The year 2020 was one characterized as an upheaval across the globe given the impact of Covid-19. The effect of the pandemic on the healthcare industry was particularly notable. Part of the reason is of course the industry’s close proximity to the virus; however, the closures of many office-based businesses (including medical operations) and cancellations on elective procedures during the apex of the crisis resulted in a further impact amongst the healthcare world. While states imposed various mandates across the country, patient reticence also played a role in the decline in healthcare volumes. With tele-health still in its early stages (pre-pandemic), many practices and facilities were ill-equipped to quickly pivot E&M visits to a remote model. Likewise, particularly with medical and surgical specialties, a large volume drop occurred given the temporary ban(s) on elective procedures.
Reacting to the pandemic and the impact on patient volumes, many entities froze compensation for providers during Covid. Particularly for those providers on a production-based compensation model, organizations aimed to mitigate the impact of the pandemic. The simultaneous freezing of compensation to hold providers at pre-pandemic levels along with falling production due to declining patient demand and bans on elective procedures caused a skewed impact on resulting metrics for the year. Specifically, annual metrics for compensation remained relatively steady while annual metrics for production (e.g., work RVUs and collections) declined. The result of these circumstances is a distortion between provider compensation and production data. Of note, when using both compensation and production data for benchmarking purposes, a material change to one of these “input (i.e., annual) metrics” particularly affects the resultant “relational metrics”. For example, in the instance of Covid, when compensation remains level but production declines, the resulting compensation per work RVU shows a notable spike. In addition, other benchmarks such as physician losses may be unduly impacted as a result of Covid due to the same freezes in compensation and a decline in volume and revenue.
As a result of these collective facts, care must be taken in reviewing and utilizing 2021 provider benchmarks for fair market value review, performance evaluation, or other purposes, as they are based on 2020 (i.e., very likely skewed) data. While year over year changes can exist within the surveys, the unprecedented closures and societal impact of Covid-19 created a unique “force-majeure-like” effect on typically reliable benchmark metrics. To-date, MGMA remains the only provider benchmark survey that has released its 2021 survey. While we expect the effect across the 2020 data for other industry surveys to be similar, a high-level review of the MGMA data highlights some preliminary insights. Outlined below is an overview of MGMA’s observations as well as Pinnacle’s initial recommendations and guidance as related to the review and use of the 2021 provider compensation surveys.
Insights from MGMA
As previously mentioned, MGMA remains the only provider benchmark survey that has released its 2021 survey. In conjunction with that release, MGMA published a summary aimed to address the impact of Covid, entitled “Quantifying Covid-19 – Measuring the Pandemic’s Impact on Medical Practices.” The overview summarized MGMA’s collection of monthly data during calendar year (“CY”) 2020 to quantify the impact of Covid. Respondent sample varied from month to month and while there are some interesting observations related to the respondent pool, some overarching themes underscore what the industry recognized from a high-level standpoint. In particular, MGMA highlighted some specific statistics related to declining volume, including the fact that 71% of practices reported a drop in patient volume of 50% or more (by early April 2020) and that work RVUs hit their lowest level in April 2020. MGMA further reports that by June 2020, volumes began to rebound, with nonsurgical specialists reporting the largest decrease and increase, respectively.
In addition to commentary on decreased volume, MGMA’s summary also references the fact that providers’ type of compensation model affected the impact on overall compensation levels (i.e., guaranteed salary vs. production-based models). In addition to the freezes on provider compensation referenced herein (i.e., for practices affiliated with health systems), MGMA also highlights that fact that some provider compensation within medical practices was paid through Paycheck Protection Program (“PPP”) loans, Health and Human Services (“HHS”) stimulus funds, or other government relief efforts. Further, MGMA emphasizes the expense side of the equation, pointing out that the demand for cleaning supplies and personal protective equipment (“PPE”) spiked in 2020, resulting in increased costs during a time when revenue/patient volume was on the decline. This fact further exacerbated the impact on declining resultant collections (i.e., increased operating costs).
