Illinois hospital group grows steadily, pays by production

Physician Compensation Report, Dec, 2003

SwedishAmerican Health System, based in Rockford, Ill., has grown its 19-site, five-county medical group from 35 to 120 doctors over the last eight years through a combination of hiring physicians, acquiring practices and adding sites, says Don Daniels, vice president of medical group clinic management.

The group has reached 70 primary care physicians mainly through hiring, Daniels says. It looks for doctors with solid educational credentials and good communications skills in order to retain its patient base in a competitive market. While direct marketing plans are limited, the group's efforts are aimed at "trying to sell the doctor," he notes. For instance, it has offered heart risk screenings at sharply reduced cost--and requires the patient to get his or her results in a face-to-face meeting with a doctor. It also advertises newly hired physicians, but Daniels says, "That's not a major driver, but it makes the doctor feel better" to be recognized as part of the care team when joining the group.

Aiding the group's growth, says Daniels, has been steady expansion of population in the Rockford area, which is now up to about 350,000. The group tries to hire when there already is unmet demand in the practice site where the physician will work, he adds.

The group's 50 specialists include eight ob/gyns; cardiologists; hematologist/oncologists; dermatologists; allergists; general, vascular and ENT surgeons; anesthesiologists; radiologists; and a pediatric gastroenterologist. It has acquired specialty practices from both retiring and practicing doctors, and has hired some specialists.

SwedishAmerican Hospital in Rockford has 300 beds. The hospital pulls in roughly 75% of the health system's revenues, and the medical group pulls in the other 25%. The health system also has home care, durable medical equipment, and a reference or full-service lab.

PCPs Have Pure Production Pay

The group pays PCPs simply by a dollar rate per work RVU. The rate varies from doctor to doctor and has several determinants, says Daniels.

First, the rate is designed to produce income somewhat above the benchmark income for the physician's benchmark percentile of production (using MGMA data). For instance, a median producer for his or her specialty should earn within 10% of the median income for that specialty, with a bias usually on the higher side. The group usually pays above the level corresponding to the doctor's production benchmark partly to be competitive and partly because the physicians do not receive ancillary-service income, he explains. The health system retains ancillary income.

Second, the rate rises as the physician's production benchmark rises. This fairly limited adjustment is justified because medical practices have substantial fixed overhead per physician, and revenues above that level are quite profitable for the group, says Daniels.

Third, every PCP's pay rate per work RVU is adjusted every six months (in June and December) in accordance with the practice-wide ratio of collections to work RVUs. These adjustments cannot change pay rates more than 5% up or down each year.

Most of the PCPs produce and earn from the 50th to the 75th percentile on MGMA scales, Daniels says, "and a few [PCPs] are way up there" in production and pay levels.

The group uses this "pure production" measure of pay rather than subtracting costs for each PCP to arrive at a pay figure because the expenses of allocating costs among PCPs would be prohibitive, he says. "What little you gain [in cost-control incentives], you lose in cost-accounting expenses," he explains.

Specialists Are Top Producers

The group does allocate costs to set pay for its specialists, Daniels says. The production is each physician's net revenues. Then his or her direct expenses, including nursing, malpractice insurance premiums, medical supplies and benefits, are subtracted. Finally, benchmark levels of all other expenses, taken from the MGMA Cost Survey, also are subtracted to get the pay figure.

Most of the group's specialists produce revenues between the 75th and 90th percentiles for their specialties and have pay levels well above medians, he notes.

The group generally has been a successful recruiter in a wide variety of specialties, says Daniels, but just in the last three or four months, Illinois' relatively high malpractice premium rates are starting to affect physician retention in Rockford. Two neurosurgeons recently left the town and state. A few of the group's physicians are starting to question whether they will stay in Illinois, he adds. Because the problem is of such recent origin, the health system has not yet developed a strategy to address it.

Contact Daniels at (815) 966-2084 or ddaniels@swedishamerican.org.