Incentivizing Docs: Lessons for Payers From the World of Physician Compensation

As payers are under ever-increasing pressure to control costs and improve the quality of care, the focus on stronger incentive programs and a greater shift to value-based payments shows no signs of slowing. A recent Forbes article noted that figures from the Medical Group Management Association show nearly 11% of primary care doctor payments come from value-based contracts compared to just 3% in 2012 and 6.7% in 2013. Oliver Wyman’s Tomas Mikuckis, Parie Garg, and Eric Lu share observations of how this trend is playing out in the market:

We’re seeing payers implement a range of innovative new ways to encourage providers to deliver higher quality, lower cost care. Many payers are further increasing and refining P4P-style bonus payments to incentivize providers to achieve desired target outcomes, especially as quality in Medicare Advantage Stars becomes a do-or-die priority for many Medicare Advantage plans. Shared savings models are becoming more prevalent to align payer and provider incentives to lower costs. And the market is shifting towards full-risk arrangements where financial success is wholly based on total cost and quality performance.

These initiatives all require great effort and investment – but how can payers ensure they are achieving the value they need from providers? And more importantly, in a world of increasing pressure on cost performance, how do payers make sure they are not throwing good money after bad, but establishing incentive programs that are effective and valuable in driving change in outcomes?

Payers must shift from the historical approach of designing initiatives that target the desired value-based outcomes in a vacuum. To truly grab the attention of providers and drive behavioral change, payers must understand and align with the provider’s existing compensation and incentive models. The models can differ significantly across a payer’s network. While independent providers may be compensated primarily from the payer’s fee schedule, employed providers receive salaries and bonuses that are calculated largely based on volume-based productivity performance. Understanding how the payer’s initiative will impact the overall compensation for a physician is critical to gauge how strongly they will respond.

More importantly, as provider organizations have started to shift compensation models for their physicians to align with value-based outcomes, there are a number of lessons learned from the world of physician compensation that payers should consider when developing new value-based initiatives:

  • Cause and effect: Most incentives tied to specific value-based metrics assume that the rewards will influence a physician’s practice patterns and resulting performance on that metric. However, physicians may not receive those payments directly because their compensation is distributed via their employer’s own compensation model, or incentives are retained by their IPA or PO. Understanding where the dollars go, and collaborating with physician groups to ensure they reach their target audiences, is critical.
  • Don’t operate in a vacuum. Just as payers are shifting towards value-based payments, provider organizations are also shifting towards incorporating value-based outcome performance into their compensation models. Payers should collaborate with providers to ensure that the targeted outcomes are aligned and that they are incentivizing physicians to perform against the same set of goals.

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Price is What You Pay. Value is What you Get: Designing a Value-Based Physician Compensation Program

stethoscope_March_2015Our Chief Medical Officer Bruce Hamory explained in an earlier blog post the importance of engaging physicians in the process shifting a healthcare organization from volume to value. In this second in a series on physician compensation, Parie Garg, a member of the MMC Advantage Provider Transformation team, presents how a physician compensation plan can be designed to both gain doc buy-in and realize the promises of value-based care:

So your organization has decided to move to value, keep up with the changing market trends, and make sure that you can keep the overall cost of care down. Great! The leadership is aligned, the administrative staff are aligned – but you still have one problem. The physicians that your organization depends on are resistant, skeptical, and wary of change.

Understandably so. Past payer and provider efforts to align compensation with value-based care have either provided a pittance to physicians (e.g. the 1%-5% uptick from P4P programs) or have buried them in paperwork, metrics, and measures up to their stethoscopes. To a large extent, gaining physician buy-in hinges on having an appropriately designed physician compensation model that rewards physicians for behaviors that align with the group or payer corporate objectives. In addition to considering the mechanics around compensation, rewarding physicians for outcomes, and accounting for additional administrative responsibilities, the compensation model must also take into account the realities of operating in a market that is increasingly competitive for limited physician resources.

