Physician compensation considerations amid COVID-19: Navigating physician pay and renegotiation

No matter what your specialty or organizational ownership model (private or hospital-owned), the COVID-19 crisis has affected all practices. Temporarily closing healthcare facilities has long-term economic ramifications on the well-being of the hospitals, practices, surgical centers, physicians and employees that depend on those facilities being open to earn a living by providing desperately needed care throughout the community.

A recent MGMA Stat poll found that, while 87% of healthcare leaders report recovering some of their patient volume since the COVID-19 crisis began, more than half (51%) of practice leaders report that their patient volumes are below 75% of their pre-pandemic levels.

Physicians and nonphysician providers (NPPs) are compensated based on a variety of different methodologies and on many different factors, often related to the type of ownership model. Although some physicians have salary-based contracts or work under a base guaranteed salary, most physicians are compensated based on their productivity or the economic prosperity of the practice. This creates a contractual dilemma for physicians and practice owners on how to respond to a significant downturn in productivity due to COVID-19.

Another MGMA Stat poll from May 19, 2020, noted that a majority (82%) of healthcare leaders said that some or all of their providers’ compensation has been impacted amid COVID-19. Many practice leaders noted that physicians often took voluntary reductions in hours and salary in the downturn; others noted that performance bonuses were cut or funding for continuing medical education (CME) was reduced or frozen.

Work RVU-based productivity models

One of the most prominent compensation models is the work RVU (wRVU)-based productivity model. This model heavily incentivizes medical providers to work hard and/or extend hours to hit their volume goals or to meet the needs of their patients. There is a direct correlation between the number of encounters or surgeries/procedures per day and a provider’s compensation. During a temporary practice closure or drop in patient volume, this will directly and negatively impact the take-home pay of the provider. This is especially true for any provider with a tiered wRVU model, as the pay per RVU increases in a stair-step fashion; it is very unlikely during a downturn that the higher tiers of such a model can be achieved.

Practices and physicians are in new territory and largely unable to gauge how long the health crisis will negatively impact volumes. This is highly variable across the country, as states are in different phases of reopening. Potential future waves of COVID-19 may create an ebb and flow of surgical and other volumes as restrictions are reimposed in hospitals and ambulatory surgery centers for non-urgent procedures.

Revenue-based productivity models

Physicians with net revenue-based productivity contracts are equally impacted by the recent drop in patient volumes, as their revenue is tied directly to a percentage of incoming revenue from patient encounters. In addition to volume decreases, some practices may also experience a temporary change of payer mix in light of job losses and the associated loss of employer-sponsored health plans; this largely depends on which patients (both new and established) continue to come in or receive care remotely. This is in addition to new billing challenges related to telehealth code updates, new ICD-10 codes and new technologies that were rapidly implemented. It is in the best interest of physicians under a net revenue payment model to get their visits back up as soon as possible.

Partnership models

In a partnership agreement model, revenue is generally divided under a blended, full allocation or team-oriented model. (Find more information on this in the MGMA Physician Employment Contracting Toolkit.) Amid COVID-19, there will be fewer dollars to distribute until patient volumes and revenues return to their historical pre-pandemic levels. This equates to a temporary pay cut for many or all involved, depending on which model is being utilized and whether some providers are receiving a base salary.

Renegotiation of contract terms and revisiting the type of partnership model may be an option for any group in which the current model is not working amid the health crisis, if everyone is in agreement on pursuing a change as the contract or other terms allow. This may also be a time to reconsider buy-ins or buy-outs if you are looking to bring on new physicians or if certain partners are looking to leave the group or retire.

Many physicians are having discussions with their employers about pay cuts or are realizing that their historical productivity bonuses above their bi-weekly draw or salary will take a substantial hit in 2020. The quarterly or annual true-ups on compensation and the ultimate impact is to be determined for many providers, but the second half of the year will dictate the full extent. This will depend on how much of the pent-up demand for care can be captured as states continue reopening or impose new shutdown orders due to a potential resurgence of infections.

Physicians and healthcare leaders should be carefully reviewing contract terms for any renegotiations taking place now or later this year. Communication will be crucial between all parties involved as it relates to the financial realities of COVID-19-related patient volume decreases and the temporary amendments that may need to happen as a result to ensure long-term financial viability. Discussions and transparency on revenue, expenses and strategic planning will be more important than ever for the remainder of this crisis.

Additional resources

• MGMA COVID-19 Recovery Center — Operational tools and insights during COVID-19
• MGMA Physician Employment Contracting Toolkit
• MGMA Consulting — The industry leader in creating meaningful change in healthcare, one organization at a time