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Max Reiboldt, CPA
President/CEO
March 2014
III. Second Generation Compensation Plan
Considerations
Second generation compensation plans present a number of matters to address, especially in light of the mistakes made in compensation plans, as outlined in Part I of this document. The overarching priority in developing compensation arrangements is to address the need for the employer and employee to continue the working relationship. This perspective should undergird the mission, and it should outweigh any challenging and difficult issues that arise in developing the second generation contract. This section considers the
pertinent issues and helps to build a platform for future improvements in the
compensation structure. Developing a second generation contract that is agreeable and acceptable to both parties is a monumental challenge, especially when the employer wants dramatic changes in the compensation and incentive structure. Nevertheless, it is
achievable. The objective is for the parties to understand the value and benefit of renewing the contract, regardless of the changes in compensation terms, in comparison to severing the relationship. Physician and hospital alignment is critical for success under new payment models driven by accountable care.
Physician-hospital alignment structures can be explained through an illustration of their history and their evolution. Figure III-1, below, illustrates how the market and the reimbursement paradigm are changing. Subsequently, the compensation and incentive structure for employed physicians must undergo changes that reflect the progression Likely, physician compensation in an accountable care era still will be tied largely to a fee-for-volume (or fee-for-service) structure. However, new reimbursement models will be considered that promote fee for value. The elevation of fee for volume will be executed through specific pay-for-performance plans and, likely, a form of bundled payment based on both physician-hospital integrated models and, potentially, for private groups through specific episodic bundling. This will require partnering among the various providers to realize these types of reimbursement. Ultimately, models that share savings will be
Degree of Physician Alignment
Cost Responsibility (Provider)
4
Cost Responsibility (Provider)
standard. Physicians, who are accustomed to working on their own, will need to respond to the new payment models through alignment initiatives.
Market Evolution—Dictating New Compensation Considerations
Figure III-1 -- Changing Reimbursement Paradigm Creates New Clinical Delivery Thinking (i.e., Coordination)
Physician Alignment Crucial for Success under New Payment Models
STRATEGIC RESPONSES TO NEW REIMBURSEMENT MODELS3
1 Combined payment for inpatient stay
2 Combined payment for all physician, inpatient, ambulatory and post-acute services 3 Portion of achieved cost savings paid to provider group as bonus
4 Foundational characteristics under all the new reimbursement forms of “accountable care”
Pay-for-Performance Physician
Hospital-Bundling1 Episodic Bundling
2 Shared Savings Model
PCPs serve as “gatekeepers” Implement disease management systems Reduce unnecessary tests/procedures Create new partnering scenarios (post-acute, etc.) Coordinate site of service processes and transitioning Increased standardization and throughput Increase efficiencies via elimination of duplication functions Care process design system coordinated Accountability via tracking Align physician incentives
Hospitals as employers already have begun to move toward non-productivity-based compensation structures. Given these new types of reimbursement (i.e., pay-for-performance, bundling, shared savings, etc.), their second generation and beyond compensation plans will need to reflect these
structures as standards, more than just fee-for-service. That said, fee-for-service will remain a major form of
reimbursement. Compensation plans of the future should not exclude productivity-based incentives; rather, they should be a combination (or hybrid) of productivity and productivity-based incentives. The change in the total percentage of compensation tied to
non-productivity-based incentives should be evident, but not drastic. Physicians are apt to accept a change in reimbursement structure in their new or renewed contracts when the adjustment to their previous plan is minor.
Employers, particularly, hospital/health systems, should take a strategic approach to compensation design in the second generation models that addresses present needs and future unknowns. The strategy should also focus on educating the physicians to garner their support and encourage receptivity. This could mean that the second generation contract will be tied largely to productivity-based incentives, especially when considering that the bundled, shared savings, pay-for-performance forms of reimbursement are relatively small, if they exist today. In addition, the new contracts should address the possibility or probability of a changing reimbursement paradigm during their course; therefore, they should allow for flexibility. The contract should document the allowance for the employer to work with the employee physician to make changes, as appropriate to the changing marketplace. Although many physician employees will want their compensation terms fixed over the life of the contract, this is impossible given the current dynamics and future uncertainties of physician compensation. Compensation structures must be
responsive to the evolving healthcare market. Second generation compensation plans will
Compensation plans of the future should not exclude productivity-based incentives; rather,
they should be a combination (or hybrid) of productivity and
non-productivity-based incentives.
remain based largely on productivity, but with greater influence tied to quality, cost containment, etc., both in the present and the future.
