It’s Complicated: The Exceptional New Challenges Facing Physician Compensation Managers - Part 2

U.S. healthcare organizations have experienced many shocks this past year and a half, beginning with the onset of COVID in early 2020 followed by major changes to the Medicare Physician Fee Schedule (MPFS) for 2021. The resulting market dynamics present some complex issues for managers of physician compensation plans. This series explores some of the key topics.

Part 1 of the series focused on how Medicare’s revaluation of office visit services for 2021 substantially increased the work relative value units (wRVUs) being generated by physicians in certain specialties, a shift with significant implications for provider compensation and reimbursement.

COVID-19’s Disruption to Healthcare Services

On January 21, 2020, the U.S. confirmed its first COVID-19 case; however, it took until mid-March for the transmission rates to reach the exponential growth levels that would prompt widespread concern. With unprecedented speed and scale, businesses curtailed or entirely suspended in-person operations to slow the virus’s spread. Healthcare organizations were forced to drastically pivot from business-as-usual into a continuous risk-assessment mode.

Many health systems and providers chose to temporarily limit or modify the clinical services they provided. The extent of policies implemented varied widely, from simple risk-reduction steps, such as requiring mask use, to more disruptive measures like a shift to telemedicine, postponement of elective care, and total facility closure. The duration of restrictions also varied significantly by region, with some communities experiencing very little impact, particularly those with low case volumes, while others endured widespread limitations for months-long stretches, such as in New York where the governor mandated broad restrictions by executive order.

Volatility for Physician wRVU Production and Collections in 2020

Temporary facility closures or restrictions on certain types of non-emergent care seriously impacted the services many physicians were able or willing to provide in 2020. Patient hesitancy to seek care simultaneously reduced demand, as patients chose to postpone or avoid treatment. Even with the increased use of telehealth to replace some visits, many physicians had severely reduced production levels.

Based on the Medical Group Management Association’s (MGMA) DataDive Provider Compensation dataset, in 2020 more than half (55%) of the reported specialties saw median annual wRVU production decreases of over 10% compared to the prior year. One in four specialties (26%) saw a median wRVU decrease of more than 15%. Across all specialties, median wRVUs decreased by 10.3% on a weighted average basis (based on the number of specialty respondents). American Medical Group Association’s (AMGA) 2021 Medical Group Compensation and Productivity Survey revealed similar results, with annual productivity in 2020 declining by 10.17% across all specialties.

Professional collections also showed significant declines in 2020. Based on the MGMA data, nearly half (44%) of specialties had a decrease of more than 10% in median professional collections, and one in three (32%) specialties had a decrease that was more than 15%. Across all specialties, median professional collections decreased by 7.1% on a weighted average basis.

To understand the impact of COVID-19, MGMA also collected monthly production data from a subset of respondents to its annual survey. In MGMA’s 2020 Monthly Survey Report, the steep declines in wRVU levels were shown to have occurred almost entirely in the months of March, April, and May. From that point on, production returned to more normal levels, with generally minor fluctuations seen after June. Of course, these trends only represent the reported mid-range experiences for physicians in broad specialty groupings; greater variation is known to have occurred among different specialties and markets.

Stability for Physician Compensation in 2020

A common assumption was that the survey information for 2020 would largely show decreases in physicians’ annual earnings. However, despite the steep production losses reflected in the benchmarks, reported compensation levels remained surprisingly steady. According to the 2020 MGMA data, the weighted average increase in median compensation was 0.8%. The AMGA survey found that overall physician compensation increased by 0.12% in 2020. Other benchmark sources have reported similar findings, indicating a level of steadiness in physician earnings that surprised many given the severity of the operational and financial challenges providers faced during such a tumultuous year. Many healthcare organizations — particularly health systems and hospitals — shielded providers from much of the financial impact of COVID-19 by adjusting compensation formulas; this decision is believed to be one of the main sources of this stability. Other subsidization was provided through various federal programs such as the CARES Act Provider Relief Fund and the Paycheck Protection Program (PPP).

COVID-19 in 2021

Confirming widespread anecdotal accounts, recent studies have indicated that physician services and revenues increased significantly in the first half of 2021, particularly in the second quarter. A KaufmanHall study of nearly 100,000 employed providers showed that median wRVUs per physician increased by 10.6% from Q1 to Q2.[1] The sharpest increases were in the surgical specialties, where median wRVUs in Q2 2021 rose to above pre-pandemic levels as many patients finally began to seek delayed treatment. However, the latest spike in COVID cases beginning in July 2021 has caused some healthcare facilities in different parts of the country to once again halt elective procedures and other types of care as they focus resources on treating COVID patients. Although in many ways this can feel like a rerun of last year, several key differences are expected to prevent the production losses for physicians from being as widespread in 2021. Experts now have a considerably improved understanding of the virus’s transmission methods and the effectiveness of various safety precautions. Also — and arguably most importantly — there is now broad access to vaccines proven to be highly effective in reducing the spread and level of harm of the virus. These differences mean that protective measures can now be implemented on a more targeted, situation-specific basis, allowing providers and patients to mitigate risk more effectively without foregoing care. The limitations on physician services and productivity will hopefully continue to diminish as vaccination rates climb.

The single-year (or even single-quarter) double-digit shifts in physician productivity information over the last year and a half reflect relatively extreme market conditions. In the next installment of this series, we will explore what these complications mean for the users of physician survey data.

[1] https://www.kaufmanhall.com/insights/research-report/physician-flash-report-august-2021