How Pay-for-Performance Compensation Plans Can Facilitate Physician Alignment

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The following content is sponsored by MedSynergies.

When healthcare reform was first being debated several years ago, there was a dramatic amount of hospitals acquiring physician practices. Those within the industry saw the writing on the wall. The Patient Protection and Affordable Care Act would gradually move the system toward a value-based, coordinated approach and away from the fee-for-service, fragmented status quo. Healthcare leaders realized they needed to build a strong, stable physician network — one that could connect their care delivery systems.

While the acquisition of practices has slowed down relative to a few years ago, hospitals and health system executives are moving onto the next logical step: How can we make this a high-functioning network? How can we engage our physicians to improve patient care? How can we make value-based care a reality?

John R. Thomas, CEO of physician alignment firm MedSynergies, says a vital component of this process involves examining physician compensation strategies. Medicare and commercial payers are aggressively moving toward pay-for-performance and accountable care reimbursement contracts for hospitals, and now hospitals are working those concepts into how they pay their physicians.

Striking the right type of compensation models with physicians could go a long way toward reaching true alignment and care coordination, according to Mr. Thomas. The right model could prompt physicians to focus on better patient outcomes, and it could allow healthcare organizations to optimize their operations. But well-rounded value-based compensation plans don't happen overnight.

Pay-for-performance physician compensation today
From 2012 to 2013, hospitals and physician practices increasingly adjusted their physician compensation plans to include more performance-based metrics, like quality and patient satisfaction.

Healthcare compensation consultancy Sullivan, Cotter and Associates found that the median amount paid for a specific quality metric to physicians in 2013 was $15,000, but that figure depended on the specialty. Primary care physicians received an average quality payment of $7,000, while medical and surgical specialists received $20,000.

As mentioned earlier, hospitals and health systems are moving toward those types of value-based physician pay strategies in an effort to better integrate care and align incentives. However, if a physician makes $250,000 per year, for example, and only $15,000 of that total goes toward value-based metrics, that means 94 percent of the physician's pay still depends on volume, RVUs and other traditional factors.

Mr. Thomas says as the healthcare system transitions to the pay-for-performance world, hospitals will have to work diligently to ensure enough of their physician compensation plans incent the right behavior — and it's likely to be an arduous process.

"If you want pay-for-performance, you have to ratchet up the incentive in a meaningful way," Mr. Thomas says. "Incentives for pay-for-performance today are not material enough to make a long-term impact."

Is there a "perfect" pay model?
No matter what environment hospitals operate in — fee-for-service, capitated or otherwise — Mr. Thomas believes a "perfect" physician pay plan simply doesn't exist. Surgeons command more than primary care physicians, but some rural areas might pay a premium for primary care, depending if there is a shortage of the specialty. The lesson: Many factors come into play when creating a compensation model, and the metrics of how to pay the physician are far from being the deciding factor.

"Depending on market specialty and market needs, finding a way to be nimble in physician compensation is important," Mr. Thomas says. "But at the end of the day, compensation models are not perfect and should have a review process about every 24 months."

The healthcare world cumulatively likes to say it is moving away from fee-for-service. However, Mr. Thomas says volumes will likely not go away for any type of reimbursement, hospitals and physicians both included.

"All things being equal in quality, the doctor who sees more patients is going to demand more pay," Mr. Thomas says. "You're still going to have a component of volume."

Setting the "draw" for physicians
Knowing that there is no "one-size-fits-all" model for physician compensation plans, hospitals can begin to tailor their plans for their specific needs. An essential starting point, according to Mr. Thomas, is defining what "performance" is and making that definition both clear and consistent.

For example, hospitals may want to compensate physicians based on how many emergency department visits their diabetic patients had in the past 90 days. Other common metrics include turnover, or time between surgeries, in the operating room, as well as metrics that measure the health of a large population.

From there, hospitals will want to set the "draw" for physicians. Mr. Thomas suggests taking the median income for a physician specialty and put at least 25 to 40 percent of that benchmark on performance outcomes to drive real behavioral changes. "The incentives need to be big," he says.

However, hospitals have to focus on the metrics, not the dollar amounts, if they want to gain full buy-in from their physicians. If a pay-for-performance plan results in fewer dollars for a physician due to quality metrics, Mr. Thomas says hospitals have to give physicians an opportunity to control their situation through another metric. Keeping physicians invested in their patient care, and the business of their care, is paramount.

"Divorcing doctors from the economics of practice is not a good decision," Mr. Thomas says. "They should be accountable and have a stake in their practice. It's what they want."

Keys to success: thoughtful planning and communication
Value-based physician compensation can work well within hospitals and systems if the right mix of diligence, forethought and economics is used, according to Mr. Thomas.

Most importantly, Mr. Thomas stresses that physician compensation plan negotiations are a journey. They require consistency, transparency and communication — everyone involved in the process has to understand exactly what the deal involves and how it works. Further, communication should be frequent, and feedback should operate in a continuous loop, especially if plans are renegotiated every two years.

"You need to have an active dialogue about the compensation contracts and information with physicians on a regular basis," Mr. Thomas says. "There should be no surprises."

What pay-for-performance means for hospital-physician relations
Hospitals and health systems that have built up their physician base have likely increased their patient market share. Maintaining that market share requires hospitals leaders to make a concerted effort toward pay-for-performance models.

An effective physician compensation model is crucial to success from a macro level, but it's also important to ensuring individual physicians are happy and that they are focusing on the right goals: high-quality patient care and positive outcomes.

"Hospitals and physicians today both have significant incentive to provide high-quality care in the marketplace, and align themselves to make the patient the prime customer," Mr. Thomas says. "Paying doctors in a meaningful way — to make a difference today — is going to require time and commitment."

More Articles on Physicians and Pay-for-Performance:
Paying for Population Health: Why Rewarding Value is Key
Radiology Partnership Agreements: Achieving Better Alignment Without Hiring the Physicians
5 Tips on Moving Away From RVUs for Physician Compensation

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