The following section focuses on health systems’ employment of physicians and the emphasis the health systems should have within the second generation employment contracts regarding the goals of their working relationship.
Goals for the Future
As expressed, fee-for-service will continue as the major compensation vehicle; however, exclusive emphasis on productivity-based compensation will likely hinder the ability to address other priorities. Thus, the goals of physician practices
that are employed or contracted by health systems should also emphasize other increasingly important factors. These factors include access to and management of entire populations, integration of physician specialties and other healthcare providers in a continuum of care, and raising the quality of clinical care in such settings. Compensation incentives that raise the awareness and the incentives for group
production/performance are entirely appropriate and perhaps necessary. The concepts of “downstream revenue” that a
physician contributes to the health system are still in play. However, compensation most likely will fall under a bundled reimbursement structure, perhaps tied to a clinically
integrated network wherein both physician and hospital services are provided. This makes the process of group incentives essential.
The question today for providers is what do “group incentives” look like in clinical care settings and what do they accomplish? Does the group incentive model meet the ultimate challenge of delivering quality care in a cost efficient way across a continuum of care? The following section presents a unique system for facing the challenges of developing group
The concepts of “downstream revenue” that a
physician contributes to the health system are
incentives, explores an implementation model that provides and improves quality of care, and discusses the business benefits of the system through the realization of cost
efficiencies.
Care Process Design System Models
The ultimate challenge to the healthcare system today is to maintain or improve quality of care and to deliver care in the most cost efficient manner possible. To make the challenge even more difficult, these two imperatives must be accomplished in concert so that high value, defined as quality of care per unit of cost, is delivered to the patient and the payer.
In recent years, the industry has witnessed the development or rebirth of a large number and variety of provider organizations. However, these structures simply represent empty shells if they do not actually change the delivery system at the front-line level. In brief, organization charts and acronyms will not transform the system. This will require a front-line, bedside level approach to how care is actually delivered.
Furthermore, the focus cannot simply be on improving patient satisfaction. Today’s healthcare consumer is informed and knows the difference between nice amenities and the actual delivery of high quality, cost-efficient healthcare.
Evidence of a rising tide of consumerism was demonstrated in two of 2013’s most widely-read publications, Steven Brill’s article, “Bitter Pill: Why Medical Bills Are Killing Us”, featured in Time Magazine1 and Elisabeth Rosenthal’s series, “Paying Till It Hurts”,
published in the New York Times.2 Patients, facing increasing out of pocket responsibility
for their own healthcare expenses, simply no longer are willing to absorb cost shifts, accept
Today’s healthcare consumer is informed
and knows the difference between nice
amenities and the actual delivery of high
quality, cost-efficient healthcare.
unreasonable pricing (assuming they can obtain price information), or remain loyal to providers who cannot deliver value.
Therefore, successful healthcare delivery organizations will focus their efforts on quality improvement and cost reduction. They will aggressively avoid lost revenues by lowering their numbers of readmissions, reducing healthcare acquired complications, and improving the patient experience.
They will also learn to improve patient flow and throughput, standardize supplies, and increase efficiencies in their most common care processes through the use of modern operations management techniques, such as variability management, lean process design, queuing theory, etc.
But how does the successful healthcare organization of the future go about systematically meeting these challenges and focusing on these imperatives? To assist organizations in this endeavor, we have designed and recommend a Coker Care Process Design System or CPDS. The CPDS has four main components.
Figure III-2 -- Coker CPDS —A Systematic Approach
Note that the CPDS is designed to be a system as opposed to a temporary project or
initiative. Once in place, the CPDS will be a permanent part of the organization and will
allow it to differentiate itself in the marketplace as a high-value producer of healthcare services.
The major focus of the CPDS will be the CPU or care process unit. A care process unit is an isolated process or procedure frequently used to care for the most common clinical conditions seen within healthcare entities. A CPU may be something as simple as an office visit in one of the affiliated physician practices or as complex as a procedure for a patient within the hospital.
The CPUs will incorporate industry “best practices.” In order to assure this happens, the processes and procedures will incorporate evidence based guidelines derived from the scientific literature, the knowledge and experience of the clinical providers, and, finally, input from actual patients, who will be asked to help design their own care pathways.
