Henry Ford Health System: Four Models of Physician Compensation
In the late 1990s, when most hospitals were exiting the physician ownership game, the Henry Ford Health System (Detroit, Michigan) assumed a radical stance not only by continuing to employ its physicians, but to innovate in the area of physician compensation models. 
Four such models are currently in place, and while he may initially have been taken aback at their components, auto magnate Henry Ford, who founded the institution in 1915, would likely applaud them, says Thomas Nantais, COO of subsidiary Henry Ford Medical Group, in a presentation to attendees of the recent 2012 Congress of the American College of Healthcare Executives in Chicago.
Henry Ford Medical Group is the third-largest group practice in the United States, with approximately 1,400 employed physicians practicing in more than 40 specialties. In 2011, Henry Ford Health System was one of four recipients of the Malcolm Baldrige National Quality Award.
Individual wRVU Model: Productivity Erosion Defense
Nantais calls the first of the four models—introduced in the late 1990s in response to declining productivity—an individual RVU model for primary care. It originally centered on work effort and panel management; for example, a physician with a panel of 2,000 patients would be assumed to generate, and would be paid for, 4,400 clinic visits—regardless of whether he or she had actually managed the same panel for fewer or more visits. Nantais deems this focus “a nice precursor” to the current model, noting that at the time the former was configured, Henry Ford was close to 50% capitated. This has waned over the past several years; hence, the heightened focus on RVUs within the model.
Group wRVU Model: Product Pools, Payroll Dollars
More widely used, however, is the health system’s group RVU model, wherein collective physician performance within a given specialty determines the allocation of compensation monies to individual physicians in that department. Total RVUs for the entire department are multiplied by the rate per RVU, with an incentive pool generated if the “product pool,” as Nantais calls it, exceeds total payroll dollars. Adjustments are made for contribution margins; for instance, when additional staff must be hired in order for a department to generate higher RVUs.
Nantais offers the example of a department with a per-RVU payment rate of $48.25 and a departmental RVU totals of 73,000. In this case, the actual product of the RVUs, multiplied by the payment rate, less a contribution margin adjustment, totaled about $3.4 million; the actual compensation of the department (salaries paid), about $3,055,000. The end-result: an incentive pool of about $345,000 for this period, or about 10.6% of the salaries for the department.
Under this model, Nantais adds, base salary makes up 85% to 90% of physicians’ total cash compensation; incentives, the remainder. Should a physician begin to generate a “huge” volume of incentives, he says, he and his colleagues will “try to reset that,”,but not on what Nantais calls a real drop-of-a-shoe basis. “We want to make sure the trend is legitimate and is long-running before we do that,” he explains. “This works because it creates a significant opportunity for the departments. In most cases, there is some pool generated.”
Gross Contribution Model: Net Revenues, Unit Pools
Somewhat different is Henry Ford’s gross contribution model. Here, compensation hinges on net revenue for fee-for-service, less direct operating expenses. A unit pool is created from this figure, with direct expenses generally tied to a budget or some target of performance over the previous few quarters. The ratio of the expenses to the revenues generates a percentage potential to the departments, Nantais explains.
He once again provides an example, starting with a revenue of $100,000 for a six-month period and direct expenses of $95,000 for a gross income of $5,000, and a $10,000 performance target. In this case, the end-result is a negative pool and a potential for a 5% salary reduction. “We don’t adjust salaries downward on the specialty side all that often,” Nantais asserts. “Primary care is less benevolent for whatever reason; it does take salaries down periodically, but very carefully. In the same model, if this group had been successful at controlling its expenses, reducing them from $95,000 to $67,000, you would get a gross income of $33,000; using the $10,000 target, the salary would have been adjusted upward by a 15% bonus pool.”
Utilization management has yet to be entirely incorporated into this model, although such a refinement will eventually be made.
Quality Incentive Model: Primary Care
Rounding out the list is a quality incentive model for primary care, within which each physician oversees individual RVUs; is paid at a market rate per RVU; takes home a base salary that adds up to 85% of total cash compensation; and is rewarded for productivity, efficiency, and quality of patient care.
