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New Physician Pay Models Must Reward Quality, Outcomes

 |  By John Commins  
   January 27, 2014

Until recently most physician compensation models focused on straight salary guarantees or pure productivity-based models. Those trends are falling by the wayside.

Physician compensation models are changing and evolving in practices and hospitals across the nation as providers transition away from fee-for-service reimbursements and toward value-based care and population health.

What's it going to take to make these models work?

Kristian Brokaw, a manager with the PwC's Human Resource Services practice, says the key constants for any physician compensation model include a focus on quality outcomes and building a sense of "citizenship" within the practice.

"Physician compensation is complicated and every changing. I realize that is a blanket statement but it really goes to the simple fact that these models need to be updated and changed every one, two or three years," Brokaw said at a PwC webinar this month.

Until recently most physician compensation models focused on straight salary guarantees or pure productivity-based models.

"Those tend to be going by the wayside," he says. "What we see now are more physician models that are designed to try to do everything. They are taking too many behaviors into account. At that point we get to the law of diminishing return. Because if there are 20 or 30 different metrics, that is way too much and there is nothing for physicians to truly put their focus on."

"Specifically, today's comp models are really designed for three key elements; first, to drive behaviors; second we need to build a culture; finally we need to ensure we are not just market-competitive. We want to be leaders in the market and attracting top talent."

Brokaw describes three phases in the process of transforming from fee-for-service to value-based compensation, all of which involve the move away from base salaries and towards increased incentives or risks. "In the introductory phase the majority of the revenue is still coming from the fee-for-service billing and low productivity from one provider doesn't directly impact other providers," he says.

"Pure procedure compensation models become problematic as organizations take on increasing amounts of risk. In the middle, as we look at the different models, what stands out is activities that once were profitable have the potential to negatively impact reimbursement reimbursements in the future. As we put our focus on readmissions and outcomes we need to keep that in mind."

"Finally, as we move to the population health phase, per patient per month and patient management and wellness are the keys to driving this. Your physicians have to be motivated to accept this risk. Productivity models needs to align with the objectives of the population that we are now managing."

Brokaw says a typical compensation model he's seeing now offers 80% base pay and 20% incentive, a ratio that will undoubtedly change as healthcare reimbursements evolve toward risk.

"The incentive side is in aligning this with the organizational cultures and behaviors we want to drive, based around quality patient satisfaction, alignment with our objectives, developing that culture, and citizenship," he says.

"As you think about those different buckets and creating the culture collaboration and transparency and how do you move to a model where all of your physicians are involved and they are working with each other to better their performance, you have to move away from an individual-based model and move to one that takes things into different accounts in different areas."

Brokaw stresses four key elements that should be in any compensation plan:

  1. Aligning incentives to the new care model;
  2. Incentivizing quality and "customer" outcomes;
  3. Creating accountability for quality and outcomes; and
  4. Promoting teamwork and collaboration

"We use the word customer. In the past we have always been patients," Brokaw says. "But more and more organizations are looking at their patients as customers because these customers realize they can go out and find care elsewhere—so how do we treat our customers?"

And as practices wean themselves of traditional fee-for-service models, physician leaders should ask themselves how their new compensation models will change unproductive or disruptive behaviors while building camaraderie and citizenship among physicians—traits that will become critical under value-based care.

The best way to get that result is to make the process transparent for every physician in the practice.

"Education is truly key," Brokaw says. "The physicians will have to be educated on how the model works down to the nth degree and you are going to have a lot of questions and a lot of great conversations. Finally, to make this model work it goes back to that development of a physician champion. You have to have them from the moment you start developing this model to the moment it is fully implemented."

"If they aren't out there talking to their colleagues and getting buy in," she says, "it will never be as successful as it could be."

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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