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					                               REPORT OF THE COUNCIL ON MEDICAL SERVICE


                                                                                                        CMS Report 6 - I-99
                                                                                                          (December 1999)

     Subject:            Physician Performance Productivity Measurement

     Presented by:       Eugene Ogrod, MD, Chair

     ----------------------------------------------------------------------------------------------------------------------

 1   The Council on Medical Service (CMS) previously examined the issue of physician performance
 2   measurement in CMS Report J (A-93). That report summarized the potential applications of
 3   physician profiling, discussed current issues and experiences in profiling, and established a series
 4   of principles to guide the development and use of physician profiles (Policies H-406.993 and
 5   H-406.994, AMA Policy Compendium). The Council also studied the issue of financial incentives
 6   utilized in the management of medical care in CMS Report 3 (I-96). That report described the
 7   primary types of financial incentives, presented recent data on the prevalence of such incentives,
 8   summarized relevant AMA policy, and established a series of principles to guide the use of
 9   financial incentives in the management of medical care (Policy H-285.951). In addition, CMS
10   Report 8 (I-99), which is before the House of Delegates at this meeting, examines the impact of
11   physician assumption of financial risk.
12
13   The potential applications of physician productivity measures have expanded in recent years. A
14   1997 survey by the American Medical Group Association (AMGA) revealed that 84% of clinics
15   surveyed used productivity as part of their physician compensation program. Survey data from the
16   Medical Group Management Association (MGMA) also reveal that the percentage of medical
17   groups that base between 50% and 100% of established physicians’ incomes on productivity has
18   increased from 47% of medical practices in 1993 to 51% of practices in 1997. Moreover,
19   according to survey data from Medical Economics, productivity formulas account for a higher
20   percentage of doctors’ earnings in western states because the significant managed care presence in
21   those states has resulted in an increased emphasis on physician productivity and efficiency.
22
23   In addition to serving as a method of compensating physicians, productivity measures have been
24   used for physician profiles by practices and health plans to attempt to determine the cost and
25   quality of care, to establish group or individual productivity targets, to balance workloads, to
26   assign over-head expenses, and for cost accounting and resource planning purposes. Whereas
27   productivity at one time meant gross billings based on a standard fee schedule, irrespective of
28   payer, it now has several different meanings in terms of how physician performance is measured.
29
30   This report, which is presented for the information of the House, reviews the available literature on
31   the current status of physician performance productivity measurement, highlights relevant AMA
32   policy, and discusses several factors that should be considered when evaluating the various
33   physician productivity measures available.
34
                                         CMS Rep. 6 - I-99 -- page 2
                                            (December 1999)

 1   CURRENT STATUS OF PHYSICIAN PERFORMANCE PRODUCTIVTY MEASUREMENT
 2
 3   Over time, physicians’ clinical productivity has been measured in a number of ways. Before
 4   managed care became the driving force in medicine, many physicians measured their productivity
 5   by how much they earned. Today, however, capitation -- where a physician or a group of
 6   physicians agree to provide medical care to a group of patients for a rate negotiated in advance --
 7   often undermines the link between payment and productivity. Measuring productivity based on
 8   earnings also tended to favor procedural over cognitive services and reflected the influence of
 9   local fee structures and the effectiveness of collections staff.
10
11   Charges and Collections
12
13   According to 1997 MGMA survey data, 28% of responding medical practices used gross charges
14   to measure physician productivity in their physician compensation methodologies. Critics of this
15   method maintain that most groups will not be able to afford to base physicians’ incomes on
16   billings based on non-discounted fee schedules because, in most markets, payers routinely
17   disregard these schedules. They contend that groups that continue to pay physicians on dollars
18   billed, but for which they have little chance of collecting, run the risk of creating financial
19   problems for their practices. Alternatively, according to the 1997 MGMA survey data, 19% of
20   responding medical practices used net or adjusted charges -- gross billings minus all adjustments,
21   such as amounts that insurers “disallow” and discounts that physicians have agreed to accept -- to
22   measure physician productivity in their physician compensation methodologies. To achieve payer
23   neutrality, and thereby discourage the “cherry picking” of cases, medical groups that base
24   physician productivity on net charges may determine billings by using a uniform fee schedule.
25   However, using net charges as a physician productivity measure fails to credit physicians for
26   uncovered services that they have performed.
27
28   Sixty-two percent of medical practices responding to the MGMA survey reported using net
29   collections -- usually defined as actual collections for professional services plus all other group
30   revenues minus expenses -- to measure physician productivity in their physician compensation
31   methodologies in 1997. Physician productivity can be measured using gross collections as well.
32   Some groups opt for a collections-based structure, viewing collections as “money in the door” and
33   the best measure of the group’s financial picture. However, like net charges, using collections to
34   measure physician productivity fails to credit physicians for uncovered services that they have
35   performed. Collections are also, by definition, not payer-neutral. The amount collected from
36   insurance companies can vary greatly based on different fee schedules or the plan’s covered
37   services. Therefore, the collections-based structure can cause competition among physicians for
38   the patients with health plans paying the most in order to increase productivity. Another potential
39   disadvantage associated with collections as a productivity measure is that collections may vary
40   based on the effectiveness of collections staff.
41
42   Measuring physician productivity using either charges or collections does not necessarily place
43   additional data collection burdens on physicians or other staff. Charges and collections are already
44   compiled for basic business purposes. However, critics maintain that basing physician
45   productivity on charges or collections may encourage overutilization that could eventually
46   jeopardize the group’s standing with managed care organizations. Charges and collections also
47   may reflect the influence of local fee structures, impeding comparisons across practices.
                                         CMS Rep. 6 - I-99 -- page 3
                                            (December 1999)

