Restructuring Physician Compensation in a Value-Based World
The concept of value-based care can be traced back to the days of capitation during the 1990s. Under capitated agreements, healthcare providers were provided a fixed, prospective payment for the management and delivery of care for an assigned panel of patients.
In a capitated environment, the primary care provider served as the gate-keeper responsible for directing care based on their professional judgment and clinical practices. Clinical outcomes and cost containment (i.e. value) were major components of the formula, which determined an individual PCP’s capitation payment levels.
In many markets, pure managed care arrangements became obsolete due to the challenge or inability to manage and coordinate medical services throughout the continuum of care. Several macro-level changes have occurred since this time. Clinical integration strategies have organized care networks inclusive of primary and specialty care, as well as inpatient services. Payer contracting is occurring more frequently at the health system level, often extending to networks of affiliated physicians. EHRs have drastically improved the ability to capture and exchange patient information. Each of these factors has played an important role in developing a new foundation for value-based reimbursement programs.
As value-based care takes hold, revenues and financial performance will be dependent on a practice’s ability to embrace care coordination, enhance patient access, achieve quality outcomes, manage costs, and improve patient satisfaction. Yet during the transition to value-based care over the next few years, the reality is that fee-for-service, volume-based reimbursement will remain the essential component of physician practice and health system revenues.
A major challenge facing healthcare executives is how and when to shift physician compensation to ensure alignment with the future tenets of value-based reimbursement. The shift from volume to value will not happen overnight. Both the Merit-based Incentive Payment System (MIPS) and Alternative Payment Models (APMs) require practice executives to establish short- and long-term goals and strategies, as well as physician compensation structures. Next year’s performance, which starts in less than three months, will impact reimbursement in 2019. Commercial payers are implementing these changes in different timeframes compared to CMS, but the reimbursement mechanisms are aligned with the same objectives. As a result, physician compensation programs will need to change over time.
During this transition, physician productivity and volume-based reimbursement are essential for practice viability. Yet practices today need to prepare for the inevitable reality of value-based care. To ease this transition, practices should start incentivizing those behaviors that will be necessary for success in the near future. Incentivizing value-based care tenets today (panel size, access metrics, patient satisfaction) while transitioning the overall compensation structure concurrently with your payers’ transition to value-based reimbursement programs mitigates the operational, cultural, and financial risks of the shift from volume to value. Over the short term, practices will need to accommodate prevailing productivity measures while gradually adding quality-based incentives to the mix.
Keep in mind, of course, that overall practice compensation will not necessarily go up or down under value-based care models; it will simply shift toward high performers and away from lower performers. It will incentivize collaborative and preventive care typically seen in the primary care setting. Primary care compensation should reflect the increased time spent on care coordination, provided the appropriate results are achieved in terms of quality.
The objective for practices now is to redesign physician compensation in a way that adjusts the practice culture to incentivize collaboration, coordination, patient engagement, and other components of value-based care. Compensation will shift towards a base salary, plus a range of incentives for achieving target metrics for factors such as panel size, patient access, and care quality.
Specialty appropriate quality measures, such as those found in the 2016 PQRS measure lists, can be used to measure and reward care quality, and tools built into the EHR can help providers access clinical best practices to guide appropriate orders, documentation, and treatment plans. Likewise, physicians should be encouraged to maintain patient panels of a size that allow for both optimal care coordination and improved patient access.
After all, value-based care forces some providers to alter the way they have cared for patients for decades. Physician communication and engagement, therefore, are critical to how well value-based compensation plans take root in any practice. Even the best goals and most carefully aligned compensation will still fall flat without these two drivers of cultural change. They are every bit as important — if not more so — as setting target percentages and dollar amounts.
One small — but crucial — early step that group practices must take is to ensure that their compensation plans encourage physicians to embrace the new value-based ideals. Most physicians applaud the concept of collaborative, proactive care; they just need the tools and reimbursement mechanisms to support it.
Brad Boyd is president of Culbert Healthcare Solutions.