Forecast Calls for a Perfect Storm for Driving the Compensation Revolution

As nationally acclaimed heart and lung transplant surgeon and former Senate Majority Leader Bill Frist once said, “Our nation cannot control runaway medical spending without fundamentally changing how physicians are paid.” It’s true. And with roughly 60% of physicians employed by health systems, productivity and compensation are a top concern for many hospital executives.

The significant rise in physician employment and the move to value-based care have created a perfect storm driving the compensation revolution. To improve overall health system performance—and that of physicians—health systems must reshape how they’re compensating physicians within their groups.

The majority of current physician compensation models are tied to relative value units (RVUs). These models reward productivity, based on volume, and there is little integration of quality metrics or consideration of process, outcomes or patient experience as part of overall compensation.

As we move toward value-based compensation models, while productivity will still be an important measure, quality metrics tied to payer reimbursement—and potentially a patient satisfaction metric (like overall Net Promoter Score)—will become integral factors in the compensation equation. When selecting metrics, they must be measurable and aligned with organizational goals.

One of the forward-thinking metrics to consider when developing any compensation model is panel size, which is very different from work RVUs. Panel size measures the number of distinct cognitive encounters in a given period of time and helps to promote access to care that you want to incentivize, particularly in primary care and specialty areas that are managing chronic conditions such as cardiology or rheumatology. Two similar physicians could have the same amount of wRVUs, but very different panel sizes. One physician may see a fewer number of patients more often, while the other may see a larger panel size but see them less frequently. Combining RVUs with panel size is thus very important as the delivery system evolves.

There are also a number of performance measures your organization can integrate from a service perspective to incent and reward physician behavior. Patient experience and patient satisfaction are important, but so are patient access and appointment availability. If your organization is able to measure them, you could consider metrics for timeliness of appointment start times, discharge processes or patient follow-up activities. Choosing metrics that matter (eg, they align with the organization’s goals and overall reimbursement structures) and that are reportable is key to success.

Here are some additional steps that are important to include:

  • Understand what measures and outcomes you’re accountable for from your payer contracts. Identify those that you can effectively measure and strategically tie to physician compensation. Don’t go after 20 or 30 metrics at once—instead, choose 5 or 6 that are key and start there. Aligning quality metrics across payer arrangements where possible is important to overall success. Physicians can’t and shouldn’t be asked to treat patients differently depending on the payer. Familiarize yourself with the Healthcare Effectiveness Data and Information Set (HEDIS) and other quality metrics that are important to payers. The metrics you select should evolve over time and should be tracked regularly.
  • Establish a governance structure that includes a physician compensation committee. This is important to ensure there is physician buy-in for the model and the performance measures it includes. Both administrators and physicians should be a part of the committee to think through the vision and impact of new compensation models.
  • Engage physicians early and often. Begin discussions about the compensation model with your physicians early on and explain your vision. Educate them on the performance measures the organization is being held accountable for and how they will be reflected in their performance measures. Provide timely feedback on performance so they can improve throughout a given performance period.
  • Recognize that change is difficult, especially in an area as sensitive as compensation. In most organizations we recommend a shadow period where you’re running the new plan next to the existing plan for a period of time, to closely monitor the impact and to ensure you obtain physician buy-in.

As I mentioned earlier, many organizations are struggling with the change to alternative payment methodologies. However, our advances in alternative payment models are far ahead of our redesign of physician compensation. In order to successfully transition to a value-based delivery system, the 2 must be aligned. While there may be reluctance at first, there are ways to develop and solidify mutually beneficial relationships during a time of dramatic change.

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