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Physician Compensation: What’s the Right Formula?

Physician Compensation: What’s the Right Formula?

Physicians employed in the clinic division of ProHealth Care Medical Associates are accustomed to being paid based on how productive they are. But that's changing — fast.

"We've told our physicians that on an annual basis we will at least reevaluate the physician compensation plan," says Peter Geiss, a nonpracticing internist who is president of the clinic division at the large integrated health system in Waukesha, Wis. "...The way you compensate physicians has to reflect the marketplace you are in, and how you are being compensated by payers."

Already that reevaluation has resulted in some big changes for 110 primary-care and OB/GYN physicians employed in the clinic division. Since July, ProHealth has tied 10 percent of their compensation to patient satisfaction scores and their performance on quality metrics. "As payers begin to move from fee-for-service to more value-based payments ... we will probably put a greater percentage of physician compensation reliant on performance on quality metrics and patient satisfaction scores, and probably, efficiency with which care is delivered," says Geiss.

* (To see the data, check out the details of our 2012 Physicians Compensation Survey here.)

Productivity-based compensation continues to dominate the market, according to our annual Physician Compensation Survey.
But experts say the number of physicians who encounter nonproductivity-based compensation incentives (like the ones implemented at ProHealth) is increasing, as is the total amount of compensation that is being tied to those incentives. "Everybody's beginning to think about what value-based care is going to mean, and so I think that's driving everybody to think about whether or not a primarily productivity-driven [compensation] model creates the right incentives on a go-forward basis," says Mary Witt, senior vice president of national healthcare management and consulting services company The Camden Group.

Here's a look at those physicians who can expect to encounter compensation changes first; how nonproductivity incentives are measured; the pace at which these incentives are picking up steam; and some tips for how you can adjust and thrive when you encounter them.

Taking the lead

Hospital-affiliated practices are taking the lead among practices when it comes to incorporating nonproductivity incentives. But even some larger independent groups are jumping on the bandwagon, says Witt. "There's still, I think, a lot of skepticism in the physician community as far as how things are going to change, but I think people, especially after the Supreme Court decision [on the Affordable Care Act], are beginning to realize it's likely that there are going to be changes, and they have to be able to think about what implication that has for their compensation methodology."

Those changes include the shift from volume-based reimbursement to value-based reimbursement through health reform initiatives like the Medicare Shared Savings Program, Patient-Centered Medical Homes, and other federal and private payer programs.

Still, many private practices are lagging when it comes to incorporating nonproductivity incentives, says Justin Chamblee, senior manager at hospital and physician-practice consulting company The Coker Group. The reason is that insurers continue to base their payments to providers mostly on the existing fee-for-service model.

"If all the revenue that's being generated is based on professional services," Chamblee says, "it takes a concerted effort for the practice to take a portion of those funds and use it to incentivize quality or other related matters. Until there is, what I would call 'third-party' funding from a hospital for certain quality initiatives or from a payer for those types of initiatives — those nonproductivity-type incentives are not as much in play in a private practice as they are in hospital-employed settings."


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