Aligning Physician Compensation with VBC
by Dr. Jon Hart
One of the first and most important challenges an organization faces when moving from strictly fee-for-service (FFS) healthcare delivery to value-based care (VBC) is aligning physician and provider compensation to the new priorities of VBC. If this gets left to be done “later” or not at all, the disconnect between incentives will make VBC success very difficult.
If someone suggests to you that your organization should move to VBC revenue programs without FIRST addressing your physician compensation model (even if over a couple of years), you should channel Nancy Reagan and Just Say No.
I’ve seen a lot of different models out there, and I’ll share them as an example. While there are a number of compensation variations, many of the successful organizations share similar practices with slight differences. Even so, the good news is that in physician comp models, there’s more than one way to verb a noun. (Trying to be kind to all the ailurophiles out there.)
The bottom line in physician compensation is that physicians should be paid the same way an organization makes its money – align compensation and incentives with business priorities. This ranges from a new VBC organization with activity-based bonuses to a mature one with a risk-adjusted budget (current year) and performance (3-year rolling) factors impacting revenue.
Let’s examine the various ways doctors get paid and how they can (or don’t) work well in a VBC world. The discussion will be exclusively about Primary Care.
Salary
This is the simplest way to pay physicians and providers and is still a staple of many health systems. Every month, the doctor or provider is paid an agreed-upon salary in return for seeing patients in the office.
Pros:
Physicians can take as much time as needed in the room with the patient.
Physicians can have more control of their workday.
Time can be left for urgent patients and call-ins.
Allows for flexibility with in-person and virtual visits.
Easy to budget personnel expenses.
Cons:
The doc gets paid the same whether they see ten patients or 60 patients in a day. This is potentially unsustainable based on revenue generated and salary paid.
If not built into the workflows, there’s no way to emphasize Annual Wellness Visits, HEDIS measures, frequent care of chronic diseases, or acute care call-ins. Docs will simply see who’s in the next room.
If there is no incentive for workflow changes – the priority can become getting through the day with a path of least resistance.
VBC augmentation:
Activity-based bonuses – AWV, HEDIS Measures, etc. This gets physicians thinking in terms of visit type and measures to close.
Cost and Use bonuses – ED/K and IP/K goals. Doing this will encourage doctors to find ways to engage and interact with patients to optimize their health and well-being beyond the four walls of the clinic.
Risk-adjusted salary – Multiplier to base salary based on the documented burden of illness. Sicker patients = higher salary.
Set up processes and workflows that get the right patients in front of the doc. This includes scheduling frequent visits based on chronic fragile conditions, leaving time on the schedule for acute same-day appointments, and teeing up AWVs for the physician or provider to breeze through them effectively.
Collections
This method is not utilized much anymore, but surprisingly, it’s still out there. In this model, physician wages are based on a percentage of the money collected from the services they’ve rendered.
Since employed physicians aren’t in control of how claims get submitted, or bills get collected, many docs have asked to be moved away from this method. Abandoning this model also helps a physician feel comfortable about getting the right patients in frequently, even if it’s for a Level 3 visit, and it also takes away the disincentive of seeing Medicaid patients where the money collected is often a fraction of Medicare. This last piece is extremely important if an organization is in Medicaid Managed Care VBC programs.
Pros:
None.
Cons:
Too many to list
VBC Augmentation:
Find another model.
Production
Around the turn of the century (sounds so old, doesn’t it?!?), physician and provider compensation started to be based on RVUs – Relative Value Units. (Link to VBC Intro and Terms) In theory, an RVU is an objective way to identify the cost components linked to procedures done by physicians and providers so reimbursement prices could be calculated. They quickly became used as a productivity measure for physicians and providers to go beyond simple numbers of patients seen.
This model can have a base salary with production pay based on RVUs, or it can be a stand-alone, production-only model.
Pros:
Provides incentive to see more patients and code correctly.
Rewards based on work done (but is it the right work?).
Proximal revenue compared to wages. If 500 RVUs of work were done last month, one would expect commensurate revenue to the practice.
Incentive to improve efficiency.
Cons:
Time with patients can get compromised to increase throughput, giving the practice a health factory vibe.
Patient-physician relationships suffer.
If not built into the workflows, there’s no way to emphasize Annual Wellness Visits, HEDIS measures, frequent care of chronic diseases, or acute care call-ins. Docs will simply see who’s in the next room.
Only incentives for workflow change center around improving efficiency and increasing throughout.
The work being done isn’t always the most important for patient care and outcomes and certainly isn’t beneficial to VBC performance.
VBC Augmentation:
Activity-based bonuses – AWV, HEDIS Measures, etc. Setting up incentives for AWV completion, Advanced Care Planning discussions, and addressing HEDIS measures leverage the intersections between FFS and VBC, getting FFS docs to start paying attention to VBC-aligned activities. (Link to VBC Intersections series)
Cost and Use bonuses – ED/K and IP/K goals.
Risk-adjusted salary – Multiplier to base salary based on documented burden of illness.
Set up processes and workflows that get the right patients in front of the doc and necessary HEDIS Measures satisfied. This includes scheduling frequent visits based on chronic fragile conditions, leaving time on the schedule for acute same day appointments, and teeing up AWVs for the physician or provider to breeze through them effectively. Make the work being done the important work of VBC.
Hybrid
Most practices successful in VBC adopt a hybrid model for compensation – a productivity-based base pay with VBC incentives and shared savings established from attribution. This can look a lot like the VBC augmented versions of salary and production models above but with a few twists.
The VBC incentives in this model are typically tied to attribution and usually highlight the following:
Activities-based bonuses (are you doing AWVs and closing HEDIS Measures)
Cost and Use metrics (how well are you keeping patients out of the ED and hospital), and
Experience (usually a quick Net Promoter Score survey to patients after visits).
Some folks add a “citizenship” piece (meeting attendance), an access piece (how available are you to your patients based on something like the third next available appointment), or appropriate risk coding address rates (not actual coding, as this can get dicey from a regulatory and compliance perspective).
Additionally, in shared savings or risk contracting entities, the physician is usually given a share of the money saved based on their attributed patients. In some practices, this amount eclipses the productivity base wage.
Pros:
Gets alignment with workflows and processes that lead to VBC benefits, including AWVs, improved access to avoid decompensation of chronic conditions, and opportunities to connect patients with services to manage their care. Gives the flexibility to focus on elements of payer contracting that drive practice revenue.
Focus is on processes and outcomes, not throughput.
Allows opportunity to build relationships with patients.
Allows physicians to see patients not in VBC contracts.
Productivity component incentivizes efficiency.
Cons:
Multiple plan components can be cumbersome.
Needs a strong attribution number to be viable – may not work well if your only VBC contract covers just 100 members.
Here are some other variations of comp models I’ve seen in practice:
(Documented Burden of Illness x Attribution) x % Contract Performance. In other words, based on HCC coding, what’s the risk adjustment of one’s patients (how sick are they) multiplied by how many attributed patients a doc has, times a percentage of the revenue from contract performance – activities-based, shared savings, and risk or premium. No base salary.
Use the Johns Hopkins ACG risk score of attributed members in a practice to calculate the Expected Cost per physician patient panel, then pay/bonus based on the Observed/Expected difference (offset new doc disadvantage with a time-limited guarantee). This method relies on some advanced analytics and trust in your numbers.
Apply fractional attribution to any of the models based on the percentage of times a PCP saw/billed for the patient.
Again, there are multiple ways to get docs paid. The key takeaway is to ensure that they’re getting their revenue in a similar way that the organization gets its revenue. This ensures alignment with VBC principles and is a huge step toward being successful in VBC.
