In order to ensure that a physician practice performs well financially and operationally, one aspect that must be considered is the compensation methodology chosen to pay the physician. This methodology could be based on financial factors such as revenue or net income produced. Alternatively, the model could be based on productivity or quality/patient satisfaction of some combination of the above. This following assignment will involve you taking a closer look at these methodologies and determining which you believe is best among the choices given. Although there is not necessarily one correct answer, finding the methodology that fits best for the physicians is very important in ensuring best or desired performance by the physician.

Then, prepare a case briefing in which you answer the following questions:

1. 1. Review physician compensation under each of the four compensation systems described above. Briefly describe to a colleague unfamiliar with these methods how each works.
2. 2. Identify the strengths and weaknesses of each model.
3. 3. Recommend the system that you believe is best for Bangor Family Physicians. In addition, discuss why managing a physician practice and maintaining the appropriate amount of productivity can be a significant challenge for any organization or group of individuals.

Your paper should not exceed 500 words.

CASE 11 8/3/05 Instructor Version Copyright 2006 by FACHE BANGOR FAMILY PHYSICIANS Pay for Performance This case requires the development of a physician compensation scheme for a four-physician family practice. The model uses historical data for inputs along with information regarding the amount and type of compensation to be based on performance and how performance is measured. The model consists of a complete "base case" analysis--no changes need to be made to the existing MODEL-GENERATED DATA section. However, some values in the student version INPUT DATA section have been replaced with zeros. Thus, students must determine the appropriate input value and enter them into the cells colored red. When this is done, any error cells will be corrected and the base case solution will appear. Note that the model does not contain any risk analyses, so students will have to create their own if required by the case. Furthermore, students must create their own graphics (charts) as needed to present their results. INPUT DATA: KEY OUTPUT: Compensation System Parameters: Physician Compensation: Total amount in base pay $300,000 Total amount in performance plan Total amount in profit distribution Multiple Factor Distribution: Percentage based on financial performance Percentage based on noneconomic factors Based On A B C D Total 300,000 Net revenue $177,509 $174,010 $177,443 $191,039 $720,000 120,000 Work RVUs ### 174,436 180,208 186,457 178,899 720,000 $720,000 Net income ### Mult. factors* 179,620 180,929 165,304 192,865 170,005 174,817 205,071 171,388 720,000 50% 50% 100% 720,000 *Multiple factors plan includes non-economic factors plus work RVUs Historical Physician Data: # Patients # RVUs Professional procedures Gross charges Net collections Total support staff cost Total facilities costs Total supplies cost Revenue reinvested in practice Physician base compensation A 4,023 4,667 6,255 $527,820 $422,256 Physician Identifier B C 3,567 3,966 5,055 5,475 6,972 7,287 $535,841 $602,675 $401,881 $421,872 D 4,244 4,967 6,742 $576,312 $501,050 Total 15,800 20,164 27,256 $2,242,648 $1,747,059 $522,388 $298,351 $136,257 $78,892 $600,000 Historical Support Staff Data: Practice Manager Receptionist Nurses Medical assistants Billing clerk Laboratory technician Other costs Total Number of Employee s 1 2 4 2 2 1 Total Compensation $75,168 48,652 175,264 52,615 62,165 46,788 61,736 $522,388 Non-Economic Data: A Average patient satisfaction score Number of committee meetings Continuing education credits Professional assn. leadership MODEL-GENERATED DATA: B 91 12 15 1 182 C 93 16 12 2 221 D 90 8 10 0 128 87 4 18 0 130 Total 361 40 55 3 661 Notes: (1) The RVUs listed are work RVUs, which are only one of the three component RVUs used in Medicare physician reimbursement. (2) Over the past five years, the average annual amount reinvested in the preactice was $80,000. (3) In 2005, each physician received a bonus of approximately $28,000. Compensation Based on Net Collections (Revenue) Net