transitioning to value-based physician compensation
Healthcare reform is changing the payment landscape, particularly for physicians. In response to these changes, healthcare organizations are compelled to adapt their physician compensation models to reflect a focus not only on volume, but also on quality, outcomes, and patient satisfaction. Some progressive organizations are planning now for the impact emerging payment changes will have on physician payment and retention as well as on the organization's long-term financial viability.
Meanwhile, a growing number of physicians are moving away from independent practice and embracing a hospital-owned/employed or large-group practice model in response to shrinking payment, market pressures, and increasing regulatory burdens, thus adding to the concerns of hospitals and large group practices with respect to physician compensation. As reform continues, hospitals and health systems will find it increasingly important to reevaluate their physician compensation plans to ensure the plans remain competitive and effectively incorporate quality measures that align with value-based payment.
Work Is Underway
The move from volume to value is well-documented. For instance, a 2013 report assessing the industry's movement toward value-based payment found that 78 percent of physician practices expected value-based payment would account for between 15 and 50 percent of revenue they would receive in the three years following the time of the survey.3 Meanwhile, 52 percent of hospitals expected 25 to 50 percent of their revenue would be value-based, and 36 percent anticipated 51 to 100 percent would derive from these models in that same time frame.
Furthermore, nearly 70 percent of all respondents expect to be compensated under at least three different value-based models in the near future.
The survey data point to the change that healthcare organizations should actively begin to address. In fact, quality as a standard component of physician contracting and payment already has appeared in some markets.
As an example, a large regional payer in a highly competitive metropolitan market is combining volume and quality for payment. Under this payer's approach, each specialty surgeon receives work relative value units (wRVUs) for services rendered. Retrospectively, the hospital submits key quality indicators such as infection and readmission rates, and if the organization meets the payer's established thresholds over a period of time, the physician and hospital receive incentive compensation for those quality-driven results. This bundled payment must then be allocated to the surgeon and hospital based on agreed-upon criteria.
Another approach that payers are taking with some hospitals and accountable care organizations (ACOs) involves paying physicians who treat a certain patient population the standard payment with the potential for a bonus from a bundled, quality-based payment to the hospital or ACO.
For instance, the
Even though the wRVU model of payment for productivity is still predominant in many organizations, these examples show that physician compensation plans are being turned on their sides as payers begin to move to quality-based payment.
The Need to Act Now
A simple dollar-per-wRVU method of compensating physicians remains commonplace among hospitals and health systems today. Under this method, the more wRVUs that are documented and billed by a physician, the greater the physician's compensation will be. Yet as bundled payments based on quality indicators become more established, administrators will be compelled to shift their focus from payment for individual physician productivity to allocation of payments across groups of providers and hospital cost centers to reward high-quality service.
This new payment focus requires a clear path for managing and disbursing quality-based payments while also continuing wRVU compensation to some degree. Some organizations are using a stop-gap method of converting a bundled payment to a wRVU-based payment schedule. However, this approach is better taken as an interim solution until the organization can determine a payment method that more fully aligns with the population health metrics and quality measures that the organization's payers deem most critical.
The ideal long-term solution is a compensation plan that balances a competitive salary with quality and patient satisfaction incentives. Physician compensation going forward will need to be based on indicators of quality, patient satisfaction, patient engagement, and even good physician citizenship, such as reduced readmission rates, shorter lengths of stay, and participation in systemwide quality assurance initiatives.
The timing is right to reevaluate compensation plans not only because of the shift toward value, but also because financial departments are already dealing with changes in how their organizations compensate physicians as a result of the growing number ol hospital-employed physicians.
Strategic Actions
Physician compensation plans will need to be somewhat fluid over the next few years as payers develop and fine-tune their quality-based payment methodologies. During the transition, new compensation models likely will reward physicians increasingly for meeting quality and satisfaction measures, instead of for volume, to the extent that payers offer providers greater financial incentives for meeting those metrics.
Because new payment methodologies are proportionally smaller, healthcare delivery systems may need to leverage a greater portion of current volume-driven payments to reward outcome- and quality-oriented metrics in advance of payers fully implementing the new methodologies.b In particular, this approach may be necessary in specialty practices where variable provider pay could constitute 25 percent or more of a physician's total cash compensation.
As the industry continues to evolve, organizations should begin to prepare for the future realities of value-based compensation. An effective strategy can help hospitals and health systems create viable compensation plans that align with shifting perspectives. The following nine steps or tactics are critical elements to include in such a strategy.
Get physicians on board early. Physicians are highly concerned about the impact of value-based care on their personal compensation, so getting them on board early in compensation plan discussions helps ensure they fully understand the potential changes. At the same time, direct involvement improves their acceptance of new plans and contributes to overall physician recruitment and retention, both of which are key to a healthcare organization's long-term financial health.
