Insights: Article

The Future of Physician Compensation Under Population Health

By Chris Champ

April 18, 2016

Is the health care delivery industry ready for tackling the daunting task of going through a major overhaul to physician compensation methodology? Over the past ten to fifteen years, the majority of physician compensation models have actually remained relatively stable. Most compensation plans have some form of a base and then an opportunity for incentive compensation, based upon either some form of revenue or work-relative value units.

Over the last decade, the majority of the changes have been either to the incentive percentages, when based on revenues, or to the conversion factors when based upon work-relative value units. For practical purposes, the methodology has not changed for most physicians. The most significant theoretical changes we have seen are the trend to recognize other activities for which physicians are responsible, such as mid-level supervision, call and administrative duties.

However, in the last few years the industry has started to add provisions focusing on quality metrics, cost utilization per episode of care/patient outcome, adherence to protocols and guidelines, citizenship and patient satisfaction. These types of components have been mostly added as additional incentives to provider compensation versus taking these amounts away and then having them earn them back. Obviously, this has made the acceptance of these changes much easier to sell to the physicians.

When and Where to Change
As we look to the future under population health, we believe that the changes that will be needed to physician’s compensation methodologies will be much more evolutionary. Now is the time we need to begin the process of preparing everyone for these changes. With any major change we will need to create a sense of urgency and help all affected to understand the reasoning and benefits behind the changes that are needed. Frequent communication, sharing of literature and a continuing dialogue regarding market changes should be key components of your plan to effectively move from volume-based reimbursement driven designs to value-based designs where practice style behaviors are rewarded.

As each community journeys from a fee-for-service environment to more risk-based arrangements to full capitation, we realize that the changes to physician compensation will not completely change overnight. The timing of when you implement changes and what percentage these changes will affect the physician compensation will need to be carefully crafted. As we look at this, we see three potentially different scenarios playing out:

  1. You wait until the changes have been made to your reimbursement then look at changing the compensation model.
  2. You make the changes at the same time that the reimbursement models change.
  3. You make the changes before the reimbursement model takes effect.

The following population health business model graphic illustrates core components of the two principle financing paths:

Migrating to a Value-Based Business Model

Provider compensation design options will most likely play out similarly on different levels of scale/timing as some payers will change before others. Additionally, your level of financial reserves to take varying levels of utilization risk during this transition will also have an impact on how aggressively you can move through this paradigm shift.

The good news is that you won’t be blazing the trail alone. Various delivery systems in geographies across the country have either started this journey or are significantly on their way. You will be able to learn from what they have tried, what worked, what didn’t work and what the consequences were. From this you should have the ability to tailor your own plans to most effectively meet the challenges of the future while maintaining or possibly even building effective working relationships with your physicians.

The next step is to begin the educational process with the key stakeholders, including physicians, practice managers, clinic staff, administration and Boards.

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