Our team has had significant success in designing physician compensation programs that take into account all of these nuances and complexities. Not only do we believe that an appropriate compensation model can be feasibly designed and orchestrated, we also believe that a simple, elegant solution can be game-changing, and can make or break an organization’s ability to improve quality and lower cost by effectively and speedily bringing physicians aboard. By focusing on the following success factors, health plans and provider systems alike can develop a successful, value-based compensation program:

  • Align on organizational priorities first. Prior to launching any compensation redesign, it is critical that the organization is clear on what behavior changes are to be encouraged within the physician population, how those align with priorities, and how such behaviors and priorities may need to evolve as the organizational strategy evolves. The compensation program should be built to support these principles.
  • Make the compensation program fair, achievable, and impactful. A value-based compensation model should (a) align with market benchmarks (b) reward the high performers and hold the low performers accountable (c) balance production, quality, and efficiency incentives, and (d) ensure that the upside opportunity per distinct goal or metric is sufficient to motivate behavior change. Likewise, assure that models are designed and initial targets are set so that historical levels of MD compensation are achieved in early cycles of the program.
  • Focus on the metrics that matter. Avoid laundry lists of metrics that are dilutive of the total incentive pool, are not statistically valid or reproducible, are outside of the control of the clinicians, or do not contribute to improvement in clinical value. Pick 3-4 behavioral categories that matter and limit distinct metrics to 5-6 per specialty.

Design the compensation program such that incremental incentive pools are funded through system-wide savings generated from practice or utilization efficiency stemming from physician behavior change. – Oliver Wyman’s Parie Garg

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Infographic: What’s in the Bag of the Quantified Clinician?

Quantified Care created this infographic to explain the practical applications of their mobile health devices and tools. Learn more here.

Infographic 2 FINAL

Source: Quantified Care


Marty Makary’s Case for Consistency

We often talk about the need to make medical practice more consistent. It’s not necessarily an idea that goes down well with healthcare consumers. They’ve been taught by their doctors that every case is different and that physicians need the broadest possible latitude in deciding what is right for the individual patient.

There’s something to what they say, of course. Individual cases differ. But what if you detect a group of doctors who consistently fail to use a proven technique and choose one that’s demonstrably inferior in most cases—and they do it for no good reason?

That’s roughly the argument that Dr.Marty Makary of Johns Hopkins made in the Wall Street Journal last week. Makary and his colleagues looked at the use of minimally invasive surgical techniques (which typically involve small incisions and fiber optic cameras) compared to traditional open surgery in four common procedures at more than 1,000 U.S. hospitals. What they found was an astonishing degree of inconsistency: At about one-third of hospitals, most appendectomies are minimally invasive. At another third, 90 percent are open. They found similar patterns in the other procedures they studied. (The full study was published in the British Medical Journal, and can be read here.)

Why the differences? [Read more…]

7.7.14 HealthBuzz: MGMA Survey, Google Health, IBM Tracks Illness +

healthbuzz7Forbes contributor Bruce Japsen reports that “doctors may soon be paid for not making you wait” based on the results of the Medical Group Management Association’s Physician Compensation and Production Survey: 2014 Report. According to the report, quality measures continue to be a small yet increasing percentage of total compensation for physicians. Primary care physicians said an average of 5.96% of their total compensation was based upon measures of quality, while for specialists the average was 5.70%. Practices also reported that patient satisfaction played a small role in physician compensation. Noted MGMA President and CEO Dr. Susan Turney: “MGMA members, alongside clinicians, are continuing to determine and implement the processes, tools, and procedures necessary to achieve high-quality, cost-effective care and aligning these efforts with compensation plans for physicians.” In other health innovation news:

4.21.14 HealthBuzz

healthbuzz7Brookings Institution fellows Dr. Farzad Mostashari, Dr. Darshak Sanghavi, and Dr. Mark McClellan make the case in a recent JAMA Viewpoint article that “primary care physicians have been underused in leading health care reform” and that physician-led Accountable Care Organizations (ACOs) are increasingly offering many “a powerful opportunity to retain their autonomy and make a positive difference for their patients—as well as their practices’ bottom lines.” A key difference, the authors note, between physician- and hospital-led ACOs is that those run by the doctors themselves “have clearer financial benefits from reducing health care costs outside the physician group, which are much larger than physician costs. In contrast, hospital-based ACOs also receive shared savings for avoiding hospitalizations or shifting care to a less costly ambulatory setting, but those cost reductions are lost revenue for the hospital.” Read their full recommendations here. In other health innovation news:

