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Physicians Must Realign Compensation with Value


Value-based reimbursement isn't the future for physicians; it's here. It's time to tie quality outcomes to compensation.

The medical reimbursement landscape is under siege. Or, it may feel like that to physicians. Government mandates stream forth in an impersonal, brusque tone: You must make your patients happy; your care should be accountable; you are encouraged to develop a medical home. Declining compensation and rising healthcare costs have eroded physician revenue, and prompted many to reconsider private practice.

Charles Herrick, a practicing psychiatrist with Western Connecticut Medical Group, a 500+ provider, multispecialty group practice based in Danbury, Conn., acknowledges that physician compensation is a challenge. Herrick sits on his practice's board of directors and is a member of both the compensation and quality committees. He says his group is having trouble recruiting new physicians because of the high cost of living in the northeast and less than competitive salaries.

"Payers are not paying anymore and the switch is beginning to flip in terms of moving from a pure productivity-based to a value-based program and a shared savings program," he says, "… so we are treading water in terms of being able to attract quality physicians and retain them."

If your practice has experienced similar difficulties and is wondering how to incorporate value-based strategies into its compensation model, here are the first steps to success.


Value-based compensation has made few inroads into physician compensation formulas, but the intent is there, just over the horizon. Value is quantified through tasks such as conducting patient satisfaction surveys, measuring patient outcomes for chronically ill populations like diabetes patients, and keeping patients healthy and out of the hospital, all the while holding down costs.

The results of our 2015 Physician Compensation Survey show a mixed bag when it comes to compensation based on productivity, patient satisfaction, and value. Physician respondents to our survey said 63 percent of their compensation was based on productivity; 37 percent was tied to value measures; and 29 percent was tied to patient satisfaction scores.

*Are you making what you’re worth? Compare your earnings to other physicians around the country with our annual Physician Compensation Survey results.

William Reiser, vice president and chief information officer for the Westerville, Ohio-based Halley Consulting Group, says that many practices are still compensating their physicians largely on a fee-for-service basis.  "[Practices] have had … an increasing level of concern and angst on how they are going to approach some of these new compensation structures. How are they going to approach compensating for value; however you are ultimately going to define that," he says.

CMS has initiated a number of quality programs over the years, such as the Physician Quality Reporting System (PQRS), Accountable Care Organizations (ACO), Patient-Centered Medical Homes (PCMH), and the EHR Incentive Programs. Many have had uneven physician uptake, and as of yet, limited financial benefit for practices. There is also a significant upfront investment of time and money required; enough so that many practices elect not to participate and accept penalties for nonparticipation.

There has been significant pushback from industry and physician groups such as the AMA and the Medical Group Management Association on burdensome government mandates like the meaningful use program. Go-live dates have been successively moved and standards softened, as physicians made clear their dissatisfaction.

Yet, the ultimate goal is to improve the quality of patient care and reduce the increasingly inflated cost of care in the United States. If not now, when? Studies show that the per capita cost of healthcare in this country is greater than all other industrialized nations; the National Healthcare Expenditure Projections, 2010-2020,  predicts that U.S. healthcare costs will rise close to 20 percent of the gross domestic product by 2020.


Kai Tsai, executive vice president for Advisory Services at Valence, a Chicago-based consulting firm that specializes in value-based programs for physician practices and hospitals, and the company's Medicare team lead, says value should be front and center for physician practices. "Obviously, I think we'd all agree that the train has left the station with value-based care. CMS came out with their announcement [about a new value-based payment system] at the beginning of the year … [and] they've announced their very ambitious goals," he says.

(To read the complete blog visit bit.ly/burwell-announcement.)

CMS has signaled its intent to have at least 30 percent of Medicare providers using value-based payment models by 2016, and increasing that threshold to 50 percent by 2018. As part of that strategy, several standalone government programs are going to be merged into the new Merit-Based Incentive Payment System (MIPS) by 2019: PQRS, meaningful use through the EHR Incentive Programs, and the Value-Based Payment Modifier.

(To learn more about MIPS visit the American Academy of Family Physician's FAQs on Medicare payment reform at bit.ly/Medicare-payment-reform.)

But practices shouldn't be complaisant; because there is a significant lag between payment year and reporting year for many Medicare programs. Tsai says practices have a slim 16 months before they will begin to feel the effects of payment reform.

"So we are really looking at 2017 as the first year where activities are being measured for quality payments in 2019 for MIPS," says Tsai, "That's 16 months away; it's coming up close and soon."

The government's proposed changes to the Medicare Physician Fee Schedule (PFS) for calendar year 2016 continue the transition to negative payment adjustments for nonparticipation in quality programs like PQRS. For example, while the 2016 PFS proposed rule has established reporting measures for the 2018 PQRS payment adjustment that adhere to the same criteria as the 2017 PQRS payment adjustment, the penalty for nonparticipation increases. If an eligible provider or medical group does not report on PQRS measures in 2017, they will receive a 2 percent negative payment adjustment in calendar year 2018. It is important to note that the 2018 PQRS payment adjustment will be the last. Starting in 2019, reporting quality measures will be made through MIPS.