The CPDS design process will work through multi-disciplinary design teams made up of physician leaders, clinical and non-clinical experts, financial experts trained in time-dependent, activity based, cost accounting (TDABC), process and performance
improvement experts trained in Lean process improvement techniques, and patients who have previously been served by the facility. Each CPDS design team will be tasked with mapping and embedding “best practice” guidelines into the CPU, cost accounting of the CPU using TDABC methods, and setting up an outcomes measurement system for the CPU, to include selecting appropriate true outcome measures and metric collection methodology. Once in place, the mature CPU will be monitored on a continuous basis. Its outcomes and cost measures will be fed-back to a CPU Champion and the Champion will be responsible for using the feedback data to achieve data-driven continuous process improvement. In this way, the functioning CPUs will make the entity a true learning organization where
knowledge can be gained and used to provide ever higher and higher levels of value-production for the consumer.
CPUs also can be linked together to create larger integrated practice units (IPUs) across the care continuum. These IPUs will provide patients with a much more seamless and
coordinated care experience and help to correct the frequent frustrations seen in today’s far too fragmented system. In addition, these IPUs can be marketed as “bundles” to payers or employers looking to reimburse under a bundled payment methodology. This will allow the healthcare organization an advantage over other providers in the competitive
marketplace who are not organized to provide services in this fashion.
This competitive advantage will also allow them to capture a greater share of the market, enjoy negotiation strength, set competitive prices that are sure to cover costs, and enter into contracts for innovative services such as population health management.
One of the most important points to remember about the CPDS is that it will provide financial benefits to the organization, regardless of the prevalent reimbursement model in
the marketplace. The other unique financial benefit of the CPDS is that the healthcare entity will incur minimal cost to implement, and these costs can be easily covered with projected shared savings or care process design projects that lower costs. Furthermore, revenue losses will be avoided that would occur if readmissions were to range above targeted thresholds.
While no one can predict with 100 percent accuracy what important events will transpire over the next few years in the healthcare industry, most observers agree that fee-for-service reimbursements are likely to drop for hospitals and healthcare systems. Healthcare providers would therefore be wise to mitigate these drops in reimbursement and likely increases in expenses by implementing the CPDS. This will help maintain operating margins by lowering their cost structure and doing so in a way that does not sacrifice quality or patient safety. Furthermore, providers will no longer have to enter into fee-for-service negotiations blindly (i.e., without knowing their true costs of delivering line item services within a fee-for-service system). This knowledge will be especially valuable as reimbursements likely decline and margins for error at the negotiating table decrease. Figure III-3 -- CPDS Benefits under FFS
If and when value-based reimbursements come to pass within the local marketplace, the CPDS will provide the knowledge necessary to accurately set prices for bundled or capitated payments and to mitigate the risks inherent in providing population health management services. The name of the game in population health management will be (legal) market share and the CPDS will position healthcare providers to win that game every time.
Perhaps, the most important benefits that deployment of the CPDS will bring occur in the clinical realm. Patients will be better served with more reliable production of high quality clinical outcomes, improved coordination of care across the continuum, and the ability to bring enhanced knowledge to the bedside or into the exam room. Also note that this clinical benefit will not be theoretical but will be proven through the accurate measurement and reporting of true outcomes as opposed to compliance measures, which most patients find meaningless.
The providers working within the healthcare facility will also find much to like about the CPDS. Most healthcare providers were originally motivated to enter their chosen
professions because of a deep interest in the science of medicine and a sincere desire to help those in need. Unfortunately, many such well-motivated providers have been frustrated after working in systems that do not reliably apply cutting edge science to the care environment or who are unable to measure the actual difference they make in people’s lives. The CPDS will allow them to change this and, in the process, attract the best and the brightest to work at the facility. This ability to enhance provider satisfaction may also lower labor costs by allowing them to offer intangible benefits to their employees that many will consider equal to higher pay.
So, where should healthcare entities start on their clinical care transformation journey? Coker has found that the CPDS is best implemented on a focused basis, around the most common processes and procedures used for the most frequently seen clinical conditions.
The model is applicable to both the inpatient or outpatient location and can apply to multiple targeted population groups or population health management in general.
Partnering with Physician Leaders
As compensation systems are designed and redesigned for their second generation, it is essential that physician leaders be identified and enlisted with the responsibility of taking ownership in the compensation model, much as they would if they were a partner in their own private group. Quickly, physician leadership enhances buy-in for redesign. In many cases, the structure of leadership and governance, even within a fully-employed or contracted setting, entails a heavy component of physician leadership and decision-making relative to the compensation structure.
Increasingly, physicians are serving in positions of
authority, such as board directorships, in the context of day-to-day operations of the contracted and/or employed practice/network, and also with heavy involvement in the design and/or redesign of the compensation incentive structure. Board responsibilities encompass many areas, including oversight of clinical and procedural services across service lines, involvement in capital equipment budgeting and acquisition, staffing and personnel management, and physician compensation. Though many of these structures are not official board of director positions, from the standpoint of day-to-day operations, they allow the physicians to have great involvement and latitude in running the practice/service line, including involvement in the physician compensation incentive components.
