Physicians Need to ‘Earn Their Keep’ in Upcoming Compensation Models

October 19, 2011

As the government searches for ways to cut healthcare spending, many physicians will need to work harder to ensure their paychecks aren’t trimmed as well.

As the government searches for ways to cut healthcare spending, many physicians will need to work a bit harder to ensure their paychecks aren’t trimmed as well.

“I think you will see physicians who are not earning their keep so to speak - just not producing at a level that their pay would warrant - who will start to see enhanced accountability relative to those levels of pay,” says Justin Chamblee, senior manager at the Coker Group, a hospital and physician practice consulting company. “If they can’t change their ways or enhance their productivity, they will start to see their pay decrease.”

Health systems and practices are trying to get away from “guaranteeing so much pay” to physicians, says Chamblee, who will be leading a session at the MGMA11 Conference entitled “Physician Compensation: What Trends are Paying Off?”

In other words, more and more physicians are going to start experiencing more risk-based compensation models, those that base a higher percentage of compensation on quality of patient outcomes, physicians’ ability to reduce healthcare costs, and satisfaction scores from patients - in addition to work productivity RVUs and base salary compensation.

“The biggest change that we’re seeing is a stronger connection between those nonproductivity incentives and the production [RVU] component,” Chamblee says. Physicians will need to “fulfill the full spectrum of responsibilities” so they’re focusing on productivity and quality.

Chained Together

Still, Chamblee says, most hospitals and health organizations face “limiting factors” when it comes to just how much of an influence value-based incentives can have on physician compensation. As a result, this shift toward a more risk-based physician compensation structure is a slow and gradual process.

That’s because compensation is still tied to reimbursements, reimbursements are still largely tied to the fee-for-service system, and fee-for-service is still tied to volume of services - not value. Naturally, this makes it difficult for organizations to tie a significant portion of compensation to value, he says.

And even though health systems are getting much more technologically savvy, and quality data is becoming much more accessible as a result of EHRs, it’s still a struggle for them to use that data to tie a substantial portion of physician pay to quality, Chamblee says. “Until those processes can be refined and reimbursement is still fee-for-service, I think we will see just a small portion of pay continue to be tied to those [nonproductivity] measures.”

Preparation

For practices that would like to start basing a more substantial portion of physician compensation on risk-based measures, here are two of Chamblee’s suggestions:

Think small at first. Use nonproductivity measures as the basis for some portion of your compensation packages - perhaps $5,000 to $10,000 per year.

Do your research. Look into best practices for streamlining care, learn from your peers, and understand what resources you need to track quality and cost indicators.

The Possibilities

Contrary to what many think, it is possible for physicians to perform well for both quality and productivity at the same time.

Just seven months ago, Fairview Health Services, a large nonprofit healthcare system in Minnesota, was very typical in terms of its physician compensation structure - the majority of pay was based on work RVU productivity, and physicians were treated to small bonuses for meeting quality and satisfaction indicators.

Today, for Fairview’s 278 primary-care physicians, nearly 50 percent of pay is determined by nonproductivity measures such as quality and patient satisfaction scores. For instance, physicians are paid based on their ability to help patients control chronic diseases, like heart disease; their ability to treat common conditions, such as asthma and depression; and their ability to keep patients out of the hospital. The other 50 percent of pay is based on productivity and cost of care. 

“With all of the discussion regarding healthcare reform, medical homes, and accountable care organizations, it was evident that continuing to pay for just doing work was no longer going to be satisfactory,” family physician Greg Schoen, Fairview's director of physician compensation, says. “We felt that we needed to incentivize physicians to deliver value rather than focusing on just delivering units of incremental service to an individual at a time.”

Making it Work

As with all big changes made in any healthcare setting, Fairvew was bound to have some hiccups along the way when implementing its new compensation model.

One is that, as Chamblee noted, it is difficult to tie compensation to value when reimbursements are still largely based on volume. At Fairview, the focus on improving quality, reducing cost, and following the best practices guidelines is “inherently” making physicians less productive, Schoen says.

“We’re still in very much a fee-for-service reimbursement structure,” he says. “We do have a number of shared-risk contracts so that the performance that we have in these [quality and cost] metrics will make a difference in how we’re paid, but we still need to see a volume of patients to continue the financial success of the organization.”

Another key challenge is getting physicians to embrace the new compensation model and the operational changes that come with it. Though the majority of Fairview’s physicians are on board with the changes, there has been some pushback and confusion, Schoen says. “You can’t just flip the switch, you go from one measure to another and it’s a whole new ballgame.”

The Payout

Of course, at Fairview, it’s probably easier to get physicians on board with the changes when they realize they will be compensated more for their services - between six percent to eight percent more on average, Schoen says.

“We actually knew that when we the model we would see increases in compensation right off the bat and indeed we did,” he says, noting that if all physicians perform at the “highest level,” Fairview has projected they will be compensated 50 percent above the market median for their specialties.

That’s something they would never experience in a traditional compensation model based only on work RVU productivity measures, Schoen says. In this type of model, the median for family medicine is roughly 5,000 RVUs per year. To be paid 50 percent above that median, physicians would need to reach 7,500 RVUs (add 50 percent more volume), he says. “People look at that and say that’s impossible.”

But there’s more to the payout than just monetary gain. This compensation model gives practices and health systems a better chance to recruit and retain primary-care physicians, Schoen says.

“To compete for those [physicians], what you need to do is differentiate your organization from another,” he says. “I believe our organization is headed towards making a strong commitment to where it is about overall outcome and value.” It’s a win-win, he says, that Fairview physicians can be paid “way above market for doing that.”

Aubrey Westgate is an associate editor for Physicians Practice. She can be reached here.