Engage a physician champion. Developing appropriate and well-considered compensation plans requires a physician leader who not only can dedicate the required time, but also clearly understands the organization's financial landscape. A department chairman may serve in this capacity, or the chair may opt to assign the role to another physician who has sufficient time and knowledge to actively participate in plan development and implementation.
Create a compensation committee. Such a committee should comprise physicians and administrators and should ensure that any effort to retool physician compensation is not viewed as merely an administrator's plan or an effort being pushed down from the C-suite to various departments. The multiperspective compensation committee gives the physicians who will be directly affected by the changes a voice in creating the compensation plan and a level of hands-on involvement that helps foster overall physician acceptance and satisfaction across the organization. As an active group, the committee should research plan options and investigate physician payment methodologies being used by peer organizations.0
In addition to a systemwide compensation committee, most organizations benefit from creating departmentlevel committees whose members are familiar with and can respond to the various nuances involved in compensation for specialty areas.
Address department-level issues and differences. The systemwide plan should be supplemented with department-level plans, especially in large organizations where there is the potential for variations in compensation across departments. It is important to standardize the plans while keeping them flexible enough to address departmental differences. For example, the measures used to determine a surgeon's compensation demand a different set of priorities from those used for a primary care physician, and compensation plans should account for the differences.
Verify the plan is affordable. Before finalizing a physician compensation plan, an organization should verify it has sufficient funds to support the plan and pay physicians the agreed-upon rates, especially in light of shrinking payments and narrowing margins. It is a good idea to run multiple sample scenarios to make sure the organization can deliver what it promises.
Adopt a routine review schedule. Historically, organizations have reviewed their physician compensation plans every two to three years. However, given the rapid changes affecting health care, waiting this long between reviews could be problematic. Going forward, organizations should incorporate regular compensation plan reviews into day-to-day management. More to the point, hospitals and health systems should develop and implement a fluid review methodology that ensures ongoing attention to contracts.
Understand the payer environment and keep in contact with payers. Not all payers will approach value-based payment in the same way: Some may make small, incremental changes over a period of time, while others may make large changes quickly. It is important to be prepared to address payer changes as they occur. Organizations should make a point of staying in contact with payers and engaging in regular, two-way dialogue about payment strategies and plans to remain responsive to new and evolving payer programs as they arise.
Stay abreast of industry trends. Organizations can keep up with changes and trends in value-based payment by attending conferences, reading journals, and participating in other educational and information-sharing opportunities. Finance leaders may wish to partner with their organizations' payer contracting or business development units to understand these units' current and future concerns. Leaders also should keep an eye on compensation changes in the market and what factors are being measured. These various information sources, when pursued proactively, can be instrumental in planning for potential tweaks to compensation plans.
Maintain an ongoing dialogue with physicians. Finance leaders can use market and industry knowledge to create an open and ongoing dialogue with physicians. Regular communication conveys a clear message that leadership is mindful of the potential issues that could affect their future compensation. Open conversations about compensation models and the organization's vision for the future can bolster physician retention and recruitment efforts.
No Time Like the Present
Even with the ambiguity of future physician compensation, there is one certainty: The concept of pay-forproductivity is on its way out. The payment philosophy of "The more I do, the more I get paid" will be replaced by a compensation model that focuses on quality, outcomes, and patient satisfaction. Payers will consider those factors in paying both hospitals and physicians.
Although it is difficult to know with certainty how compensation plans and processes will evolve over the next several years, the current focus of health plans on risk-based payment underscores the need for hospitals and health systems to pursue a compensation strategy now if they are to achieve future success. A forward-looking approach not only can improve an organization's readiness for the coming changes and help it realize long-term financial benefits, but also can lay the foundation for a strong ongoing hospital-physician relationship. *
AT A GLANCE
An effective strategy for creating a viable physician compensation plan should include nine key steps or tactics:
* Get physicians on board early.
* Engage a physician champion.
* Create a compensation committee.
* Address department-level issues and differences.
* Verify the plan's affordability.
* Adopt a routine review schedule.
* Understand the payer environment and keep in contact with payers.
* Stay abreast of industry trends.
* Maintain an ongoing dialogue with physicians.
Physician compensation going forward will need to be based on indicators of quality, patient satisfaction, patient engagement, and even good physician citizenship.
Physician compensation plans will need to be somewhat fluid over the next few years as payers develop and fine-tune their quality-based payment methodologies.
a. Provider Readiness to Support Value-Based Payment Models,
b. Currently, quality-based incentive payments are paid over and above the standard (ee-tor-service or traditional payment methodologies. As a result, creative administrators and CFOs are combining both the traditional payment and the quality payment to create their own payment allocation to physicians, with greater proportions of compensation based on quality and patient satisfaction.
c. A number of organizations, associations, and forums exist nationally and regionally where group practice administrators can openly discuss their various approaches (e.g., the
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