). Vaudrey says the increase in cardiac and thoracic surgery is because of a market correction, adding that the trend had been decreasing before 2007 in cardiac and thoracic surgery compensation.

Donald W. Fisher, PhD, president and CEO of the Alexandria, VA–based AMGA, said in a statement that the survey shows compensation increases continuing to fluctuate marginally for most specialties. This puts medi-cal groups in a difficult situation.

“With the negative impact of declining reimbursements, competition for specialists, the cost of new technology, and other factors on practice revenues in most parts of the country, this situation is clearly unsustainable,” Fisher said.

Operating at a loss

The study reported that medical groups were operating at an average loss of $4,728 per physician, which was $119 less per physician in 2007. On average, organizations in the Western region were operating at a profit, although they were down slightly from 2006. The other three regions operated at a loss.

“In the face of the current economic climate, these medical groups continue to rise to the challenge of delivering the highest-quality coordinated care to the patients they serve,” said Fisher. He pointed to a couple of reasons for the trends, including the current payment model and the fact that groups are now experiencing an additional burden with changes in work RVU values. “Most of the groups represented in the survey are large organized systems of care that make substantial investments in technology, operations, and the most innovative care processes to best serve populations under their care and are able to achieve remarkable results for their patients. Our current transaction-based reimbursement system is indifferent to these results and to the efforts of medical groups to elevate the standard of care in the U.S.”

Work RVUs

RSM McGladrey has been collecting work RVUs since 1996; the figures are normally a steady benchmark, but that trend reversed for 2007.

The median work RVU increases were expected, and Vaudrey points to changes in CMS’ work RVUs as the major reason for the increases. Of the overall average increase of 14% in median work RVUs, nearly all of it was because of CMS’ changes. (See Figure 15 on PDF.)

The highest percentage changes of median work RVUs for medical specialties in 2007 were infectious disease (23.72%), hematology and medical oncology (23%), and hospitalist (20.19%). Hematology and medical oncology median work RVUs have increased by more than 40% since 2004. On the other end in 2007 were psychiatry (2.35%) and cardiology—cath lab (1.46%).

For surgical specialties, cardiac and thoracic surgery topped the list with a 33.32% increase, whereas ophthalmology was at the other end of the scale (5.13%).

Gross charges

RSM McGladrey wrote that “gross charges continue to serve as a measure of a physician’s productivity and a factor in determining physician compensation. Eighty-two percent of the specialties reported experiencing an increase in gross charges,” with the average increase about 5%, which is much lower than previous years. (See Figure 16 on PDF.)

Vaudrey notes that the study has seen 7%–8% increases in gross charges normally. “It’s a little bit lower [in 2007]. I think part of it is because they kept it all on the same scale, the same values from ’06 and ’07. They weren’t sure what kind of reimbursement increases they would get.”

The largest percentage increases in medical specialties were cardiology–cath lab at 15% and psychiatry at 10.76%, whereas pulmonary disease, endocrinology, neurology, and gastroenterology received negative percentage changes.

In the areas of surgical specialties, cardiac and thoracic surgery led the pack with nearly a 16% increase, whereas otolaryngology, OB/GYN—general, and orthopedic surgery saw increases of less than 3% in 2007.

Compensation measures

A total of 133 organizations that responded to the survey had production-based compensation plans for physicians, in which at least 50% of the group’s compensation is based on work or financial contributions. More than 50% of those plans use work RVUs for compensation, with net production utilized by more than 30%. Gross production, on the other hand, has decreased in popularity, with only 9% of the organizations using that measurement, according to the study.

In the area of discretionary compensation, the most common determinants were patient satisfaction, RVU goals, department budget or goals, individual financial goals, and citizenship.

Capitation

The study found a negative position for groups that are heavily capitated. The number of groups with 35% of capitated revenue continues to decrease, according to RSM McGladrey.

Vaudrey says he thinks the decrease in capitation will continue. “I think it will continue to be a downward trend to a point. I think those who are doing it now, for the most part, are doing it well . . . There still might be some things that happen in the future that may modify how the business model works, but capitation will still not be as popular as the rest,” he says.

As expected, the Western clinics reported the highest percentages of capitated contracts, and capitation played a role in the success of the Western region, says Vaudrey. (See Figure 17 on PDF.)

“I think [capitation] does have some effects. We have been tracking this for many years, and, to differing degrees, there have been variances between the regions. The western region has been a little bit more profitable from the others,” Vaudrey says. “As far as regions go, [capitation] seems to be a big reason of what’s going on there.”

The AMGA survey included 44,200 healthcare providers, including 116 specialties, 27 other healthcare provider positions, and 17 administrative positions.