RIP for the RVU? Transitioning from Widget-Based Production to Impactful Performance

Disruptive. An apt description of the impact certain relatively new start-up companies have had on many long-tenured industries in the United States. With one or two clicks on a smartphone, companies such as Uber, Lyft, and Airbnb have replaced waiting in lines or paying exorbitant rates for old travel mainstays such as taxis and hotels.

Those of us who have spent the majority of our professional careers in healthcare are now using this same adjective in another context: to describe the likely impact of the Centers for Medicare and Medicaid Services (CMS) changes to the 2021 resource-based relative value scale (RBRVS) schedule.

In the December 1, 2020, issue of the Weekly Digest Bulletin,(1) CMS announced that it is prioritizing its investment in primary care and chronic disease management by increasing payments to physicians and other practitioners for the additional time they spend with patients.

In summary, the initiative recognizes the impact of increased responsibilities incurred by physicians during the past few years resulting from burdensome electronic medical record (EMR) workflows, hierarchical condition category (HCC) coding, and other regulatory or compliance-driven demands. As a result, significant changes to evaluation and management (E&M) coding weights are being implemented, some in the range of 25 percent over the previous year’s values. (The complete final rule can be found at www.cms.gov/files/document/12120-pfs-final-rule.pdf ). Examples of the basic E&M visit code changes are included in Table 1.

With CMS’s significant changes to the basic new and patient visit codes, a concomitant disruption in other CPT code weights will transpire, causing a vast swing in work relative value unit (wRVU) values across medical specialties.

In a 2020 whitepaper,(2) SullivanCotter reviewed 100 specialties for the potential impact of CMS’s proposed changes. Of these specialties, 46 percent of specialty-specific wRVU benchmarks will increase between 3 percent and 11 percent. An additional 25 percent of specialties may be affected by proposed changes greater than 11 percent. A general representation of these proposed changes is included in Table 2.

Obviously, wRVU value changes of this magnitude will have a material impact on future physician productivity targets and, as a result, future physician compensation driven by wRVU productivity.

A Brief History of Physician Compensation

Health professionals over the age of 50 likely remember when the majority of physician practices were private practices, frequently described as “Mom and Pop” businesses. The algorithm for physician compensation in those historic practice arrangements was simple: Total revenue minus total expenses equaled a physician’s take-home compensation.

Then, the environment changed. The advent of HMOs, increasing malpractice rates and regulatory requirements, rising staff and operational costs, and continued downward pressure of payer reimbursement rates led physicians to seek other practice models.

Some joined large independent medical groups, augmenting their incomes by successfully managing large books of risk in the managed care environment or by adding significant ancillary services to their practices in the fee-for-service environment. Many physicians turned to hospitals to acquire their practices to relieve them of increasing practice management demands accompanied by growing concerns over reduced compensation. New to the dynamics of physician practices, hospitals offered robust purchase prices for these practices, moved the physicians to costly new medical facilities, and guaranteed high salaries. Unfortunately, many of these inflated compensation agreements were executed without adequate expectations for productivity.

From 2012 to 2018, hospital ownership of physician practices rose almost 128 percent.(4) With the mounting losses associated with these acquisitions (although some would argue these losses were more than offset by hospital downstream revenue), some hospital systems began divesting physician practices.

Furthermore, a significant number of health systems began employing wRVU-based compensation plans in an effort to more closely tie compensation to productivity (as measured by wRVUs). This move appeared to work, as most survey instruments showed increasing wRVU productivity benchmarks for most specialties during recent years.

In spite of this phenomena, because of a multifaceted disconnect between wRVU production increases and concomitant net revenue increases, hospital losses from owning physician practices continued to mount. According to 2020 MGMA benchmarks based on 2019 data, the median yearly net loss for a full-time internist ranged from $167,221 in the Midwest region to $209,041 in the Southern region.(5)

It has become apparent over the years that health systems’ focus on wRVU productivity has resulted in myriad unintended consequences, including the creation of internal competition in physician-to-physician and physician-to-advanced practice provider relationships where it didn’t previously exist.

