Innovation in Healthcare: Physician Payment and Automation

Micaela Enger

Associate Editor

Loyola University Chicago School of Law, JD 2023

In the fight against COVID-19, healthcare innovation has been unprecedented. New technology, protocols, and laws have changed the way healthcare functions. However, physician compensation remains complex, burdensome, and often contentious. Physician compensation has always invited compliance risks, operational bottlenecks, and administrative burdens, but now, innovative hospitals are simplifying the process with automation.

Physician compensation methods and models

Physicians are paid through a mix of salary, personal productivity, practice financial performance, and bonuses. The methods of compensation can vary based on specialty, whether a physician owns all or a piece of their practice, the type of practice, or whether they are employed by a hospital. Additionally, payment is not limited to one method. The American Medical Association’s 2016 Physician Practice Benchmark Survey found that there has been a continued shift towards using multiple payment methods when determining total compensation, increasing complexity.

To further complicate the matter, each method includes multiple considerations. Salary can either be fixed or include incentives or bonuses. Salary may take into account specialty, experience, and prior productivity.  Payment based on performance or productivity incentives are often based on work relative value units (“wRVU”). For each patient examination or procedure performed, the physician will receive a certain amount of wRVU. The wRVUs are then multiplied by a conversion factor to get a dollar amount. Each Medicare and Medicaid CPT code, the billing code, has a coordinating wRVU that is determined in advance based on the complexity of the patient examination or procedure. Thus, the more wRVUs, the more money the physician earns. Many physicians employed by large health systems are paid based on the Relative Value Unit (“RVU”) compensation model that includes wRVUs, expenses incurred by the hospital or practice, and the cost of professional liability insurance.

Payment based on performance can also be fee for service (“FFS”), bundled, or based on value-based care. FFS is a model where physicians and healthcare facilities are reimbursed by payers, like insurance companies or Medicare and Medicaid, based on the number of their procedures. Bundled payment models pay providers or healthcare facilities based on a single episode of care, meaning it includes all of the care within a certain period of time. Another growing payment model is value-based compensation. Value-based care is based on the idea of holding healthcare delivery systems, including physicians, accountable for both quality and the cost of care. Physician compensation can include value-based incentives based on quality metrics.

To summarize, physician compensation can vary greatly based on base compensation, productivity, value-based compensation, and administrative and academic duties based on the type of facility they work in and their role in the administration in addition to their role as a physician.

Barriers to physician compensation

Ludi, Inc., a healthcare technology company, found that there are typically five administrative related barriers to paying physicians: 1) a large amount of documentation that has to be generated, collected, and approved to pay a single doctor, 2) complex contracts, 3) complex calculations and payment methods, 4) regulatory compliance requirements, and 5) limited communication between department. With labor and staff shortages in healthcare as a result of COVID-19 burnout, automation could reduce many of the barriers to physician compensation. Many healthcare employees lose time by relying on paper and fractured systems when supporting outdated physician compensation methods and processes. This can result in mistakes leading to compliance violations, costing health systems millions of dollars.

Physician compensation compliance risks

There are three main compliance laws that can be implicated by physician payment issues. The Stark Law is a civil statute that aims to prevent physician conflicts of interest in terms of financial relationships. Intent is not relevant to Stark Law violations as it is a strict liability statute.  Civil monetary penalties may be up to $15,000 for each prohibited service billed. The Anti-Kickback Statute (“AKS”) is a criminal law that prevents the knowing and willful payment to induce patient referrals or other business involving any service paid by a federal health care program like Medicare and Medicaid. Physicians are often implicated in kickback schemes because they can refer patients to fellow physicians or facilities in exchange for payment; however, this is illegal under AKS. Physicians who pay or accept kickbacks can be penalized with up to $100,000 in fines and up to ten years of incarceration. Finally, if a physician overcharges the Government by filing false claims in order to make more money, they can be held liable by the False Claims Act (“FCA”). FCA violations can result in fines up to three times the federal program loss plus $11,000 per false claim filed.

While some compliance issues are a result of deliberate fraud, other compliance issues arise from mistakes. Compliance issues are often implicated when a mistake is made when calculating physician payment or if a physician receives compensation that isn’t consistent with fair market value. Healthcare compliance laws and regulations are complex, but mistakes can cost millions.

The benefits of automation

Automation systems would simplify and streamline physician compensation processes. Automation could reduce the amount of paperwork and documentation by localizing the processes. Localization through automation will also save staff time and reduce the administrative burden because staff will not have to work across departments. In addition, automation could reconcile complex contracts by accurately calculating payments based on multiple different methodologies. By reducing the number of mathematical errors, health systems and providers can mitigate compliance risks present in physician compensation processes. Increasing efficiency may also increase profitability and security by reducing opportunities for fraud.

As healthcare recovers from the financial impact of COVID-19, where hospitals lost billions of dollars, innovation and invention has boomed. Automation is already almost ubiquitous with the days of signing paper checks and waiting at a cash register behind us in most settings. Healthcare may be next to embrace the shift to automation for physician payment.