Hi, I'm Dr. Joseph Chang. I've been in practice now for about 21, 22 years, finishing my BGY seven year in neurosurgery in 2001, and then staying on for another year of complex spine fellowship at the Medical College of Wisconsin, Milwaukee, Wisconsin in 2002. I wanted to talk about physician compensation because it is something that's pretty important and it's really influenced by a variety of workplace and health system factors. To really understand how physician compensation is derived, we really need to understand the various sources of payment that contribute to the final dollar value of how you are paid for. As far as sources of payment, it really comes down to the actual dollars that either your group, your employer, or the health system gets that really goes to your compensation. We do talk a lot about work units such as RVUs or relative value units, but those are more proxies of how you divide up the actual dollars in order to pay physicians overall. As far as the buckets of dollars that come in to be able to support a physician's practice, it really breaks down into categories. Out of the four sources of payments, professional fees are the ones that are most ubiquitous and the ones we're most familiar with. Those are the fee for service or what is paid by the patient or the insurance company for the service that you provide, whether it's seeing a patient in the office or a surgery such as a lumbar discectomy for the patient. This is paid by in different ways and so, for example, if you have a patient with Medicare who is being paid by relative value units or RVUs, Medicare will set a fixed rate typically in the $32 range where that is multiplied by each of the work RVUs towards your physician payment itself or through the malpractice payment to help cover your overhead or through the practice expense work RVU to help cover your practice expenses. As you can imagine, being paid $32 per RVU before expenses typically does not really justify the cost that's needed to maintain an office or practice setting and that's because Medicare typically, in a sense, targets the dollars at a level that is acceptable but certainly isn't meant to cover 100% of your cost. The physician payments are actually part of the general budget for the Medicare system. It is not part of the Medicare taxes that is actually charged to the patient, which typically goes to support the hospital side of the payments. The hospital side is something called facility fees and that's where the hospitals get the payment by Medicare and these are almost bundled payments by themselves. They use something called diagnosis-related groups or basically they aggregate different types of pathologies into one number that's a diagnosis-related group code, which Medicare then sets a payment for. Similar to the conversion factor, Medicare has a base payment that they multiply by the relative weight, which changes based on how sick your patients are. So obviously the sicker your patients, the higher the relative weight, the higher the payment versus those that are less sick. This is one of the reasons why hospitals have such a strong driver to help decrease their length of stay, which means that for the same amount of payment, you're able to take care of more patients or to document the appropriate illness or comorbidities of the patient because a patient with a major comorbidity, such as protein, calorie malnutrition, someone who's homeless and maybe came into the emergency room as an alcoholic with a spine fracture will have a significantly higher reimbursement by Medicare if they are the payer than someone who's pretty healthy and just has a compression fracture from falling in a kitchen, but without any of those comorbidities. Philanthropy is something that is also important to understand of how it supports the ability to practice and really take care of patients for us as neurosurgeons and really as physicians. The infrastructure, the capital costs of things like equipment, new technology that isn't typically covered by insurance companies, or really the ability to provide new hospital units, beds, buildings, et cetera, is really an important key of philanthropy. Philanthropy is also used to support programs or start programs that may not have an opportunity to have that service provided in the community. This is commonly seen in things like cancer, where access to certain types of cancer care may be limited due to the ability of developing clinical trials or providing that type of cutting-edge medications, and also into many things like functional, for example, for neurosurgical procedures like using DBS for obesity or psychiatric disorders, which typically is not covered, considered experimental by many payers, but yet has a lot of promise in a lot of patients that have no other options for that. Other categories as far as sources of payments are also investments, and this is something that's becoming more ubiquitous, for example, things like private equity. Just remember, these aren't really sources of revenue. There are investments so that the people that give the money into this do expect a return on the investment. So, for example, a private equity firm typically expects a 5% or 10% reduction in your overall compensation that then is multiplied by a number that is negotiated between your group and the private equity firm for them to be able to then use that as an investment in the equity. Similar to any other business that sells stocks or shares of their business to investors, what you do, what you give up in exchange for a lump sum of money and continuous investment is actually your reimbursements and really the dollars that you would collect for the future. One of the challenges with the investments is that while it is more beneficial to older physicians like myself who have a limited practice time as far as giving up portions of my equity, for younger physicians, this is something that could be a significant financial drain in the future, and very similar to if you're able to buy into Amazon or Apple at the very beginning of their startup versus