Since procedures generate more wRVUs than consultations, patient access to basic consultations became more challenging. Whenever there was a question about a patient’s condition, the default action was to bring the patient to the office to be seen. At the time, a provider couldn’t generate any wRVUs by providing care over the telephone. Obviously, this phenomenon is counter to the discipline required to make value-based economics work.

Just as the telegraph became obsolete after the invention of the telephone, the authors believe that these announced changes to CMS values for wRVUs finally provide the burning platform needed for the permanent retirement of wRVUs as a measure of physician productivity. Reasons include:

• wRVUs have no bearing on good clinical outcomes, team care, or population health.

• wRVUs do not align with non-fee-for-service payment models. Producing more widgets usually has a negative impact on both patient care and the medical loss ratio associated with risk-based payer contracts.

• The internal strife created by wRVU competition can result in a poor organizational culture.

• wRVUs aren’t designed to take quality and patient satisfaction into consideration.

• wRVUs don’t reflect supervision and collaboration with advanced practice providers or trainees in an educational institution.

• wRVU target accuracy depends on survey data accuracy. Unfortunately, all surveys are flawed to some extent; there is no such thing as perfect self-reported data.

The Moral Hazard of WRVUS

According to health economists, “moral hazard” refers to the extra healthcare services that one seeks when the costs of the care are offset or lowered substantially by insurance.(6) In many ways, the ratio of wRVUs to procedures — specifically higher wRVU values assigned to higher levels of care (99214 versus 99212) — presents an inherent moral hazard for physicians to perform more or higher-complexity services, irrespective of a best practice clinical need. This is especially true if higher wRVU counts drive higher levels of compensation vis-à-vis productivity-based compensation plans.

Ironically, recent research has shown that widget-based compensation methodologies are actually a demotivator for highly cognitive professions. In his book Drive: The Surprising Truth About What Motivates Us,(7) author Daniel Pink quotes an MIT study that found that as long as tasks are purely mechanical (non-cognitive), monetary rewards based on widgets (e.g., wRVUs) work well. But once the task requires cognitive skills (conceptual, creative thinking, clinical decision-making), the potential for larger rewards for more widgets actually results in poorer performance.

Obviously, if people aren’t paid a livable wage for the work value they believe they bring, they most likely won’t be appropriately motivated. Conversely, if people are paid what they perceive to be a fair wage, nonmonetary factors will drive performance (and job satisfaction).

Drive focuses on three such factors:

1. Autonomy (one’s desire to be self-directed).

2. Mastery (one’s desire to become more skillful at accomplishing certain tasks).

3. Purpose (one’s feeling that they are making a contribution).

In many aspects, this concept goes counter to traditional managerial thinking that promotes compliance. According to Pink, however, if one wants engagement, then self-direction/autonomy appears to be a better motivator.(7)

Could the escalating turnover rates of today’s physicians be proof that traditional thinking and its traditional reward systems aren’t working? A comprehensive literature review cites turnover rates in various parts of the country, some as high as 28 percent per year for employed physicians. A recent Merritt Hawkins study found that 46 percent of the physicians surveyed planned to leave their current position within the next three years.(8)

Isolating the profit motive from the purpose motive may lead to negative consequences such as poor ethics, inadequate customer service, and a serious lack of motivation (i.e., this is a bad place to work). An AMA study in 2019 found that the number of employed physicians now significantly exceeds the number who own their practices.(9) Older physicians (age 55 and older) are more likely to own their own practices (54.3 percent). By comparison, among physicians age 40 and younger, only 25.5 percent own their own practices.

One can conclude from these data that organizations must become better employers of physicians if they aspire to reduce physician turnover and increase physician engagement. This will require that organizations develop reward systems that differ from those currently in place — systems that build culture, create a positive working environment, and result in a purpose-driven work force.

On September 17, 2019, the U.S. Court of Appeals for the Third Circuit issued a decision that has the potential to send even more shockwaves throughout the healthcare industry. The court acknowledged that an employed surgeon’s compensation that is based on the surgeon’s wRVU production could violate healthcare fraud and abuse laws if certain factors are present.(10) Should laws change (as they did in prior years concerning profit-sharing with physicians), organizations must be prepared to rapidly implement new models.

