Finding the Right Employee Compensation Model Under PDGM

Mapping out a clear pay structure and expectations for field staff is imperative for success in home-based care, particularly as margins become slimmer and the Patient-Driven Groupings Model (PDGM) takes hold.

Compensation structure is one of the biggest influences on providers’ margins — if not the biggest. With that in mind, providers need to find one model that works for both employees and their bottom line.

“What agencies want is a pay structure that will support reasonable margins on care,” Sharon Harder, president at C3 Advisors, said Wednesday at the National Association for Home Care & Hospice (NAHC) 2020 virtual Financial Management Conference. “This is really important under PDGM — we no longer have those therapy thresholds that are going to pay us for volume. And so we’re going to have to be really careful about managing our margins.”

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C3 Advisors is a consulting firm focused on post-acute health care compliance.

At the end of the day, a pay structure should address four things, Harder explained.

On a basic level, a pay structure should reward outcomes and efficiency rather than visit volume. It should additionally reward the best employees and foster retention, while also creating incentives for good documentation practices.

Pay structures also need to be compliant with applicable wage-and-hour laws.

“We have to remember here, the compensation program is going to create financial incentive for employees, and they’re going to work to meet those incentives,” Harder said. “So when we wanted them to do a lot of visits, that’s what they did. Now, what we’re really looking for is far more efficiency. So [that’s] what we want to focus on [with those four things].”

But if providers are not cognizant of the fourth aspect — labor law compliance — the other three may not end up mattering at all.

“The goal is to find a structure that everyone likes, but then you also have to find a structure the government likes,” Robert Markette Jr., an attorney for Hall, Render, Killian, Health & Lyman, said in a presentation alongside Harder at the Financial Management Conference. “Because everything we do, we have to please the government and follow those various state and federal rules.”

Hall, Render, Killian, Health & Lyman is one of the largest health care law firms in the country.

Otherwise, non-compliance could result in very expensive costs on its own.

The different pay options

There are various ways to pay staff — and each has its own perks and pitfalls.

For starters, there’s a pay-per-visit rate, an hourly rate and a salary. 

In 2020, pay per visit can be a compensation model fraught with challenges, Home Healthcare Solutions President J’non Griffin said Wednesday on the same panel.

Home Healthcare Solutions works with home health agencies on coding, compliance and maximizing reimbursement, among other areas.

“It’s almost like administrators think that [pay per visit] is an easy way to pay,” Griffin said. “But if you really think about what pay per visit is, it is paying for a task, and we have moved past paying for a task in PDGM. We’re actually looking for quality, patient-centered visits — so that may not be our best option.”

If a pay-per-visit model is adopted, it’s also worth considering travel. One clinician could make six visits in a relatively short amount of time, while another may have to travel hundreds of miles to get to six different visits, Griffin explained.

That means an agency has to work out how they’re going to pay an employee for that traveled time.

An additional hurdle is telehealth visits, particularly during the COVID-19 crisis, as they’ve grown exponentially. Home health providers still don’t get paid for telehealth visits, but clinicians are still putting in that time, which means that those providers need to develop a strategy for how to pay for telehealth and in-person visits.

“For [pay per visit], the focus is on expediting the visit and not necessarily on what the patient needs,” Griffin said. “A lot of times, you have nurses or therapists that just go in and do the bare minimum and really don’t delve into what else may be happening with the patient. So pay per visit, a lot of times, is convenient for payroll purposes — but it does have a lot of unintended consequences.”

Hourly rates are the easiest to set up from a payroll perspective on the administrative end. There are usually a different set of rates based on experience and also for things like working holidays.

The difference in an hourly rate in home health, however, is that it relies on an honor system of sorts. Because clinicians are not working in an office environment, providers need to rely on a trust between the administrators and clinicians in order for the hourly rate to be effective.

That includes reporting hours on the road, hours at the home and hours doing documentation.

That can make things dicey when it comes time to pay overtime. If there is a no overtime policy but a clinician claims they’ve worked 40 hours per week in three days, an agency needs to decide if that means that the employee is done for the week.

On the other hand, if there is overtime — and a clinician racks up a lot of hours on their timesheet and continues to work — that could end up being harmfully expensive for the agency.

“There is no built-in efficiency at all on the hourly rate — it’s usually the opposite,” Griffin said. “It’s usually the clinicians that do less that get more money, and the clinicians that are efficient get less money. You have to look at that when you’re setting [this all up].”

Some states and hospital systems may require hourly rates. In that case, there’s no way around some of these issues.

For salaries, agencies have obviously set the price they’re going to pay a clinician, no matter how efficient they are. But if an agency has some salaried employees and some that aren’t, it’s important that they’re using their salaried ones first.

“If they’re on salary, I need to use them first because they’re not being productive to meet their salary if I don’t,” Griffin said. “So then you have to start looking at how you move those chess pieces around to get everybody what they need.”

While salary is a more simple payment system, it does not create incentives for efficiency or better quality.

The mix-and-match, hybrid-type arrangements include “visits plus an hourly rate” and “salary plus an incentive bonus,” but those types of agreements can lead to compliance concerns.

“These can result in great wage and hour compliance complications for agencies,” Griffin said. “Agencies have [certainly] been penalized for not paying properly [with these models].”

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