Physician compensation will increasingly include incentives, but the transition may be more of an evolution than a revolution. Meanwhile, primary care doctors may continue to get a "bump up" in salaries.
The discussion at a recent hospital compensation committee meeting focused on dwindling physician salaries, recalls Jim Otto, senior principal for the Hay Group consulting firm that works with healthcare officials on physician payment. Before they finished the meeting, a hospital official asked: "Who's going to tell these physicians that they are not going to make as much in the coming years as they had?"
Nobody jumped to volunteer, that's for sure.
While physicians' total pay will still increase this year, the percentage salary growth will be lower than in previous years, says Otto, of the Philadelphia-based Hay Group, referring to the organization's 2013 Physician compensation prevalence and planning report. At least 50 physician groups and hospitals participated in the survey, conducted in March, which covered 132 specialties.
Overall, there has been a "slowdown in pay increases" for specialists, but a "bump up" for primary care physicians, Otto says. That reflects the general demand for primary care and federal reimbursement enhancements for generalists, he adds.
In the meantime, "there may be more emphasis for incentive payouts" in the years ahead, Otto says. Generally, incentive pay has been pegged at 10% to 15% of base salaries annually.
Although annual incentive plans for physicians were being used in 63% of physician group and hospital settings in 2013, compared to 64% in 2012, Otto predicts that the future holds a growing emphasis on incentive payouts in income negotiations.
"We expect an evolution, not a revolution, in incentive plan design for physicians in coming years," Otto added in a statement. "Providers are looking to translate their organizational goals in a more tangible way that will drive the desired behaviors and outcomes they want to achieve."
Generally, physicians across all organizations expect median salary increases of 2.4% in 2014, compared to actual increases of 2.5% in 2012 and 2.7% in 2011, according to the survey. The Hay Group is still calculating the 2013 increase, but that was projected at 2.6%.
Physicians in group-based practices in 2014 expect pay increases of 3.7%, compared to doctors in hospital-based settings, whose average increases are projected at 2.2%. Within the past year, the median percentage increases in physician salaries ranged from a low of 2% to a high of 5%, with much of that dependent on productivity and performance, according to the survey.
Primary care physicians can expect slightly higher salary increases than specialists in 2014, particularly in hospital-based settings. While primary care physicians and specialists in hospital settings each received 2.3% pay increases in 2012–2013, primary care physicians at hospitals are budgeted for 2.6% increases in 2014, while specialists at hospitals are scheduled for 2.3% budgeted increases, according to the Hay report.
"If you were to look at the [physician pay] environment 10 years ago, going into medical school, primary care was not something you were encouraged to do, certainly for economic reasons," Otto says. "The money was in specialties. At that point CMS started to [ramp] up reimbursement to encourage primary care. I think that's been reflected in the pay levels over the past several years.
"But there's still a big delta gap between what primary care is paid and specialists. Will that gap ever close? I'd be surprised if it did," Otto says. "Specialists will continue to be paid more than primary care, but I think with the emphasis on primary care in the context of all going on in healthcare, you may be starting to see pay increases overall, perhaps at a rate higher and faster than we've been seeing."
Incentive Payouts
Incentive plan designs have been "typically married to production, meaning, 'I'll pay you a base salary if you are hitting the production number,'" Otto explains. But measurement of quality outcomes and patient satisfaction is on the rise, he says.
"What I'm seeing is employers, hospitals, and healthcare systems using their incentive plans for physicians in a way that gets to process results or outcomes that are supporting what they are trying to do throughout their systems," Otto says. "The incentive plan designs are really to encourage behaviors that are consistent [with] not only what they expect of a physician practice but how it fits within a system."
"We're moving into a world, at least in theory, where [physicians are told] 'I'm not going to pay you because you are just doing things,' but practices and systems want to do the right things and hit quality outcomes," Otto adds. "Over the next five years, I can see us moving from fee-for-service to global capitation or some other structure and pay for quality, and not pay for something like three MRIs."
Still, "we aren't all there yet," Otto says.
That's reflected in the Hay Group report on salaries, which states: "Among physician group practices and hospital-based facilities, the majority of physicians' pay increases are determined individually, based on productivity and performance."
Overall, however, incentive payouts are beginning to reflect the move toward quality and patient satisfaction, Otto says.
In the Hay Group report, 71% of pediatric practices reported incentive payouts in 2013, and 54% of primary care physicians. Other specialties were at 50% at minimum.
Of the incentive payouts, most involved bonuses or recruiting incentives (28%); administrative differentials (23%); and on-call differentials, relocation packages, or tuition reimbursement (each 16%). Administrative differentials refer to the rate of pay to doctors for interim administrative responsibilities beyond the scope of their normal positions. On-call differentials refer to pay for doctors on a standby status.
For individual physician performance, the percentage of organizations that linked at least some of their incentives to quality increased to 86% in 2013, compared to 77% in 2012; and for patient satisfaction, it was 70% in 2013, compared to 66% in 2012.
Group performance metrics in physician incentive plans also showed similar payment related to quality and patient satisfaction in their incentive plan metrics. About 69% of those organizations linked payment to quality in 2013, compared to 56% in 2012; and 60% in patient satisfaction in 2013, compared to 50% in 2012.
Physicians are facing obstacles as they move toward improved quality and a "growing list of new demands" that include learning new EHR systems for new cost and business models, Otto says, adding that these trends influence how employers want to address compensation increases.
Designing incentive plan packages may be difficult, Otto says. Pay plans may involve complicated clinical structures such as ensuring vaccinations in pediatric practices or treating adult diabetic patients. They may result in measurements of not only long-term processes of care, but also outcomes. "It's a big challenge everyone is facing, with outcomes-based performance measures," he says.
Overshadowing incentives for physicians is the question of declining reimbursements and overall revenues.
"Among the issues coming down the pike is, 'How do you not only sustain current salaries, yet provide for increases?,'" Otto says. "I don't know the answer."
Joe Cantlupe is a senior editor with HealthLeaders Media Online.