buying it now towards the end. The return on the investment for those that have invested in you, that is the private equity versus yourself as the service or product per se, is significantly different overall. As far as how you benchmark your value, you want to know where you stand within these various buckets of categories, and there's a lot of different metrics that are used. In academics, we typically use AAMC, while in private practice you may use MGMA, Sullivan-Cotter, or other values such as NERVs. When you look at these various benchmarking values, you also need to understand that they don't really mean your take-home pay versus sometimes it means your overall compensation. So the overall compensation dollars that is used to recruit or hire a new physician may include not only the salary that's going to be paid to that physician, along with the basic overhead such as malpractice, but there are also a lot of practice expense costs that may be a part of this. So for example, you may have to trade off a salary negotiation if you wanted one or two advanced practice providers to help you right away before you had the ability to build up a practice, or multiple assistants, or specific requests including equipment at the hospital. So that's something that you want to think about as far as the overall compensation that goes into what's a physician package overall. Some places that are really looking for subspecialized physicians, you would also want to use subspecialized benchmarks such as within neurosurgery, such as the NERVs data. Many places consider neurosurgery as one taxonomy. So for example, neurosurgeons are neurosurgeon in a number of facilities, and that's why the idea of general neurosurgery is still important across the nation. But other areas really look at specific separation of the subspecialties, where if you're 100% dedicated to functional versus spine versus skull base and brain tumor, endovascular, etc., you may need to look at different benchmark ideas. You also want to look at the DRG for the hospital, which also then gives you an idea of what your value is to the hospital. One of the challenges of when we talk about being valuable, value in my definition is really the benefit you bring to those around you. So that if you're only looking at your personal gain, no one else is really going to find you valuable. So the hospital system will look at you based on what you're expected to bring in for these diagnosis-related groups, and then things like your costs, choices of implants, length of time it takes you in surgery, your efficiency, how many patients you can certainly see and take care of efficiently, and, well, you know, if you're a liability, your value and your costs go up. For example, someone that has clinical errors with risks of malpractice, that's all incorporated within how they value and how you would benchmark. So that's the general idea of how you value yourself as a neurosurgeon. But now you want to get into the nitty-gritty really of how you're actually paid, and this gets into a concept called a revenue cycle. So appropriate documentation and coding is important to be able to report the code. You then have to be able to understand the payers that are actually, in a sense, footing the bill to be able to pay for those codes, and then really the idea of how do you collect it all and put it together in this model, and this is what we call the revenue cycle. So for example, you may have one of the sickest patients, as I alluded to, whose protein calorie malnourished, comes in with a spine infection requiring a corpectomy for debridement and a posterior lumbar fusion with graft placement. Based on the coding, that's going to come across as if you did that on a healthy 37-year-old patient who was in a motorcycle accident with a L4 compression fracture that needed a very similar surgery. So the question is, how do you differentiate those two? And that's why it's important to understand, not only do you want to document appropriately for the CPT codes for the patient, but then also your diagnosis codes, something called ICD-10 or ICD-9, which are your international classification of disease codes, to be able to differentiate that. Now that being said, just because you're documenting correctly doesn't mean you're going to be reimbursed well. So if the insurance companies, if this is considered a non-life-threatening measure, or if it is a patient that you're scheduling surgery through the clinic, that if the insurance company doesn't approve, you can still do this procedure and surgery that helps the patient, but the insurance company still has no legal requirement to pay you. This becomes a challenge as you develop your careers, where we have to pre-certify something called pre-cert procedures. And frequently, we'll have processes where we'll be able to argue for the rationale and the justification for the procedure that the insurance company is expected to pay for. There's an important change that's happening where the insurance companies are getting a little bit bolder with this. And so, for example, even if they approve your surgeries, if they do not approve the specific codes or the CPT codes for the entire surgery, that is what you're planning on reporting or will report, they may not end up paying it. This will also be a challenge if you have to modify your surgery during the procedure because of an unexpected finding for the patient, where the insurance companies legally have no reason or requirement to pay you for that service if it's not considered a life-saving event for the patient. And this frequently happens if a patient, for example, has a lumbar decompression, say for severe stenosis, where the facet joint posteriorly becomes incompetent and you have to convert to a fusion in order to restabilize, they may still only pay for the decompression alone just because that's the only thing they approve for the procedure and not for the other things that you have found very important for the patient. Part of the understanding of how the revenue cycle and CPT codes come into