Contemplating New Models of Physician Compensation

By Anna Bamonte Torrance

With continued consolidation in health care and reforms in reimbursement, traditional methods of compensating physicians will need to be revised by private practices and health systems alike in order to sustain financial viability. Compensation models must incorporate new performance measures that focus less on productivity and more on incentivizing quality and efficiency. It is imperative for physicians, whether in private practice or employed by a hospital or health system, to understand the impact of reimbursement and health care delivery changes on compensation when evaluating new compensation models being offered. Likewise, the development and continued success of new compensation strategies will depend upon effective and ongoing physician engagement in those processes.

Group practices have traditionally compensated physician members using a set base salary with some productivity component. Strict productivity models based on work relative value units (RVUs), where value is assigned to reflect the time and intensity involved with providing certain procedures and services, have gained popularity with hospital-physician employment relationships. While such productivity-based models incentivize physicians to work hard and maintain a certain patient volume, they do not address quality of care and cost containment goals that practices will have to meet in the future.

Pay-for-performance (P4P) incentives, adopted by Medicare and a growing number of commercial insurers in recent years, have become a cornerstone for improving quality and patient satisfaction. According to a 2007 study published by the American Journal of Managed Care, physician groups that receive P4P incentives linking some compensation to key quality or process measures are more likely to undertake improvement efforts targeting these measures. The advent of the Patient-Centered Medical Home (PCMH) has also refocused care delivery, especially in primary care, to a physician-directed, integrated coordinated system where quality, safety, increased access and achievement of financial efficiencies are central. Locally, both Highmark and UPMC have realized savings through current PCMH programs and plan to expand those programs. Highmark’s goal is to have 75% of all doctors in the Highmark network participating in a PCMH and UPMC is converting all of its primary care practices to the PCMH model to be better positioned for bundled payments from Medicare.

Other reforms centering on cost reduction and quality improvement will also impact traditional productivity-based compensation models. Shared savings models such as Accountable Care Organizations (ACOs) focus on the total cost of care and encourage providers to collaborate on reducing overall spending and improving quality for populations of patients over periods of time. Innovative new payment models, such as CMS’ Bundled Payments for Care Improvement initiative, also encourage collaboration among providers on efficiency and quality of individual care episodes. Integral to the success of new health care delivery programs is physician commitment to share accountability in improving efficiency and quality. Successful compensation models will be ones that encourage such physician accountability and are aligned with payment and delivery reforms.

Some innovative compensation strategies have successfully incorporated quality and efficiency in patient care. At Geisinger Health System, for example, 80% of physician compensation is tied to fee-for-service incentives and 20% is based on quality care delivery and achieved results. Performance incentives are defined annually for each clinical specialty and compensation is modified accordingly. Of the value-based incentives for primary care, 8% of pay is based on participation in the patient-centered home model of care delivery and the remaining 13% is based on quality, citizenship (collaboration and teamwork with colleagues) and financial performance.

Health plan claims data has shown faster improvement in complication and readmission reduction as well as general patient outcomes for physicians employed by Geisinger under this compensation model than for other physicians in the network. Physician productivity and compensation have, likewise, improved under this model. Well-conceived compensation strategies that incorporate quality incentives can serve both to improve care and efficiency and remain financially viable.

New compensation models must be aligned with payor quality reporting, care coordination and reimbursement initiatives. Strategic goals and quality metrics related to patient outcomes, adherence to evidence-based guidelines, team collaboration, patient experience and cost reduction must be clearly defined and tracked. Important questions must be addressed in the development and assessment of new compensation models: What clinical/practice data is being collected and analyzed in relation to physician performance? How is the data used to measure outcomes? To what extent are outcomes assessed at the individual physician level, group level or service area level? How are patients being attributed to individual physicians? Have equities among physicians been properly addressed? How are quality and efficiency achievements valued? Do financial and/or professional incentives align with strategic goals and quality metrics? Have the metrics upon which compensation incentives are based been tested or tracked? Are financial risks being managed so that the model is sustainable?

With physician-hospital employment models, physician input on how standards of care are determined and implemented is key. Evidence-based measures must be understandable and attainable. Applicable non-clinical production, such as administrative services, education, research, marketing, outreach and medical staff leadership, must be factored into incentive opportunities. Especially where clinical productivity is heavily weighted in the compensation model, there is a financial disincentive for physicians to engage in such activities absent some meaningful accounting of that effort. There should be an opportunity for physician feedback on compensation incentives attached to quality and efficiency measures.

With changes in health care delivery and reimbursement, current physician compensation systems that reward more services cannot be sustained. Compensation models for physicians will need to adapt to these changes and incorporate new measures of performance related to patient outcomes and cost reduction. Meaningful improvements in patient outcomes will be dependent upon how clinical data is used under measurement strategies and how the results will be valued. The process is difficult but critical. Physician input in such compensation strategy development is imperative to the success of the model. A successful compensation model is one that improves quality performance and efficiencies, is sustainable financially and recognizes the importance of the physician in health care delivery.