The Massachusetts General Orthopaedic Associates are a physician group within the MGH formahospital. MGH was the first hospital to provide orthopedic services in the country, and since its inception, MGOA has led the way in clinical care and research. Although their reputation for high level research and patient care was impeccable, MGOA faced serious financial deficiencies that put the future of the group in danger. The group was hemorrhaging money at a rate of hundreds of thousands of dollars per year. To help control and solve these financial woes, MGOA hired Dr.
Harry Rubash and Dr. James Herndon. Because of their success with the orthopedics department at the University of Pittsburgh, MGOA was hopeful that Rubash and Herndon could turn their books around. For starters, it is important to understand what put MGOA in such a dire position to begin with. Their problems began with decreasing payments from private and public(government) insurers. While this was the direct cause of the deficits, more importantly, it exposed the flaws in their structure. Their structure before Rubash and Herndon was that of a flat salary based on seniority.
There was little to no component of compensation based off of productivity. In addition, doctor’s salaries are often augmented somewhat by grants that do not contribute to the group’s bottom line. Grants are typically between 80 and 100 thousands dollars based on the time expected to be spent on research based on a 40 hour workweek. For example, a $100,000 grant expects 40 hours in the lab where an $80,000 grant expects 30 hours. While MGOA doctors work much more than a 40-hour workweek, the time that they spend doing research limits the time that could be spent doing more profitable activities.
This incentive structure incentivized doctors to remain very dedicated to their research, while not bringing in adequate revenues to cover their salaries and other costs. The mission of MGOA was never about monetary gain, their self described tenants are; providing the highest quality orthopedic patient care, devising efficient clinical programs that ensured smooth ? delivery of care, promoting orthopedic education by facilitating exchange of concepts, information, and techniques, and establishing an ethos of effective cooperation by being dedicated to teamwork.
While these are honorable values for a non-profit organization, they do not excuse constantly rising debt. Rubash first needed to stop the constant deficit MGOA accrued. He did so by getting 10% more operating room time for the doctors. This allowed for more procedures to be done by existing doctors as well as making room for new doctors when they joined. In addition, he made their administration more efficient by implementing better scheduling and telephone systems. He also split billing off of the MGH department to a specialized MGOA group.
But the direr problem was still present; some doctors were incurring large losses while others did not. In essence, some doctors were subsidizing the salaries of other doctors, which is both patently unfair and unsustainable. So long as doctors are not compensated based on the profit they generate, they are not incentivized to generate profit. This led Rubash to introduce the idea of pay for performance in MGOA. The idea of pay for performance is intended to make each doctor responsible for his/her own financial contribution to the group. The plan that Rubash came up with is as follows.
The base salary of each doctor is set at the beginning of every six-month period. 5% of each physician’s revenue is placed in a fund that can be used by management to fund worthwhile ventures and physician reimbursement (in the case where a physician has a high proportion of poorly-insured patients). There is also a bonus given twice a year. This bonus is equal to 50% of profits generated by the physician (profits are calculated by revenue-costs incurred- base salary). However, if this bonus rate puts the group in the red for the period, it can be adjusted in order to ensure that no debt is incurred, but it can never be negative.
In addition, all physicians have a share of general office costs added to their costs incurred for purposes of calculating profits. The final piece is the adjustment of base salary each 6-month period. If a doctor outperforms their salary and other costs, their base salary will be increased by half of the profit created. Those who underperform their cost to the group will be deducted the full value of that cost on their base salary. Lastly, this new system allows for research grant money to be counted towards a doctor’s revenues.
This plan has various benefits. To begin, it solves many problems that the previous system created and sustained. Doctors are now responsible for their financial impact to the group; if they produce less money, they get less money. In addition to making less if they don’t product, doctors are rewarded when their contribution exceeds their cost. The incentives of doctors, and financial stability for the group are now aligned. Also, the development fund allows for some flexibility for doctors who encounter a lower than expected payout from services provided.
In addition, this structure maintains some reward for research by allowing doctors to count research grant money in their revenue. The most fascinating facet of this structure is that it does not necessarily need to be readjusted if premiums change significantly higher or lower. The bonus and base pay system covers those changes quite effectively. Unless there are very significant moves in payouts within a 6 month period, the system will adjust quickly and reasonably to reward doctors according to their revenue.
The new incentive structure also includes some drawbacks. In the case of doctors with more variable patient loads, their salaries are affected much more negatively in a bad period than positively in a good period. Essentially, the downside risk is much larger than the upside gain, and while this is good for incentivizing doctors to cover their costs, it can certainly cause some doctors to feel like they are being paid much less than they are worth just because of some poor periods.
In addition, this system does not reward doctors directly for time spent in the operating room. For example, “Different surgeries typically had different reimbursement rates. For example, the surgeon’s fee for a single-level laminectomy (a 1. 5 hour spine procedure to remove bone around the disc, usually combined with a discectomy) was about $4,500. The fee for a revision total hip replacement (a 4 hour procedure) was about $1,800. ” A doctor who specializes in surgery that is less profitable/hour is inherently disadvantaged in this system.
While this is good for profitability in the short term, it could certainly hurt the reputation of MGOA as an all around orthopedic care provider. This system could possibly lead to specialists in less profitable areas leaving the groups. The fatal flaw of this new scheme is the lack of compensation for time spent in the operating room. While the full array of surgeries with their time and revenue isn’t available, it seems unfair for a specific doctor with a less profitable specialty to be paid so much less than their peers.
There should be an added element of the compensation equation to reward people who spend above average time in the operating room. In addition, there should be less severe punishment for coming in below cost projection. If a doctor consistently comes in at cost level, and has a single period where he/she makes $40,000 less than cost. If he/she goes back to earning their usual level of profit consistently, they would literally never reach the same level of compensation that they grew accustomed to and arguably deserve.
The deduction of base pay from earning below cost should be closer to 75% of loss than 100% so that it acts more in line with the positive incentive to keep doctor’s pay more stable. Alternatively, exceptions could be built in to be more punitive for doctors that regularly come in below cost or be less punitive for doctors in the situation stated previously. This new program is superior to the previous system of compensation. The old system was unsustainable and completely inflexible. Aside from the million dollars in debt it already accrued, it was going to continue to compile deficits until the group dissolved.
However, the new system has its flaws. All things considered, this system will work because of the people implementing it and the dire situation that preceded it. By including the input of the doctors in the decision making process, along with Dr Rubash’s reputation, will give this plan the requisite breathing room to allow it to achieve its desired effects in motivation and profits. When the doctors understand the system and learn how to work within it, MGOA will be as financially viable as ever.