 1
 2   Number and Duration of Patient Encounters
 3
 4   Ten percent of the medical practices responding to the MGMA survey reported using patient
 5   encounter data to measure physician productivity in their physician compensation methodologies
 6   in 1997. Unlike charges and collections, number of patient encounters is a payer-neutral measure
 7   of productivity. Moreover, office staff can easily track this type of information. However, a clear
 8   benefit exists for having many healthy patients to keep volume high. If one physician in a group
 9   captures the majority of healthy patients, that individual has a distinct advantage over his or her
10   colleagues. Basing physician productivity on the number of patient encounters also may
11   encourage limiting the amount of time spent with any one patient in order to maximize the total
12   number of patients seen. To avoid this, others have suggested using the duration of patient
13   encounters to measure physicians’ productivity. They argue that the duration of the face-to-face
14   encounter with the patient or family is strongly predictive of the total amount of physician work.
15   Like the number of patient encounters, the duration of such encounters is a payer neutral
16   productivity measure. However, this measure may result in overutilization. Moreover, while most
17   hours are easy to count once timesheets are collected, physicians may or may not keep accurate,
18   detailed or consistent time allocation records for direct patient care specifically.
19
20   Patient Panel Size
21
22   According to the 1997 MGMA survey data, 2% of responding medical practices reported using
23   patient panel size to measure physician productivity in their physician compensation
24   methodologies. Medical groups that derive a large share of their incomes from capitation
25   payments may wish to reward physicians based on how many capitated patients they have. While
26   this type of information may be relatively easy to collect, patient panel size alone does not account
27   for services performed, thereby potentially penalizing physicians who may have sicker patients.
28   Moreover, this measure is clearly not payer-neutral in that physicians do not receive credit for their
29   fee-for-service patients. However, this can be overcome by basing physician productivity on total
30   number of patients.
31
32   Relative Value Units
33
34   Fifteen percent of medical practices responding to the MGMA survey used total relative value
35   units (RVUs) to measure physician productivity in their physician compensation methodologies in
36   1997. In 1992, Medicare significantly changed the way it pays for physicians’ services. Instead of
37   basing payments on charges, the federal government established a standardized physician payment
38   schedule based on a resource-based relative value scale (RBRVS). The total RVU, which consists
39   of physician work, practice expense, and professional liability insurance, is multiplied by a
40   monetary conversion factor to calculate Medicare payments. The physician work component
41   accounts, on average, for 55% of the total relative value for each service. The factors used to
42   determine physician work include: the time it takes to perform the service, the technical skill and
43   physical effort involved, the required mental effort and judgement, and stress due to the potential
44   risk to the patient.
45   Work RVUs are updated annually to account for changes in medical practice. The legislation
46   enacting the RBRVS also requires the Health Care Financing Administration (HCFA) to review
47   the entire scale every five years. Annual updates to work RVUs are based on recommendations
                                          CMS Rep. 6 - I-99 -- page 4
                                             (December 1999)

