Becker's Hospital Review

63 Executive Briefing: Physician Compensation W hen healthcare reform was first being debated several years ago, there was a dramatic amount of hospitals acquiring physician practices. Those within the industry saw the writing on the wall. The Patient Protection and Affordable Care Act would gradually move the system toward a value-based, coordinated approach and away from the fee-for-service, frag- mented status quo. Healthcare leaders realized they needed to build a strong, stable physician network — one that could connect their care delivery systems. While the acquisition of practices has slowed down relative to a few years ago, hospitals and health system executives are mov- ing onto the next logical step: How can we make this a high-func- tioning network? How can we engage our physicians to improve patient care? How can we make value-based care a reality? John R. Thomas, CEO of physician alignment firm MedSyner- gies, says a vital component of this process involves examining physician compensation strategies. Medicare and commercial payers are aggressively moving toward pay-for-performance and accountable care reimbursement contracts for hospitals, and now hospitals are working those concepts into how they pay their physicians. Striking the right type of compensation models with physicians could go a long way toward reaching true alignment and care coordination, according to Mr. Thomas. The right model could prompt physicians to focus on better patient outcomes, and it could allow healthcare organizations to optimize their opera- tions. But well-rounded value-based compensation plans don't happen overnight. Pay-for-performance physician compensation today From 2012 to 2013, hospitals and physician practices increas- ingly adjusted their physician compensation plans to include more performance-based metrics, like quality and patient satisfaction. Healthcare compensation consultancy Sullivan, Cotter and As- sociates found that the median amount paid for a specific quality metric to physicians in 2013 was $15,000, but that figure depend- ed on the specialty. Primary care physicians received an average quality payment of $7,000, while medical and surgical specialists received $20,000. As mentioned earlier, hospitals and health systems are mov- ing toward those types of value-based physician pay strategies in an effort to better integrate care and align incentives. How- ever, if a physician makes $250,000 per year, for example, and only $15,000 of that total goes toward value-based metrics, that means 94 percent of the physician's pay still depends on volume, RVUs and other traditional factors. Mr. Thomas says as the healthcare system transitions to the pay- for-performance world, hospitals will have to work diligently to ensure enough of their physician compensation plans incent the right behavior — and it's likely to be an arduous process. "If you want pay-for-performance, you have to ratchet up the in- centive in a meaningful way," Mr. Thomas says. "Incentives for pay-for-performance today are not material enough to make a long-term impact." Is there a "perfect" pay model? No matter what environment hospitals operate in — fee-for-ser- vice, capitated or otherwise — Mr. Thomas believes a "perfect" physician pay plan simply doesn't exist. Surgeons command more than primary care physicians, but some rural areas might pay a premium for primary care, depending if there is a shortage of the specialty. The lesson: Many factors come into play when creating a compensation model, and the metrics of how to pay the physician are far from being the deciding factor. "Depending on market specialty and market needs, finding a way to be nimble in physician compensation is important," Mr. Thomas says. "But at the end of the day, compensation models are not per- fect and should have a review process about every 24 months." How Pay-for-Performance Compensation Plans Can Facilitate Physician Alignment Sponsored by: While the acquisition of practices has slowed down relative to a few years ago, hospitals and health system executives are moving onto the next logical step: How can we make this a high-functioning network?

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