More health systems are also creating physician leadership at various areas from the individual practice to the service line group to the entire system. At these different levels, physicians are requested to be heavily involved in the operations and overall
decision-As compensation systems are designed and redesigned
for their second generation, it is essential that physician leaders be identified and
enlisted with the responsibility of taking
ownership in the compensation model, much as they would if they were a partner in their own private
making plus governance processes. Clearly, compensation is a major part of these
responsibilities. As the compensation plans are redesigned, it is critically important to both involve the physicians and to enlist their active participation in the analyses and decision-making.
SUMMARY
The focus of this section has been the pertinent issues of the second generation
compensation plans. The primary goal of these plans is for enhanced collaboration between the hospitals and the physicians, so that the best possible arrangements can be made to meet the demands of the consumer and to achieve the highest levels of reimbursement. This achievement calls for new ways of thinking about compensation as previous models no longer work. Physician employers must be responsive to these changes and physician employees/contractors must understand and accept the changes as they have and will continue to occur. Compensation systems likely will continue as works in progress. New contracts and compensation incentive plans will need to be flexible to respond to changes that are yet to occur in the reimbursement and structural design of medical practices.
IV.
G
O
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ORWARD
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OLUTIONS IN
S
ECOND
IV. Go-Forward Solutions in Second Generation
Compensation Plans
With the backdrop of the areas of discussion outlined in Part I and the prior section, now is the time to consider solutions. Clearly, there are opportunities to address the flaws from the previous structures, both openly and collaboratively. There is the time to allow previous wounds to heal with both sides taking ownership in mistakes of the past. As we now consider newer, more updated terms and conditions and how best to correct previous mistakes, we are especially focused on the era of accountable care. The new models that will work are not dramatically different from earlier models, as illustrated. Mostly, the changes will be subtle, yet sufficiently significant to be responsive to both market and industry conditions that currently exist.
Market Shifts
Adjustments to the physician compensation structures will be needed as the market shifts away from “fee for volume” to “fee for value.” This is the primary reason for the changes in compensation structures going forward into their second generation. Figure IV-1, below, illustrates the three major criteria for redefining or
replacing productivity in the scenario of the changing ground of compensation.
Adjustments to the physician compensation structures will be needed as the market shifts away from “fee for volume” to “fee
Figure IV-1 -- Changing Ground of Compensation
Figure IV-1 illustrates the dynamics at work and the need for change. As accountable care reimbursement paradigm changes occur (i.e., moving away from fee-for-volume to fee-for value), the addition of new incentive components tied to accountable care era
methodologies should be enhanced. Thus, the second generation compensation incentive plans should feature these models. They should not be introduced until or unless some portion of (increased) accountable care alignment incentives (i.e., the vertical line in the illustration) result.
It is important to note that even in these second generation plans, some allowances for compensation should be made for reimbursement under the fee-for-service model, such as for services provided under managed care contracts and government reimbursement
programs. Hence, second generation plans should incorporate productivity incentives, as appropriate.
Corresponding productivity-based incentive plans, which are likely tied to wRVU production, will remain. Even within a middle ground of the accountable care
reimbursement applications, there will be a need for wRVU production-based incentives, but some introduction of quality and efficiency incentives are warranted.
As Figure IV-1 illustrates, population health management is at the highest level of accountable care era reimbursement. With such structures, more of the compensation should be tied to incentives not specific to individual and/or group productivity. However, it is important to note that still some of the incentives will likely be tied to individual and/or group productivity, probably in wRVUs. Under population health management
structures, compensation models will start to look more like the capitated models of the ‘80s and ‘90s. These models will place those providers — hospitals, physicians, and others — who are at more risk through the management of the healthcare of large blocks of the population for a fixed (or relatively fixed) reimbursement. Also, payments will be bundled between the various types of providers, thus requiring more discretionary allocations among those provider networks. Clinically integrated networks will become a part of the contracting base and receive the bundled and/or population health management reimbursements. It will be up to the networks to
determine the allocation process. More likely, an independent third-party expert will assist in the allocation decision-making.
Pay for productivity can be achieved in various ways within productivity-based models, even those under mixed methodologies. This will continue in the second generation
compensation plans, just as has been the first. Whether it is gross charges, net charges, net
Clinically integrated networks will become a part of the
contracting base and receive the bundled and/or population health
management reimbursements.
charges minus direct overhead, wRVUs, or even a hybrid of internally-defined relative value units and CMS-defined RVUs, all of these will continue to apply. The key difference, however, will be that the newer non-productivity-based models will rise in prominence.