 1   from a committee involving the AMA and national medical specialty societies. The
 2   AMA/Specialty Society RVS Update Committee (RUC) represents the medical profession, with 23
 3   of its 29 members appointed by national medical specialty societies, including those recognized by
 4   the American Board of Medical Specialties, those with a large percentage of physicians in patient
 5   care, and those that account for high percentages of Medicare expenditures. HCFA also sought
 6   assistance from the RUC in the first five-year review of the RBRVS.
 7
 8   The results of the 1998 AMGA survey demonstrate a strong trend toward medical group use of
 9   work RVUs to measure physician productivity. In 1996, a little more than 21% of the responding
10   groups reported using work RVUs, while 34% of the responding groups reported using this
11   measure in 1997. Unlike total RVUs, work RVUs focus exclusively on direct physician-patient
12   care, thereby making this a more accurate gauge of physician work. Work RVUs exist only for
13   codes that have a direct physician-patient care component. Ancillary procedures carry a work
14   RVU of zero. Since becoming resource-based in 1992, work RVUs are generally stable, while
15   total RVUs have fluctuated from year to year, thereby making it more difficult to budget and
16   analyze trends. However, total RVUs will stabilize once both the practice expense and
17   professional liability insurance components of the relative value system are resource-based.
18   HCFA plans to complete the phase-in of the resource-based practice expense and professional
19   liability insurance components by 2002. The RUC, through its Practice Expense Advisory
20   Committee, is developing a work plan to recommend requirements to the newly implemented
21   practice expense rules.
22
23   Total and work RVUs as a measure of physician productivity may lead to overutilization because
24   RVUs increase with the number of procedures and the level of procedural intensity. RVUs also
25   necessitate accurate coding to effectively measure productivity. Despite these potential
26   drawbacks, there are a number of potential advantages associated with using RVUs as a measure
27   of physician work. First, the system itself has a certain amount of risk stratification built into it:
28   sicker patients require more evaluation, which correlates with higher evaluation and management
29   codes. Second, RVUs are payer-neutral, which means that there is no incentive to see patients
30   from one health plan over another. Third, RVUs provide a useful metric that allows for the
31   measurement and comparison of provider utilization and productivity across physicians
32   performing a varied mix of services. Fourth, using RVUs as a productivity measure does not
33   necessarily place additional data collection burdens on physicians or other staff because many
34   practices already use the RBRVS for billing purposes. Fifth, RVU data may assist practices in
35   detecting differences in practice patterns, checking for coding errors, improving cost accounting,
36   determining whether it is efficient to provide certain services, and defending against health plans’
37   profiles of doctors. Plans often base physician bonuses, payment rates, and deselections on data
38   gleaned from the doctor’s claims and, up until now, most groups have had to take the plan’s
39   information on faith.
40
41   Finally, some have proposed using RVUs-to-office-visits as a physician productivity measure. It is
42   argued that this method allows practice managers to learn about their physicians’ coding patterns
43   and detect extremes in these patterns. For example, a very low RVU-to-visit ratio could point to
44   lost revenues resulting from a physician who regularly refers patients elsewhere for treatments and
45   procedures. Likewise, a higher ratio might suggest a case mix with more Medicare patients and
46   hospital cases.
47
                                         CMS Rep. 6 - I-99 -- page 5
                                            (December 1999)

 1   RELEVANT AMA POLICY
 2
 3   As previously noted, Policy H-285.951 states that, within a physician group, individual physician
 4   financial incentives may be related to quality of care, productivity, utilization of services, and
 5   overall performance of the physician group. Policy H-285.982, which provides ethical guidelines
 6   on issues in managed care, states that financial incentives are permissible only if they promote the
 7   cost-effective delivery of health care and not the withholding of medically necessary care. The
 8   AMA also has established a number of policies related to physician performance measurement and
 9   profiling. Policy H-450.994 maintains that accountability should represent a part of every health
10   care delivery system. Policies H-406.994 and H-406.997 outline the principles that should guide
11   the development of physician profiles, while Policies H-406.993 and H-406.996 guide the
12   development, use, and release of physician-specific health care data.
13
14   DISCUSSION
15
16   A review of the literature on the current status of physician performance productivity measurement
17   suggests that there is not one “best” way to measure physicians’ work. Rather, the appropriate
18   method or methods may be determined by a number of factors, including, but not limited to,
19   medical group size, the methods insurers use to base payments to practices, and the goals of an
20   organization. However, the Council believes there are some general principles that should be
21   considered when evaluating various physician productivity measures. First, physicians should
22   view the method or methods used to assess their productivity as being fair-handed in order for the
23   measurement system to succeed. To that end, physicians should play a primary role in the
24   development, adoption, and use of any system designed to measure their productivity. Second, the
25   measurement system should encourage the provision of the appropriate level of care. Efforts to
26   increase physician production should never be at the expense of quality medical treatment. Third,
27   the measurement system should attempt to address both the clinical and non-clinical aspects of
28   physicians’ work. None of the production measures cited in this report account for the non-
29   clinical work physicians may perform, including teaching, conducting research, and participating
30   in professional associations.
31
32   In addition, the ease of collecting and counting production units should be considered before
33   adopting any physician productivity measurement system. No system should be implemented that
34   is so complex that physicians do not understand it or so cumbersome that production cannot be
35   measured accurately. The more complicated the measurement system, the more difficult it may be
36   to motivate physicians to comply with and support this system. A well-defined system also can
37   alleviate suspicions about unfair allocations of practice income because it is usually more easily
38   communicated and understood. A primary objective of any physician productivity measurement
39   system should be to educate the physicians being measured. Physician productivity data have the
40   potential to increase the quality and control the costs of medical care by modifying physician
41   behavior. However, such data should be limited to internal use because physician work is defined
42   differently across practices and each definition has its owns set of consequences associated with it.
43   Specifically, physician productivity data should be used internally to provide physicians with
44   frequent and thoughtful productivity performance feedback. Finally, considerable care should be
45   taken when attempting to measure physicians’ work. Such work is, by its very nature, complex,
46   thereby making it difficult to accurately quantify, and doing so may result in unintended
47   consequences, many of which are outlined in this report.

				
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