play is really how they are developed overall. It's important to understand that with advancing technology and techniques that there is a process of requesting and getting CPT codes developed, approved, and valued overall. A lot of people misunderstand that the American Medical Association owns the idea of how much you're being paid, such as with the relative value committee, the RUC, and that is really incorrect. The CPT codes themselves are actually copyrighted by the American Medical Association, but they're actually part of the Medicare system. Medicare has licensed it through the AMA, and they've licensed these codes, something called HCPCS. It's a health care procedure coding system. But Medicare is actually the one that sets the RVUs, and that's actually set by the Secretary of Health and Human Services per the Social Security Act, I believe it's Section 1840. Every year in November, the Federal Register will publish the updated coding values of the CPT codes based on the RVUs. In general, this does not change significantly, but it can. The RVUs that are set by Medicare are then predominantly, in a sense, copied or used by many other payers, but not 100%. That's why it's important to understand, if you have a patient with Blue Cross Blue Shield or Cigna, that they may follow the majority of the Medicare rules, but they may have their own rules and health policies that preclude them from doing that. If they do follow the rules, in general, they do follow the components of the relative work units, or the RVUs, where there's three components. There's the physician work, that is the work RVUs, or WRVUs. There's the practice expense RVUs, or PEWRVUs. And then there's the malpractice expense RVUs that are paid. It's important to understand that where you live will dictate your true practice expenses and your malpractice rates, which may not be reflected in these Medicare payments, and therefore, not be reflected in any insurance company payments that you negotiate with. It's not unusual for many groups and physicians to negotiate with insurance companies to make it easier by using the Medicare fee schedule, and then negotiating a percentage rate, such as 130% Medicare, 160% Medicare, or 200% Medicare, et cetera, so that versus developing a fee schedule for every specific procedure that you perform. Now, that's the professional collection side. Another important part of how physicians are paid is really through the hospital payments. And this is more and more important as more neurosurgeons are becoming hospital employed. Back in the 1960s, less than 2% of physicians and neurosurgeons were actually considered an employed position. Almost everybody had a private practice with their own group that they had joined. Today, we're seeing numbers really reaching 80% to 90% of all neurosurgeons in the United States being in an employed position. And part of it is because of the issues of overhead regulation, and really the cost compared to reimbursement and professional fee side that make it challenging to do that. However, if you look at this slide where you compare two physicians, on the top line, you'll have a young physician who is very energetic, working significantly, and just willing to do the surgeries on a weekend, take call, go to the emergency room at the drop of a dime versus the older neurosurgeon who has a less busy practice, more mature. But at the end of it, you realize that from the hospital side, the young physician was actually losing the money, what's called operating income, than the older physician. And without having to spend a lot of time onto this, what you realize is that the way the hospitals look at our various work, it isn't just the reimbursements to the hospital, which is also tagged a payer mix. So if you have a patient that is predominantly Medicaid or Medicare versus commercial insurance, your actual dollars collected, like I said before, is going to be significantly different. The RVUs really use as a way of parsing out the dollars to pay it fairly within your group, but may not reflect the actual dollars that are coming in in order to pay for the services or physicians overall. From a hospital standpoint, there are the direct costs that are used to pay for the service that you perform, such as the equipment that you use, the staffing costs overall. But a big important part of it is the indirect costs that a lot of surgeons don't really think about. Indirect costs are things like who pays for the cafeteria, the parking lot, the security, all the things that we may not think about on a regular basis. Just like in your home, whether you're there or not, the electricity bills, the water bills, the property taxes, et cetera, will all get charged to you whether or not you're spending a lot of time there or not. And these are things that are called the indirect costs. As you can imagine, most indirect costs are really parsed towards those that can pay it. That is the service lines. So for example, if you have a medical service line that is what we call a loss leader or unable to generate revenue to the point of covering their own direct costs, it doesn't make any sense to charge them indirect costs because they would never be able to pay that into the system. Similar to federal taxes where you don't really want to tax those that are impoverished because it doesn't really help anybody versus trying to apply taxes at those that can and are able to do that. Unfortunately, neurosurgery is considered one of the higher profitable service lines for hospital systems based on the type of procedures that we do. And so because of that, you will be charged these types of indirect costs. That's important because even though you may be working very hard thinking that you're generating a lot of volume and patient care for the system, the system may not look at it the same way and look at you more of a relative loss than someone who's potentially doing less work, in your opinion, than what you're doing overall. Yeah.

physician compensation

payment sources

professional fees

Medicare payments

facility fees