Flipping the Clinic to Improve Care


Source: RWJF

A new project of the Robert Wood Johnson Foundation focuses on improving the nature of the doctor-patient visit to ultimately improve patient understanding, provider efficiency, and health outcomes. Called “Flip the Clinic,” the initiative is being led by the foundation’s entrepreneur-in-residence, Thomas Goetz, and in collaboration with social innovation consultancy Reos Partners and design firm Volume Design. Last fall, some 15 healthcare “thinkers and doers” – including HealthLoop’s Jordan Shlain, David Van Sickle from Propeller Health, and Rebecca Onie from Health Leads – attended a Flip the Clinic workshop at the foundation’s headquarters in Princeton, N.J., to brainstorm the project’s direction. Since then, the group has been collecting ideas at where they are launching a toolkit of strategies and resources for both patients and care providers. Suggestions have included better communication between patients’ care providers, conducting tests before a patient sees a provider so time in the clinic can be used for discussion and shared decision-making, and using audio and video technologies in patient-provider interactions to help patients remember complicated treatment plans. So far, nearly 30 ideas have been turned into “flips” on the site, complete with descriptions, case studies, and opportunities for online dialogue. Here’s Flip #23: What would a health care system based on a community’s values look like? Like the Nuka System of Care at Alaska’s Southcentral Foundation. Says Goetz in an FAQ: “We hope that can serve as a hub for these ideas as well as a clearinghouse for what works and what doesn’t in the doctor-patient encounter. We imagine that Flip the Clinic will also help uncover new opportunities in technology that could serve specific and important functions.”

3.24.14 HealthBuzz

healthbuzz7Dr. Richard Gunderman, vice-chair of the radiology department at Indiana University, considers in a recent Atlantic post how giving physicians more say in how to incorporate technology into their work can be good for patients and the field. He shares his interview with Dr. Paul Weygandt, an orthopedic surgeon who is now vice president of physician services at a medical communications firm. He asks Dr. Weygandt what can be done to bridge docs and tech. Dr. Weygandt argues that doctors need to play a more active role in not just implementing new ideas in healthcare but also designing them because too many decisions are being made by people who do not directly provide patient care. Said Dr. Weygandt in the interview: “Every innovation should be tested not just to see if it increases revenue or cuts costs, but also to ensure that it enhances the doctor-patient relationship.” See full post here. In other health innovation news:

Dear Docs: Don’t Fight Retail Clinics, Embrace Them


Sam Glick
Oliver Wyman Principal

This post is contributed by Oliver Wyman Principal Sam Glick:

Over the past several years, we have seen tremendous growth in retail clinics in the US. These clinics – available at stores like CVS, Walgreens, Kroger, Walmart, and Target – now number more than 1,500, and we expect there to be more than 3,000 of them by the end of 2016. Why the rapid growth? The answer is simple: retail clinics fill an unmet consumer need for high-quality, convenient treatment. According to recent Oliver Wyman research, only 15 percent of Americans have tried a retail clinic – yet 50 percent say they would like to use one. That’s a lot of market potential.

For treating acute conditions and providing basic preventative services, the appeal of retail clinics is obvious. Because of their walk-in appointments, neighborhood locations, convenient hours, and clear pricing, retail clinics are ideally suited to provide this sort of care. Why take time off work to see your doctor (after waiting several days for an appointment) when you can just walk into a drugstore on your way home or handle during your weekly shopping trip to the grocery store? The data bear out that this value proposition works – according to a recent survey, 91 percent of those who used a retail clinic were satisfied with the experience.

This trend, as you might imagine, has some physicians worried. Last week, the American Academy of Pediatrics (AAP) issued a policy statement advising against the treatment of children and adolescents at retail healthcare clinics. This mirrors a similar anti-retail clinic stance taken by the American Academy of Family Physicians, and reaffirms AAP’s 2006 position on the issue. The argument made by these organizations and others is that retail clinics – which typically interact with patients in a “once and done” transactional model – represent a step backwards in terms of improving care coordination and ensuring that every patient has an enduring primary care relationship.

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Make Docs Pay Off—Buy Responsibly

Doctors_stethoscope_1In the recent Modern Healthcare article “Making Physicians Pay Off”, Beth Kutscher reports findings from the Medical Group Management Association showing the median loss for employing a physician in 2012 was $176,463. In addition, she writes, Moody’s 2014 outlook report called physician employment “a principal driver of hospitals’ margin pressure.” Despite the clear challenges of integrating docs in a cost-effective way, Kutscher noted that Moody’s “saw no signs of a slowdown.” If provider organizations are going to continue buying physician practices while they make the transition to value-based healthcare, at least they should be smart about it. We asked Oliver Wyman’s Tom Mikuckis what he advises clients. He had a few key points:

Remember you’re in transition. And that means the economics of different types of physicians are going to change over the next few years. Surgeons, for example, are extremely valuable in a fee-for-service world. In a fee-for-value world, many organizations may find they’re oversupplied. “Meanwhile,” says Mikuckis, “primary care doctors, endocrinologists, and a few other areas are going to become much more valuable over the next few years, because they’re the key to managing costs.”

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