Aligning Physician Compensation in a Value-based World

October 28, 2016

Before your practice enacts major changes to its physician compensation, take it slow and get everyone on board early, experts say.

Even before Medicare's Quality Payment Program reimbursement changes were rolled out earlier this year, medical practices were looking at ways to align physician compensation with value over the traditional standard of volume.

But the lingering question for many practices as they consider this paramount shift is: Where do we start?

This is not an uncommon situation, according to Justin Chamblee, CPA, senior vice president of Alpharetta, Ga.-based consulting firm Coker Group, and his colleague, Jon Morris, JD, MBA a manager with the company.

Chamblee and Morris will offer guidance during their presentation, "Aligning Physician Compensation and Organizational Goals in the Value-based Era," at the 2016 Medical Group Management Association (MGMA) Conference in San Francisco.  Their presentation is scheduled for Monday, October 31 from 7 a.m. to 8 a.m..

The duo recently spoke with Physicians Practice on how practices can move forward with compensation changes with minimal impact to physicians and daily operations.

Physicians Practice: What major physician compensation changes and/or challenges are you seeing in private medical practices?

Justin Chamblee: Reimbursement continues to decline or put more [pay] at risk while operating expenses are staying the same or increasing. Just trying to ensure a physician can make a proper wage from their practice is the core challenge.

A second challenge is navigating the value-based reimbursement realm.  There's a lot of talk with respect to the volume-to-value shift and I think when you are part of a health system, you can delegate all of the big decisions with respect to that to the health system. Private practices need to decide: Do we join an [independent practice association] and let them drive some of that? Do we join a certain health system's accountable care organization?  Do we pursue a Medicare Shared Savings Program? There's a lot of key decisions that private practices are having to make in terms of that volume-to-value shift and tantamount being: How does it affect our revenue generation going forward?

Jon Morris: I think another core thing leading to it all would be technological and regulatory requirements. …In order to maintain revenues, you have to have all the technology to track and measure everything and also meet all the tech requirements. [The cost of that] infrastructure, in my opinion, has been a pretty large contributor to all the consolidation you've seen in healthcare.

PP: How can private practices align physician compensation with practice goals?

Chamblee: For private practices, the key thing is to start slow, meaning a lot of practices feel like they need to make this massive paradigm shift with respect to volume-to-value, In reality, the shift [in reimbursement] in most environments is going pretty slow. 

So if you are still 95 percent fee-for-service, let that drive your compensation model decisions versus moving to a pure panel-based compensation model or something like that. Just going slow would be the first thing.

Number two, focus on the data. A lot of the emphasis on value-based reimbursement and incentive opportunities all require substantial data to support them. So if you don't have the data, it will be hard to incorporate it into your compensation methodologies. Look at the IT structure and your population health management tools to see that you have the data to support any desires that you want to incentivize in your physician compensation model.

Lastly, I'd say shadow anything before you put it into place. Run it side-by-side with other [compensation] models for a while so you know what the change will be before you start affecting physician pay.

Morris: I usually say, "Keep the bottom line in mind." Especially in a private practice setting, you don't have as much room for error in implementing some of these new compensation models or theories, so shadowing is important. Keeping a baseline production expectation of some kind is important during a transition-[patient] panel, RVU productivity, or some other threshold you can accurately measure.

PP: What does it take to make these changes a reality? Who needs to be on-board?

Chamblee: Process-wise, I always recommend looking at structure first, then economics. What I mean, especially in private practice, is that dealing with physician compensation is typically a "zero sum game." If you have 10 physicians and you change the compensation arrangement, typically it is going to take some money from one and move it to another doctor, because you don't all of a sudden have a new form of revenue to support the compensation structure.

As a group, sit down and ask strategically: What is the best practice in terms of addressing a structural compensation model? What components do we need in place? What aligns it with reimbursement environment? Outline a structural model before modeling it out on a per physician basis. If everyone can buy in to [the] structure, it makes the digesting of [the] economic impact a little easier. You can point to the "why" and so structure first, economics second is one of the key ways we see making changes to comp structures a reality.

Alongside that is having key stakeholders involved. If you are dealing with a 200-physician practice, you won't be able to have every physician at the table in terms of making compensation decisions. You will need to have a representative body that comprises a compensation committee. If you have a five to 10-member group, everyone can be at table, working collaboratively to develop a revised structure that will work in the future.

Morris: When we are sitting down in rooms [with physicians], the number one thing that comes across the table from the other side is: What's going to happen to my pay? What are these new quality measures and what will they affect? What does "performance" mean?

When we focus on structure and get buy in for each component of a model, it puts some of those fears about performance incentives to rest.  The shadowing process allows providers to see individual reports of what is going to happen to [their] compensation and how this is going to play out. In that process, they get to choose what kind of things make sense to measure. Things that will actually not only improve the quality of care, but align physician behaviors with how the practice is getting reimbursed.

So spending a lot of time and energy in that process, discussing compensation philosophy and structure with key players and the compensation committee is very helpful in overcoming the initial resistance and explaining how all of it is going to work.