Redefining Productivity

If the healthcare industry sunsets the wRVU-based compensation model, what methodology should take its place? The authors suggest that successful replacement models should:

• Align providers’ focus with what matters most to their patients: access, cost and quality. Reward providers for templates that allow patients to get care where, when, and in the manner(s) preferred by patients, at the lowest cost, and with the highest quality available. Naysayers in the healthcare industry predicted that retail health start-ups would quickly disappear. Instead, retail options for patients, such as Sam’s Club, continue to expand exponentially. For a small monthly subscription fee and a $1 copay per visit, members can access a provider 24 hours a day using an app-based platform.(11)

• Align providers’ efforts with what matters most to integrated delivery systems, such as desirable strategic growth, increased market share, improved quality scores, reduced costs, and a desirable workplace with minimal turnover.

• Align providers’ efforts with what matters to payers, such as better clinical outcomes and clinically appropriate referrals and testing.

• Align providers with care team members and colleagues in an effort to reduce physician burnout and retention issues. Current reimbursement systems make it difficult to utilize lower-cost personnel to work at top of their license. Often times, advanced practice providers and physicians are in competition for the same wRVUs if both groups of providers are compensated through a productivity-based compensation system.

• Reward providers similarly to how the healthcare industry rewards its executives.

Contrasting Physician Compensation With Executive Compensation

In today’s healthcare environment, healthcare executives usually are paid both fixed and variable compensation based on certain accomplishments. They aren’t incentivized by piecemeal tasks such as working longer hours, sending or responding to more emails, or conducting more meetings. Common characteristics associated with compensation for today’s healthcare executives include:

• Outcomes that are measured institutionally, not individually.

• Variable pay that is significant (40 percent to 50 percent of base pay) and is based on individual, team, and organizational results. Rewards usually aren’t given for pitting one executive against another on the same team or moving money between buckets. Financial resources need to be available at an institutional level before being distributed at the individual level.

• Minimum time taken listing the tasks that were completed on a daily, weekly, or even monthly basis (unlike wRVUs). Rewards are tied to longitudinal performance.

• Recognition of executives for building and/or mentoring great teams when they achieve higher levels of performance. With the wrong incentives, physicians have been known to be abusive to their professional colleagues, patients, and supporting clinical or administrative staff while being simultaneously rewarded for achieving or exceeding wRVU metrics.

• Lack of job security if the executive doesn’t perform. This is not common practice as it relates to physicians. In an effort to improve performance, a health system or medical group may drop physician compensation by a certain amount to attempt to correct less-than-desirable behavior. Unfortunately, many health systems or medical groups allow under-performing physicians to continue having a negative impact on the organization for an inappropriate number of years. If the overseeing board of directors is doing its job, this rarely is the case with healthcare executives. Many boards see one bad year of performance as a serious red flag and two bad years as an unacceptable trend.

A Better Model

In 2017, the American Hospital Association published a sample CEO performance appraisal process and assessment form.(12) Many healthcare institutions have found it to be an excellent tool for assessing the overall performance of a healthcare executive. For healthcare CEOs, the tool assesses essential CEO accountabilities included in the following areas:

• Quality and patient safety

• Financial performance

• Medical staff relations

• Community health and partnership

• Strategic development

• Board relations

• Leadership and culture

• Leadership team relations and development

• Health advocacy and fundraising

The American Hospital Association template goes a step further in providing ways in which to assess a CEO’s personal attributes and leadership qualities. These include:

• Serving as a change agent

• Risk-taking and problem-solving

• Continuous leadership improvement

• System thinking

• Partnership focus

• Communication

• Ethics

If these attributes matter for CEOs and their leadership teams, why shouldn’t a compatible list be used to evaluate and reward physician performance? Applying healthcare executive performance criteria to physicians in a complimentary way might include those listed in Table 3.

The items listed in Table 3 are drastically different from those seen in many production-based provider compensation methodologies today. When physicians are regularly evaluated, it is primarily for individual productivity with some quality metrics thrown in for good measure. There is little evidence of alignment in the definition of performance (and therefore success) across an institution.

Evaluating physician performance in a manner compatible with executive performance aligns all key players with the organizational mission, vision, and strategy. It builds trust, teamwork, and common purpose, ultimately resulting in a successful, stable, high-performing organization — a place where employees want to work and patients want to receive care.