Interestingly, MGMA points out that not all the news with medical practices was negative. They report that while PPE costs increased, some practices curtailed spending in other areas and decreased in-person visits to mitigate the impact on rising operating expenses. In addition, MGMA highlighted the fact that many practices addressed declining patient volumes with initiatives that included pivoting to telehealth, revisiting payment and collections policies, and enhancing patient communication through practice website and social media tools. One issue, however, whose impact is yet to be seen in changes to survey data is that MGMA indirectly stresses the overall influence on an already-strained physician supply. Specifically, they report that 28% of healthcare leaders reported unexpected physician retirement in the past year. While that fact may not have a direct influence on 2020 data, the effects of Covid could continue to influence data in years to come.
With regard to its 2021 survey, MGMA has commented that it has not made any adjustments to the 2020 data to account for the pandemic. MGMA specifically stated that it collected and reported on the 2021 surveys (based on 2020 data) in the same manner as previous years. MGMA does, however, state that it recommends referring to both the 2020 MGMA survey and the 2021 MGMA survey for data review purposes.
Pinnacle Guidance & Preliminary Recommendations
While the industry has known there would be some measure of impact to 2020 provider compensation and production data, the issue becomes how to adjust or normalize the information to support compliant arrangements and leadership decision-making. Further complicating matters in addition to the pandemic, changes in the 2021 Medicare Physician Fee Schedule (“MPFS”) on both work RVU values and reimbursement has added additional complexities on go-forward performance projections, contract language, physician expectations, and sustainable arrangements (also refer to https://askphc.com/medicare-physician-fee-schedule-changes-what-now/).
In addition to MGMA’s commentary on the matter, Pinnacle performed a preliminary review of the data to assess year over year and multi-year trends on compensation, production, and resulting relational metrics. This analysis indicates findings consistent with the trends described herein – consistent total/annual compensation with a notable decline in production on both work RVU and collections bases. The result of these dynamics is the predictable outcome on relational metrics – an inordinate spike on the data, such as compensation per work RVU and compensation as a percent of collections. These results reflect the emergency-like status of 2020 given the effects of Covid – while patient volume decline, total compensation was favorably supported (through both health system affiliations and government relief efforts) to promote provider retention and long-term continuity of patient care.
Given the unique status of 2020 as a societal health crisis, the effect on provider data reflects somewhat artificial results. Unless reviewed in isolation (i.e., comparing 2020 production amongst like providers), reliance on 2021 surveys – particularly for relational metrics such as compensation per work RVU – could pose an area of risk. Many health systems are already discussing ways to best address these factors within their organizations. In fact, Pinnacle’s FMV Consulting Guide advisory committee recently discussed the impact to benchmark data, with the advisory committee members largely agreeing that their organizations recognize the impact in methodology review and the need for adjustments in data use and physician discussions. In addition to these and other client discussions, Pinnacle is performing a survey in order to assess the reaction and planning amongst healthcare organizations. Please follow a link to participate in the survey here.
In the interim, Pinnacle would advise prudence in utilizing 2021 provider benchmark surveys. Given the unique circumstances, these resources may not provide adequate stand-alone decision support for application to compensation agreements. Organizations must understand the magnitude of the pandemic and MPFS changes and their impact on physician arrangements. We would advise continued thoughtfulness in communication strategies with physician groups, including rationale for any adjustments, as well as the impact on the industry and efforts to evaluate ongoing compliance. While many factors have changed over the last year, the approach to provider arrangements must continue to be supported by fair market value and commercial reasonableness.
Pinnacle will continue to monitor additional survey resources as they become available and will publish additional insights on an ongoing basis. We will also be publishing the results of the above-mentioned survey and will conduct a webinar as related to the results and the impact to healthcare organizations. Please check back as updates are ongoing in this area of healthcare compliance.
For additional information on this blog, please contact Allison Carty at ACarty@AskPHC.com.