In designing this model, Nantais and his colleagues determined that the market served by Henry Ford and the fact that Medicare is its “best payor” dictated a need for physicians to achieve the 65th percentile of productivity in order to generate the 50th percentile of pay.
In addition to patient satisfaction, citizenship—attending meetings and participating in “non-work-effort” departmental activities—and ancillary income, whether from an administrative stipend for running a site, a teaching residence, grant or contract work funded by the organization, or the like, also have a bearing on compensation.
Physicians who do not meet established criteria face pay reductions of up to 5%, potentially every six months. These reductions are not taken until two six-month periods of true performance degradation have occurred, so as not to inadvertently and unjustifiably penalize physicians for such legitimate circumstances as extended, earned overseas vacations. By the same token, two consecutive six-month periods of extreme productivity yield a salary bump. This “rough linking” of compensation to physician performance encourages the elimination of inequities in pay, Nantais points out.
Ancillary Enhancements: High-Flyer Plan
Nantais adds that there exist several ancillary components that enhance the various models and enhance their workability. He cites as an example a “High-Flyer Plan” to which any specialist who generates more than 10,000 RVUs per year is assigned. “The first 10,000 RVUs are part of the departmental RVU plan, but once they go above 10,000, they are actually paid a premium rate per RVU,” Nantais explains.
“And the contribution margin we’ve seen has been phenomenal. These are go-getters [currently, about 20 specialists] who really have a pretty good idea about how to run their practices. They standardize things, and they have good support staff; in fact, we’ll assign support staff to them for throughput. The bottom line has grown tremendously, and patient satisfaction actually is up.”
While all Henry Ford physicians must maintain a set call schedule covered by their salary, they have the freedom to “moonlight” for the system if they so desire. “We will pay extra; however, the standard schedule must be completed first,” Nantais says.
Finally, efforts are being made to manage controllable direct expenses, with the primary care cadre presently working to standardize 27 different items across all sites.
“Right now, all four models are working, and we will continue to refine them; for example, we are now aiming toward moving patient satisfaction from the 5% mark to between 10% and 15%,” Nantais concludes. “We have had doctors leave our practice and go into private practice and come back again six months later saying, ‘It’s a lot tougher out there than it is in here.’”Julie Ritzer Ross is a contributing writer for HealthCXO.
Four such models are currently in place, and while he may initially have been taken aback at their components, auto magnate Henry Ford, who founded the institution in 1915, would likely applaud them, says Thomas Nantais, COO of subsidiary Henry Ford Medical Group, in a presentation to attendees of the recent 2012 Congress of the American College of Healthcare Executives in Chicago.
Henry Ford Medical Group is the third-largest group practice in the United States, with approximately 1,400 employed physicians practicing in more than 40 specialties. In 2011, Henry Ford Health System was one of four recipients of the Malcolm Baldrige National Quality Award.
Individual wRVU Model: Productivity Erosion Defense
Nantais calls the first of the four models—introduced in the late 1990s in response to declining productivity—an individual RVU model for primary care. It originally centered on work effort and panel management; for example, a physician with a panel of 2,000 patients would be assumed to generate, and would be paid for, 4,400 clinic visits—regardless of whether he or she had actually managed the same panel for fewer or more visits. Nantais deems this focus “a nice precursor” to the current model, noting that at the time the former was configured, Henry Ford was close to 50% capitated. This has waned over the past several years; hence, the heightened focus on RVUs within the model.
Group wRVU Model: Product Pools, Payroll Dollars
More widely used, however, is the health system’s group RVU model, wherein collective physician performance within a given specialty determines the allocation of compensation monies to individual physicians in that department. Total RVUs for the entire department are multiplied by the rate per RVU, with an incentive pool generated if the “product pool,” as Nantais calls it, exceeds total payroll dollars. Adjustments are made for contribution margins; for instance, when additional staff must be hired in order for a department to generate higher RVUs.
Nantais offers the example of a department with a per-RVU payment rate of $48.25 and a departmental RVU totals of 73,000. In this case, the actual product of the RVUs, multiplied by the payment rate, less a contribution margin adjustment, totaled about $3.4 million; the actual compensation of the department (salaries paid), about $3,055,000. The end-result: an incentive pool of about $345,000 for this period, or about 10.6% of the salaries for the department.