(To learn more about the proposed Medicare PFS changes for 2016 visit bit.ly/Medicare-fee-changes.)

While that may seem an imposing deadline, Tsai says the new programs were designed to encourage physician participation; he points out that in the beginning, physicians will "crawl" before they walk or run. Medicare has built its new quality program to encourage providers to participate; to start, he says, there is only upside benefit, with no risk. CMS is building the infrastructure and rewarding physician behaviors that will encourage quality. "As you participate in each of those [reporting programs], you develop competencies in managing quality. It is like building your muscles for value-based care," he says.


You may be asking yourself, "How will the change to value-based compensation models affect physicians and their practices?"

J.E. Mendez, an OB/GYN physician based in Midland, Texas, has been in practice for more than 25 years and during that period has made several career changes. Over the course of his career, he has worked in a group practice, academic medicine, solo practice, and in 1994, limited his practice to gynecology, because of stressors that made work-life balance difficult. In 2014, he made the difficult decision to close his practice - primarily due to the increasing cost to do business and falling physician reimbursement.

"I looked at how expensive [it would be to adopt an EHR], especially as a solo practitioner … [Meaningful use is] so poor at accomplishing what we need to do to take care of the patient, not to meet these [quality] criteria," Mendez says. And then there was the increasing "hassle factor" to contend with as well. Before he closed his practice, Mendez made the decision to not reapply for Medicare participation because of increasing paperwork and the uncertainty in Congress over the Sustainable Rate Growth formula - abolished earlier this year by legislators.

While that didn't cause undue hardship for Mendez, there are many other practices that don't have that option. For them, quality reporting and reimbursement structures are inevitable.

Reiser points out that there is money on the table that will go uncollected if practices aren't participating to the highest extent that they can. "Those core [patient satisfaction] measures, those are going to influence how you are reimbursed, irrespective if you are part of a large organization or not," he says, "… Achieving these [quality] metrics is crucial as well, because that is what drives a portion of that top-line revenue."

Many consultants, including Tsai, advise practices to not go it alone. Especially for the small, independent practice, there are plenty of options to "group up" and join a larger organization such as a Clinically Integrated Network (CIN), ACO, or a PCMH. These structures provide ways for practices to become stronger by taking advantage of economies of scale, spreading financial risk throughout the wider organization, and in some cases negotiating contracts as a single entity.

Herrick says his practice is very committed to preparation for value-based programs. "The leadership here is very forward thinking and they see the importance of value moving forward; and so they are moving ahead with developing shared savings programs," he says.


Oftentimes the easiest way to start something new is to build on already existing structures. Reiser says healthcare organizations will increasingly structure physician compensation models around quality bonuses that encourage a commitment to value. Many large- and small-group practices are already incorporating patient satisfaction surveys like the Clinician & Group-Consumer Assessment of Healthcare Providers and Systems (CG-CAHPS). It is a small step to pin a percentage of physician compensation to top patient satisfaction scores.

"I've seen people, for example, say, 'We will put a fixed pool aside for each provider.' Maybe it will be $10,000, maybe it will be $15,000, and they will get a distribution of that pool whether they meet the various quality metrics," Reiser says. Practices will often set the amount of the pool relatively low, he adds, with the expectation that it will increase as physicians get better at reporting quality metrics.

In that same vein, if your practice is already measuring and reporting quality in some manner, it will have a leg up when Medicare changes go live in 2019. "EHR, PQRS, Value-Based Modifiers, we all know [MIPS] is the convergence for those programs, so if you are already participating you do have strong results and infrastructure in place, absolutely you will have an advantage," says Tsai.

Herrick's practice has made significant investment in support staff to prepare for quality measures, hiring and developing care navigators, social workers, and community care teams to work with high-utilizing patients. And he says his group recognizes that the primary-care physicians are largely responsible for driving quality measures. "We choose metrics that make sense to our organization and are primarily based on primary care; so [primary-care physicians] do the heavy lifting for the organization."

*Are you making what you’re worth? Compare your earnings to other physicians around the country with our annual Physician Compensation Survey results.

In Summary

Productivity-based compensation still predominates, but Medicare payment reform is less than two years away. The following tactics can make help the transition to quality easier:

• Participate in existing quality programs (PQRS, meaningful use, etc.)

• Tie a portion of physician compensation to quality targets

• Join a physician group such as an ACO or CIN

• Dedicate staff to support patients and improve care quality

Erica Sprey is associate editor at Physicians Practice. She can be reached at erica.sprey@ubm.com.

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