Healthcare reform is changing the reimbursement landscape and reshaping how physicians are compensated. As a result, compensation models need to adapt to reflect a new focus on quality, outcomes and patient satisfaction in addition to volume. Some progressive healthcare organizations are planning now for the impact emerging payment changes will have on physician reimbursement and retention as well as the healthcare organization’s long-term financial viability.
More and more, physician compensation is becoming a concern for hospitals and large group practices as shrinking reimbursement, market pressures and increasing regulatory burdens are causing a growing number of physicians to move away from independent practice and embrace a hospital-owned/employed or large group practice model. As reform continues, it is increasingly important for hospitals and health systems to reevaluate their physician compensation plans to ensure they remain competitive, incorporating quality measures that align with value-based reimbursement.
Although we are in the early stages of this paradigm shift, and current compensation models remain largely volume driven, there are key steps to preparing for outcomes-driven reimbursement models and aligning system, departmental, and provider-level goals. We have found that through pro-active physician engagement, attention to department-level details, comprehensive economic analysis, and environmental awareness can deftly navigate an otherwise challenging transition.
As you consider realigning compensation models we have found the following areas help ensure successful transitions:
- Get physicians onboard early. Physicians are highly concerned about the impact of value-based care on their personal compensation, so getting them on board early in compensation plan discussions helps ensure their understanding of potential changes. At the same time, direct involvement improves their acceptance of new plans and contributes to overall physician recruitment and retention, both of which are key to a healthcare organization’s long-term financial health.
- Establish a physician champion. Developing appropriate and well-considered compensation plans requires a physician leader who not only can dedicate the required time but also clearly understands the organization’s financial landscape.
- Create a compensation committee. Made up of physicians and administrators, this steering group ensures that any effort to retool physician compensation is not viewed as merely an administrator’s plan or an effort being pushed down from the C-suite to various departments.
- Address department-level issues. The system-wide plan should be supplemented with departmental-level plans, especially in large organizations where there is the potential for variations in compensation across departments. It is important to standardize the plans while keeping them flexible enough to address departmental differences
- Verify the plan is affordable. Before finalizing a physician compensation plan, an organization must verify it has sufficient funds to support the plan and pay physicians the agreed-upon rates, especially in light of shrinking reimbursements and narrowing margins.
- Adopt a regular review schedule. Historically, organizations have reviewed their physician compensation plans every two to three years. However, healthcare is changing so fast that waiting this long between reviews could be problematic. Going forward, organizations should incorporate regular compensation plan reviews into day-to-day organization management.
- Be mindful of the payer environment. Not all payers will approach value-based payment in the same way, as some may make small incremental changes over a period of time while others may make large changes quickly. It is important to be prepared to address payer changes as they occur.
- Stay abreast of the industry. Organizations can keep up with changes and trends in value-based reimbursement by attending conferences, reading journals and participating in other educational and information-sharing opportunities.
- Maintain an ongoing physician dialogue. Financial leaders can use market and industry knowledge to create an open and ongoing dialogue with physicians. Regular communication tells them that leadership is mindful of the potential issues that could impact their future compensation. Additionally, open conversations about compensation models and the organization’s vision for the future can bolster physician retention and recruitment efforts.
Even with the ambiguity of future physician compensation, there is one certainty: the concept of pay for productivity is on its way out. The payment philosophy of “The more I do the more I get paid” will be replaced by a compensation model that focuses on quality, outcomes and patient satisfaction. Payers will consider those same factors as they reimburse organizations and physicians. Healthcare organizations of all sizes would be well-served to begin their preparations for this transition by partnering with their participating physician staff, considering their market realities, and determining how best to reward internally for quality-driven care in advance of payers making more unilateral determinations.