collections Proportion of revenues A $422,256 24.2% Physician Identifier B C $401,881 $421,872 23.0% 24.1% D $501,050 28.7% Total $1,747,059 100.0% Performance compensation Base pay Profit distribution Total compensation $72,509 75,000 30,000 $177,509 $69,010## 75,000 ### 30,000 ### $174,010 $72,443## 75,000 ### 30,000 ### $177,443 $86,039 75,000 30,000 $191,039 $300,000 300,000 120,000 $720,000 5,055 25.1% 5,475 27.2% 4,967 24.6% 20,164 100.0% $69,436 75,000 30,000 $174,436 $75,208## 75,000 ### 30,000 ### $180,208 $81,457## 75,000 ### 30,000 ### $186,457 $73,899 75,000 30,000 $178,899 $300,000 300,000 120,000 $720,000 $422,256 119,883 74,588 31,270 $196,515 $401,881 133,625 74,588 34,854 $158,814 $421,872 139,663 74,588 36,429 $171,193 $501,050 129,217 74,588 33,704 $263,541 $1,747,059 522,388 298,351 136,257 $790,063 24.9% 20.1% 21.7% 33.4% 100.0% $60,304## 75,000 ### 30,000 ### $165,304 $65,005## 75,000 ### 30,000 ### $170,005 $100,071 75,000 30,000 $205,071 $300,000 300,000 120,000 $720,000 Total should equal $300,000 Total should equal $300,000 Total should equal $120,000 Total should equal $720,000 Compensation Based on Work RVUs Work RVUs Proportion of revenues Performance compensation Base pay Profit distribution Total compensation 4,667 23.1% Total should equal $300,000 Total should equal $300,000 Total should equal $120,000 Total should equal $720,000 Compensation Based on Net Income Net collections Support staff allocation Facilities allocation Supplies allocation Net income Proportion of net income Performance compensation Base pay Profit distribution Total compensation $74,620 75,000 30,000 $179,620 Total should equal $300,000 Total should equal $300,000 Total should equal $120,000 Total should equal $720,000 Compensation Based on Multiple Factors Base pay Profit distribution Noneconomic compensation Based on net collections Total compensation $75,000 30,000 41,212 36,254 $182,466 $75,000 30,000 50,261 34,505 $189,766 $75,000 30,000 29,088 36,221 $170,309 $75,000 30,000 29,439 43,019 $177,458 $300,000 120,000 150,000 150,000 $720,000 Base pay Profit distribution Noneconomic compensation Based on work RVUs Total compensation $75,000 30,000 41,212 34,718 $180,929 $75,000 30,000 50,261 37,604 $192,865 $75,000 30,000 29,088 40,729 $174,817 $75,000 30,000 29,439 36,950 $171,388 $300,000 120,000 150,000 150,000 $720,000 Base pay Profit distribution Noneconomic compensation Based on net income Total compensation $75,000 30,000 41,212 37,310 $183,522 $75,000 30,000 50,261 30,152 $185,413 $75,000 30,000 29,088 32,502 $166,591 $75,000 30,000 29,439 50,035 $184,474 $300,000 120,000 150,000 150,000 $720,000 Note: The model gives equal weight to each of the three non-economic factors. END Bangor Family Case Podcast Transcript Speaker 1: Welcome to the podcast for the Bangor Family Physicians case. In this case, you're asked to evaluate four different methodologies that are used to calculate physician compensation for the Bangor Family Physicians, the revenue model, the net income model, the base salary plus productivity model, and the multiple factor performance model. The calculations under this model have been given to you on blackboard. You're asked to review the compensation under each of these systems and initially describe briefly to a colleague who may be unfamiliar with these methods how each works. Then identify what you believe are the strengths or weaknesses of each of these models. Finally, and probably the key aspect of the case is to give your own thoughts backed up with rationale from within the case and your own experience what you think is the best model to be used and why. This may vary depending on the circumstances in the individual cases. You're asked to use the Bangor Family Physician's case in this instance to determine which would be the best model. Finally, you're asked to discuss why managing a physician practice and maintaining the appropriate amount of productivity could be a significant challenge for any organization. Keep in mind especially the changes that are already underway and forth coming under health care reform. There is not necessarily one correct method or approach in this case. We'll be looking more at your rationale for the system you select or the model you select and why it may be appropriate not only for the short term, but the long term. 1