Kaiser aims bonuses at group quality, satisfaction levels, individual longevity.

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Physician Compensation Report

The compensation incentives for the roughly 12,000 staff physicians at Kaiser Permanente health plans nationwide, offered in relatively small bonuses and in year-to-year pay hikes, reward mainly clinical quality, patient satisfaction and professional contributions such as administrative work, measured primarily on the group rather than the individual level.

While the precise pay plans vary among Kaiser‘s eight regions, on average 95% of physician compensation is straight annual salary, says Michael Mustille, M.D., associate executive director for external relations of the Permanente Federation. The federation is the national coordinating arm for the Permanente Groups, the separate medical groups that employ the staff physicians in each region. For the numbers of physicians in the eight groups, see table, p. 10.

Pursuant to a January 2003 settlement of a lawsuit filed by the California-based Foundation for Taxpayer and Consumer Rights, seeking disclosure of physician incentives, Kaiser‘s national office in Oakland, Calif., released information in July on the basic workings of the Permanente Group pay plans. In addition, Mustille gave PCR a more thorough explanation. For the public information, visit members.kaiserpermanente.org/ kpweb/faqmedcare/entrypage.do, and scroll to physician compensation.

Among other features, the Kaiser plans have virtually no pay incentive for higher physician production or a larger patient panel. A few of the regional medical groups have very small individual bonuses for higher production. Kaiser doctors also earn overtime for working more than the required hours.

Seth Garber, M.D., a former Kaiser physician manager and currently a part-time representative for the Northwest regional plan to major employers, says the pay system simply is not “production-based,” but instead focused directly on the health of members (PCR 6/03, p. 12). Garber adds that Kaiser plans rely on medical management, performance evaluation, and peer
pressure–rather than pay incentives–to meet production requirements. Mustille notes that Kaiser staff physicians are subject to a “thick book of policies and procedures,” key provisions of which set out work hours and patient accessibility requirements.

For individual doctors, probably the strongest pay incentive is to encourage longevity of tenure at Kaiser. Mustille says that, consistent with 95% of pay coming in straight base salary, the large majority of pay-increase money is directed at annual base-salary hikes. However, he notes that annual increases vary by specialty.

Kaiser‘s use of physicians appears to be very efficient, at least on the surface. If you add to the national plan’s 12,000 staff physicians another 2,000 full-time-equivalent contract physicians–possibly a high estimate because, according to Mustille, the two big California groups have very few outside doctors–then the national plan’s 8.4 million members of all ages (as of Dec. 31, 2002) are served at a ratio of 167 physicians per 100,000 members. That compares with a national average of about 275 physicians per 100,000 population (see table, PCR 7/03, p. 8). Kaiser patients in many areas continue to cope with fairly long waits to see physicians, but documented major failures of quality of care are very rare.

Benchmarks Used for Recruits’ Pay

Pay levels for new recruits are regionally and nationally competitive by specialty, Mustille says. The regional Permanente groups use benchmarking sources in large medical practices, such as the Hay Group consulting firm’s national survey–for which Kaiser pay data are a major source. The regional groups also use local and regional surveys, including some small specialty surveys conducted in-house.

Several Permanente groups have no written contracts with recruited physicians, he adds. The groups that do use written contracts limit them to stating the first-year salary and the responsibility to follow policies and procedures.

Kaiser very closely supervises physicians for the first two years there, says Mustille. The plan checks new physicians on individual quality, satisfaction ratings, and fit within the group model, he explains. Those not doing well may be fired. After a third year of less close supervision, physicians go off probation and become members of their regional Permanente Group with its salary, bonus and annual-increase pay system.

Within a given year, performance-based pay, limited to about 5% of total compensation, is classified as “bonus” or “at risk.” These two classes have the same criteria for payment except at-risk amounts are subject to the group being able to afford them late in a budget year. The criteria for these payments, Mustille says, are:

– Clinical quality, measured in part by adherence to disease management protocols.

– Patient satisfaction.

– Contributions to the professional quality of the group, which can include administrative participation, and teaching and research if the local group has an academic tie.

Mustille emphasizes that the large majority of pay awarded under these criteria goes to subgroups–such as the surgical or medical department or the entire facility if it is relatively small–not to individuals.

Most of the small individual incentives are based on contributions to the group, he adds. “There is physician compensation that goes down,” he says, mainly because of poor performance in that category.

Board certification, overtime, continuing medical education and, in a few regional groups, higher production also result in individually higher pay, Kaiser says in its pay-incentive disclosure. Of course, promotions to department chair and senior management positions carry major salary hikes.

Yearly Hikes Average 3% to 4%

Annual pay hikes stem from negotiations between the Kaiser plans and the Permanente groups on the overall budgets for the groups each year. Mustille says that as a long-term average in most of the regions, increases center in the 3%-to-4% range.

With that overall increase in funding, each group sets about distributing it among the physicians. If one specialty’s market pay levels are rising faster than others’, Mustille says, then the annual increases should reflect that disparity. As an example in today’s market, he suggests, radiology pay might rise 8%, while primary care pay might rise just 2%. Jim Gersbach, a spokesman
for the Northwest group in Portland, Ore., says that group consults only national benchmark sources for specialty paylevel updates.

Not every experience-level increase will carry the same pay hike, he adds. For instance, a Permanente group pay plan might provide annual pay hikes of 2% for physicians with 10 to 20 years at Kaiser, but just 1% for those with more than 20 years.

Gersbach says his region does not let physicians moonlight for pay.

Among Permanente Group members (with tenure of three or more years), turnover rates usually are below 5%, Mustille says. In the California groups, he notes, the “most common reason by far for leaving is retirement.”

Gersbach says the turnover rate in 2002 at the Oregon plan, counting physicians who retired, quit or left on disability, was 4.7%. That rate is typical of previous years, he adds.
Contact Mustille at (510) 271-4666 or [email protected]

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