Changing reimbursement models requires changes to physician compensation models – basics

Cynthia KilroyThe public and private markets are moving to outcomes-based reimbursement and while many provider organizations are signing risk-based contracts, they have not realigned the physician compensation model. The conundrum – the organization is reimbursed to manage costs and utilization but the physicians are compensated based on volume (production). Currently, only 3% of physician compensation models have some form of quality/outcomes measures but over 35% of provider organizations are in some type of total cost of care contracts.

Traditional compensation models focused on episodic care using unit costs, volume, coding and collections as the fundamentals to calculate success. The new value-based compensation models must realign the baseline to incorporate not just productivity but population (panel size), care coordination, quality outcomes, peer satisfaction (citizenship) and patient satisfaction measures. Provider organizations that have been successful in value-based delivery models state that at least 25-30% of physician compensation must be tied to outcomes or the organization will not change the physicians’ care delivery approach from episodic to population.

As provider organizations move to value-based delivery models they need to answer several key questions to align the goals of the organization and refine the governance structure. In addition, key questions around how and when to engage the physicians are fundamental to success.   These questions include:

  • Value-Based Organization Goals
    • What is the vision of the organization in value-based care?
    • Does physician compensation align with the goals?
    • How does the physician compensation model mature as the organization increases at-risk revenue?
  • Governance
    • Who and what are the critical components of a value-based governance model?
    • What is the philosophy around compensation and incentive models – reward or risk?
    • What are the priorities to engage and align physicians?
    • Who are the physicians to lead the change?
  • Physician Engagement
    • How and when should physicians be engaged in the overall transformation?
    • How does the role of the physician change in the new organization?
    • Who should be included in the new compensation model (i.e. PCP and specialist)?
    • How do you measure physician performance and reward for outcomes?

In my next blog I will identify the pillars required to create a strong compensation model as organizations move from episodic to value-based care.

About the author

Cynthia Kilroy

Ms. Kilroy has over twenty years of experience as a healthcare professional focused on helping clients conceive and implement strategic decisions that change the concept of the business they are in to meet emerging challenges and market needs.  Currently, Ms. Kilroy is SVP of Solution Strategy and Business Development for Optum Consumer Solutions Group and is the designated Provider Market Lead.  Cynthia is accountable for business and product strategies to position Optum consumer health, financial management and population care management capabilities to meet the strategic needs of the market.

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