Physician Compensation Tied to Quality Outcomes

Physician compensation incentives, traditionally, have been based on volume. Yet today’s greater emphasis on excellence in the provision of patient care means that more physician contracts are tied to various quality and satisfaction metrics—especially in primary care.

“Providing the highest quality patient care is every healthcare organizations’ No. 1 goal,” said Lance B, senior director of recruiting, strategic accounts at AMN Healthcare, the nation’s leading physician recruitment firm. Thus, organizations must determine “how can we better assure that physicians are compensated based on quality outcomes vs. volume, or in addition to volume.”

Metrics driving physician compensation changes

A number of large health systems are considering implementing value-based physician compensation. Traditionally, incentives have been based on volume or work relative value units (wRVU), but since passage of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) and the Merit Based Incentive Payments System (MIPS) more employers are introducing performance-based physician compensation.

“Due to legislation, such as MACRA/MIPS, among others, there has been a paradigm shift over the past few years, which continues to influence healthcare systems and organizations to re-think or re-evaluate their [physician] compensation model,” Lance said. “I have seen first-hand large health systems moving to a full-salaried model focused on quality outcomes as opposed to wRVU productivity.”

However, Lance said, “wRVU productivity is still very much alive,” with such volume-based metrics being combined with value-based physician compensation.

“Net collections is most common in private practice or pseudo private practice specialty models where the physician may be hired for a start-up or group practice as part owner/part employee or owner/equity models,” Lance said.

MACRA/MIPS affects Medicare payments, but commercial insurers payment agreements also are implementing some value-based physician compensation. Cigna reported in 2019 exceeding its 2015 value-based care goal of having half of its payments value-based. More than 240 primary care provider organizations take part.

Models vary but those payment incentives might be based on corporate citizenship, participating in departmental meetings or serving on committees; Healthcare Effectiveness Data and Information Set (HEDIS) quality measures; patient satisfaction scores; and access data, including how quickly new patients can get in to see the physician.

The payouts might base 75 percent of the value-based incentive physician compensation on the HEDIS/quality scores and 25 percent on patient satisfaction. Organizations also might provide payouts once certain benchmarks are achieved, such as 80 percent or better on patient satisfaction surveys.

“What I find to be most common is that large healthcare organizations and healthcare systems have tied some level of compensation to quality-based outcomes or quality patient care, typically in the range of 10 percent with as much as 20 percent of the physician’s earnings tied to quality metrics,” Lance said.

Lance recommended organizations tailor value-based physician compensation to the specialty and not use the same metrics for every physician. Sometimes, health systems will need to adjust the measures to accommodate situations such as physician shortages.

“You have to make sure they are attainable goals,” he said.

If an organization is just starting a value-based system, he suggested discussing it with the physicians. 

“You have to have buy-in from your physicians in order for this to be successful,” Lance said.

The Supporting Data

AMN Healthcare 2021 Review of Physician and Advanced Practitioner Recruiting Incentives found quality determines 10 percent of the total compensation a physician receives, based on offer packages across a number of specialties.

Researchers from the RAND Corp., Brigham and Women’s Hospital and Harvard Medical School reported in JAMA Health Forum, in 2022, finding growth in value-based physician payments. Those performance-based incentives were included in most primary care and specialist physician compensation, and those incentives averaged less than 10 percent, with value-based physician compensation more common for primary care physicians than specialists.

“For the U.S. health care system to truly realize the potential of value-based payment reform and deliver better value for patients, health systems and provider organizations will likely need to evolve the way that frontline physicians are paid to better align with value,” said Rachel O. Reid, MD, MS, the study's lead author and a physician policy researcher at RAND, in a statement.

The 2020 Deloitte Survey of U.S. Physicians reported 36 percent of the 680 physicians surveyed drew some compensation from value-based payments. Performance bonuses of more than 5 percent were indicated by 23 percent of the surveyed doctors.

As time progresses, more physician compensation will likely focus on quality of care.

“I do believe we will continue to see more of a focus on value-based care and quality-based incentives and compensation over time,” Lance concluded.

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