Under this model, Nantais adds, base salary makes up 85% to 90% of physicians’ total cash compensation; incentives, the remainder. Should a physician begin to generate a “huge” volume of incentives, he says, he and his colleagues will “try to reset that,”,but not on what Nantais calls a real drop-of-a-shoe basis. “We want to make sure the trend is legitimate and is long-running before we do that,” he explains. “This works because it creates a significant opportunity for the departments. In most cases, there is some pool generated.”
Gross Contribution Model: Net Revenues, Unit Pools
Somewhat different is Henry Ford’s gross contribution model. Here, compensation hinges on net revenue for fee-for-service, less direct operating expenses. A unit pool is created from this figure, with direct expenses generally tied to a budget or some target of performance over the previous few quarters. The ratio of the expenses to the revenues generates a percentage potential to the departments, Nantais explains.
He once again provides an example, starting with a revenue of $100,000 for a six-month period and direct expenses of $95,000 for a gross income of $5,000, and a $10,000 performance target. In this case, the end-result is a negative pool and a potential for a 5% salary reduction. “We don’t adjust salaries downward on the specialty side all that often,” Nantais asserts. “Primary care is less benevolent for whatever reason; it does take salaries down periodically, but very carefully. In the same model, if this group had been successful at controlling its expenses, reducing them from $95,000 to $67,000, you would get a gross income of $33,000; using the $10,000 target, the salary would have been adjusted upward by a 15% bonus pool.”
Utilization management has yet to be entirely incorporated into this model, although such a refinement will eventually be made.
Quality Incentive Model: Primary Care
Rounding out the list is a quality incentive model for primary care, within which each physician oversees individual RVUs; is paid at a market rate per RVU; takes home a base salary that adds up to 85% of total cash compensation; and is rewarded for productivity, efficiency, and quality of patient care.
In designing this model, Nantais and his colleagues determined that the market served by Henry Ford and the fact that Medicare is its “best payor” dictated a need for physicians to achieve the 65th percentile of productivity in order to generate the 50th percentile of pay.
In addition to patient satisfaction, citizenship—attending meetings and participating in “non-work-effort” departmental activities—and ancillary income, whether from an administrative stipend for running a site, a teaching residence, grant or contract work funded by the organization, or the like, also have a bearing on compensation.
Physicians who do not meet established criteria face pay reductions of up to 5%, potentially every six months. These reductions are not taken until two six-month periods of true performance degradation have occurred, so as not to inadvertently and unjustifiably penalize physicians for such legitimate circumstances as extended, earned overseas vacations. By the same token, two consecutive six-month periods of extreme productivity yield a salary bump. This “rough linking” of compensation to physician performance encourages the elimination of inequities in pay, Nantais points out.
Ancillary Enhancements: High-Flyer Plan
Nantais adds that there exist several ancillary components that enhance the various models and enhance their workability. He cites as an example a “High-Flyer Plan” to which any specialist who generates more than 10,000 RVUs per year is assigned. “The first 10,000 RVUs are part of the departmental RVU plan, but once they go above 10,000, they are actually paid a premium rate per RVU,” Nantais explains.
“And the contribution margin we’ve seen has been phenomenal. These are go-getters [currently, about 20 specialists] who really have a pretty good idea about how to run their practices. They standardize things, and they have good support staff; in fact, we’ll assign support staff to them for throughput. The bottom line has grown tremendously, and patient satisfaction actually is up.”
While all Henry Ford physicians must maintain a set call schedule covered by their salary, they have the freedom to “moonlight” for the system if they so desire. “We will pay extra; however, the standard schedule must be completed first,” Nantais says.
Finally, efforts are being made to manage controllable direct expenses, with the primary care cadre presently working to standardize 27 different items across all sites.
“Right now, all four models are working, and we will continue to refine them; for example, we are now aiming toward moving patient satisfaction from the 5% mark to between 10% and 15%,” Nantais concludes. “We have had doctors leave our practice and go into private practice and come back again six months later saying, ‘It’s a lot tougher out there than it is in here.’”Julie Ritzer Ross is a contributing writer for HealthCXO.