Does Productivity Matter?

The authors are not suggesting that productivity doesn’t matter; rather, we believe that individual wRVUs are an outdated model of gauging productivity. We believe productivity is a byproduct of great performance. When physicians maintain scheduling templates that improve access, productivity improves. When physicians begin OR cases on time, productivity improves. When physicians value the contribution of teammates such as nurses, case workers, medical assistants, and receptionists, productivity improves. Productivity becomes the end product of an engaged, motivated work force, not a carrot or, worse yet, a stick.

Financial resources are substantially constrained for most organizations in this era of COVID-19. Sometimes, wRVU-related payouts are small, resulting in rewards that aren’t meaningful and, as a result, are actually demotivators. As demonstrated in Daniel Pink’s book, nonmonetary motivators have a more lasting effect on a healthy organization than monetary bonuses that are quickly forgotten (and may even become entitlements that do little to build organizational culture).

Conclusion

It is easy to understand and maybe even desire the comfort, simplicity, and objectiveness of counting widgets and rewarding physicians accordingly; however, history shows that being comfortable is rarely equated with outstanding performance. Instead, the healthcare industry should aspire to be as receptive to the idea of rehabilitation as we expect our patients to be.

In this case, rehabilitation may include:

• Redefining productivity. Avoid tracking and rewarding productivity on an individual basis. Rather, find meaningful ways to measure a redefined version of productivity at an institutional level. Start by measuring it for clinical teams as a unit.

• Defining performance in a way that is aligned with health care executive performance including being successfully impactful on institutional mission, vision and strategy.

• Taking timely action when physicians are not performing.

• Making rewards meaningful. Aspire to provide non-monetary rewards such as autonomy, mastery, and purpose.

• Creating a positive culture. Measure success in terms of high morale and meaningful productivity.

Don’t count widgets. Rather, aspire to create an environment that creates a good place to work and, as a result, facilitates the retention of a health system’s best and brightest human assets.

References

1. Centers for Medicare & Medicaid Services (CMS). Weekly Digest Bulletin, Special Edition, December 1, 2020.

2. SullivanCotter. 2021 Evaluation and Management CPT Codes: Understanding the Impact on Physician Compensation. SullivanCotter; 2020.

3. SullivanCotter. 2019 SullivanCotter Large Clinic® CPT Benchmark Study. SullivanCotter.

4. Avalere Health and the Physicians Advocacy Institute (PAI). Joint Press Release. February 21, 2019.

5. 2020 MGMA benchmarks based on 2019 data: median yearly net loss by specialty.

6. Favreault M, Gleckman H, Johnson RW. Financing Long-Term Services and Supports: Options Reflect Trade-Offs for Older Americans and Federal Spending. Health Aff. 34(12). www.healthaffairs.org/doi/10.1377/hlthaff.2015.1226

7. Pink DH. Drive: The Surprising Truth about What Motivates Us. New York: Riverhead Books; 2011.

8. The Physicians Foundation. 2018 Survey of America’s Physicians: Practice Patterns and Perspectives. www.merritthawkins.com/uploadedFiles/MerrittHawkins/Content/Pdf/MerrittHawkins_PhysiciansFoundation_Survey2018.pdf

9. American Medical Association. Employed Physicians Outnumber Self-Employed. Press Release, May 6, 2019. www.ama-assn.org/press-center/press-releases/employed-physicians-outnumber-self-employed

10. Carr, JD, Milliron, MJ. Appellate Court Decision Casts Shadow on WRVU-Based Compensation Plans. FMVantage Point. 2019. https://healthcareappraisers.com/wp-content/uploads/2019/10/FMVantagePoint_APPELLATE-COURT-DECISION-CASTS-SHADOW-ON-WRVU-BASED-COMPENSATION-PLANS.pdf

11. Dyrda L. Sam’s Club Launches $1 Telehealth Visits for Members: 7 Details. Becker’s Hospital Review (online). September 22, 2020.

12. American Hospital Association. Sample Chief Executive Officer Performance Appraisal Process and Assessment Form. American Hospital Association. https://trustees.aha.org/sites/default/files/