From the Consultant’s Corner 2/21/14

Dusting off Your Physician Compensation Plan: 5 Steps to Creating a Value-based Strategy

For most practices, I suspect physician compensation is not something you are frantically trying to change. However, the sense of urgency may grow as healthcare reform continues to evolve.

As we all know, reform is shifting the focus of compensation from physician productivity (volume) to care quality (value), and payers are beginning to include patient satisfaction and quality as part of various payment reimbursement methodologies. As a result, practices may want to consider aligning their compensation plans with the shift toward value in order to remain viable.

Before we discuss how to align, let us take a closer look at how value-based payment is changing physician compensation. In the past, physicians were paid a percentage of charges or cash collected. More recently, the industry standard shifted to wRVUs (work relative value units) to incent performance. This model uses a point system for services rendered, with the accumulated points converted to a monetary value at the end of each quarter or year.

The wRVU method is almost counterintuitive to healthcare reform as the new emphasis on value disrupts the traditional mindset of “the more services provided, the more providers get paid.” The new thinking rewards quality and efficiency, not performing more surgeries or sending patients for expensive MRIs. In fact, payers see the focus on volume as inconsistent with protocols for quality care.

As you can see, it is a good time to review your compensation plan and ensure it is aligned with healthcare reform. Below are five steps to guide the alignment effort.

1. Find a physician champion. Strong physician leadership can support a smoother alignment process as this individual can address and overcome any physician reservations. Simply put, administrators cannot do this work on their own. A good choice for physician champion might be the head of the practice or a department chair.

2. Form a multidisciplinary compensation committee. If your practice includes several different specialties, you may want to create a committee to review compensation, which includes respected leaders in the practice and representatives of each specialty. This group can communicate to the rest of the practice frequently and transparently.

3. Conduct research and educate the committee. Look for and share information about current payers offering incentives or bonuses based on quality. Good sources of information might be the Healthcare Financial Management Association (HFMA) and the Medical Group Management Association (MGMA) or anecdotal information from other practices in the market.

4. Determine incentive goals and measures. Goals must be fair, measurable, obtainable and lucrative enough to get physicians’ attention. Ideally, you should balance base salary, productivity, quality, satisfaction and other measures. In my opinion, it is best to employ one compensation methodology across the group while the actual measures and goals within the group can vary by specialty. If the practice is already measuring quality for meaningful use (MU), use one or two of those agreed upon measures per specialty. If you are currently measuring patient satisfaction, use a score that reflects how patients feel about the physicians. Regardless of the measures, review incentive amounts to ensure they are meaningful to the physician and specialty.

5. Before launching a new plan, verify your practice can fund it. Make sure you do the math to check that the highest payout scenario is affordable. You also may want to phase the plan in to ensure the goals are captured in the EMR and the plan is doable. Most importantly, design the plan to be adaptable, so it can evolve when you review it annually.

We all know physician compensation plans are a challenge regardless of external influences, such as healthcare reform and value-based reimbursement. While there is no need to rush in and dramatically change your approach, it is definitely time to assess the current landscape and begin planning for the future. Remember, this cannot be done overnight or in a vacuum, especially with all the other priorities such as MU and ICD-10. In my view, the practices that are proactive in aligning their compensation plans will be the most successful going forward.

Johanna Epstein is vice president of management consulting services at Culbert Healthcare Solutions,