Capitated multi group pays MDs for production, satisfaction

Physician Compensation Report, June, 2003

A southern California multispecialty group facing an extremely adverse revenue environment calculates physician compensation based on five criteria--production, utilization management, patient satisfaction, peer review and team play--with most of the pay variance among physicians based on production differences.

Harriman Jones Medical Group, based in Long Beach, Calif., and founded in 1930, has shrunk from about 85 physicians in 1997 to 55 today, says CEO Jim Agronick. The underlying reason for the decline, he explains, is the annual loss for the last several years of 3% to 6% of its capitated commercial and managed Medicare HMO enrollment, the group's bread-and-butter business.

Many other capitation-supported multispecialty groups and independent practice associations in southern California have suffered similar enrollment declines, Agronick says. He attributes these losses to:

* Patients--usually younger, healthier ones--switching to PPOs, which often charge them less for coverage because of their age.

* People losing jobs and health coverage because of problems in the economy.

* Enrollees transferring to Kaiser Permanente, which some people view as more stable.

The practice's Medicare service is profitable; its commercial service is not. Agronick notes that southern California has health care premiums that typically are $10 to $20 below the amounts in most other parts of the country.

The physician-owned group is about 60% primary care, including pediatrics, Agronick says. Its specialties include ob/gyn, cardiology, pulmonology, endocrinology, allergy medicine, mental health, optometry, ophthalmology and anesthesiology.

Agronick says the group has an urgent need to diversify its income. It has an ambulatory surgery center, and outsources labs and radiology to firms that work on its premises. It has a limited fee-for-service business serving PPO patients, and is considering subcontracting with managed Medicaid firms.

Pay Below Benchmark Levels

Agronick lists the five factors in the pay system, and their weights in the calculation, as follows:

(1) Production. Measured by work RVUs, production has a weight of 40%.

(2) Utilization management. With a weight of 37%, UM is judged by the physician's pattern of referrals to other physicians, documented by the group's records and judged by the medical director. Most physicians get all or nearly all the credit for this item. This part of the pay plan reflects that the group shares financial risk for drug, referral physician and hospital use in some of its payer contracts.

(3) Patient satisfaction. With a weight of 10% of the pay pool, satisfaction is measured using an outside firm, Sullivan/Luallin. Physicians in the bottom quarter in satisfaction lose pay that is transferred to those in the top quarter of satisfaction.

(4) Peer review. Most physicians receive the full 10% under this criterion. If a physician "is found negligent or at fault in some way" about a failure in care, Agronick explains, he or she will lose money. This is rare.

(5) Team play. "Group citizenship"--attending meetings and assisting in management decisions--is the basis for the last 3% of compensation.

Because of the underlying revenue problems, most Harriman Jones physicians earn 80% to 85% of the national benchmark averages for their specialties, Agronick says. For instance, most primary care physicians have incomes between $120,000 and $130,000.

Contact Agronick at (562) 988-7294 or jagronick@hjmg.com.