Evolving Incentives
Along with the movement to an accountable care era reimbursement paradigm and
changing incentives, away from straight 100 percent productivity-based structures, should come the evolutionary process for implementing those non-productivity-based incentives. This may sound contrary to some of the issues we have already discussed in that we have focused on revised compensation plans for the second generation full alignment models (i.e., employment or PSA). However, even if the second generation contract is for a longer term, say an additional three to five years, there can be an understanding that the non-productivity-based incentives will be phased in over a period within that contract. Figure IV-2 below illustrates this possibility.
This simply illustrates that the percentage of the total compensation that is moving away from productivity-based to non-productivity-based incentives will increase dramatically, assuming accountable care and, even more, population health management reimbursement structures prevail. A response to these potential changes exists, although this is still
uncertain. Given the fact they are unknown at this time, the changing second generation contracts should remain somewhat flexible from their outset. We do not know for certain that non-productivity-based incentives will comprise as much as 30 percent of the total bonus, much less the total compensation, for the employed/contracted physician in 2016, as Figure IV-2 illustrates. However, we do believe that some increase will occur between now and that time. Thus, the allowance for this possible amount of change (which could be rather significant) should be discussed and called for and ultimately documented in the revised employment/professional services contract.
The basic non-productivity-based metrics should include such factors as overall citizenship (i.e., quality of an individual's response to membership in a provider community) patient
satisfaction, clinical outcomes tied to specific performance measures, and cost/overhead controls/savings. It may well be that these will comprise a combination of such incentives (or only one or two of them), and these may themselves evolve over the life of the second generation contract. For example, during the first couple of years, perhaps only citizenship and patient satisfaction will be measured as non-productivity-based incentives, moving during the latter part of the second contract to some of the more specific accountable care-type measurements such as quality outcomes and cost savings.
Quality and Efficiency Measurements Available
Some may wonder if the whole subject of quality and efficiency/cost savings performance measures is overdone and too general. When an individual specialty is considered, there can be multiple relevant specific performance measures. Furthermore, many of the performance measure would be relevant to nearly all specialties. The redesigned second
generation compensation plan, therefore, may present the challenges of having too many rather than too few non-productivity-based incentives tied to quality and cost efficiencies. These measures and their variations should be considered annually, in the same way as more traditional non-productivity-based incentives have been reviewed and updated annually to respond to the needs of the organization.
There is also the challenge of how quickly to draw compensation tied to certain
performance measures when baseline standards have not necessarily been formulated. Figure IV-3 illustrates quality and efficiency metrics and the cycle of how the intricacies may be considered within the second and later compensation plans.
Figure IV-3 -- Quality and Efficiency Measurements
These are just a small sampling of common performance measures. Each service line/specialty/hospital department will ultimately need to establish these and, as
applicable, introduce some to their respective second generation compensation incentive plans.
Second Generation Incentives Alignment
The alignment of incentives between the employer (usually a hospital or larger group) and employee (physician or other provider) has been addressed repeatedly. Second generation compensation plans still need to accomplish this objective, but the incentives that are being aligned are somewhat different. Although the incentive of productivity is still in play, the movement is away from straight productivity to other areas of performance measurement. As employer hospitals and health systems and private groups become more involved in the changing reimbursement paradigm (i.e., away from productivity, fee-for-volume), the need is greater for establishing new performance measures in the compensation plans.
Alignment of incentives is no less significant than establishing new performance measures. The incentive “pie” is illustrated below in Figure IV-4.
As incentives are aligned in a different manner, as much as 40 percent of the total incentive pie will be tilted away from volume and productivity. The compensation plan structures must reflect this from an incentive basis; further, some of the base compensation could even be at risk, also tied to some of these performance measures.
Accountable Care and Physician Behavior
The accountable care era also will generate changes in the priorities among providers (especially physicians). As these priorities become more pronounced, they should be reflected in the second generation compensation structures. Figure IV-5, below, illustrates the transition of such priorities.
When we consider the new compensation structures under the accountable care reimbursement paradigm, they should reflect different priorities that historically have been set. These accountable care era compensation priorities are somewhat different between primary care physicians and specialists. These are briefly reviewed in Figure IV-6. Figure IV-6 -- Primary Care and Specialist Compensation Model Comparisons
Both for primary care and specialists, the emphasis on the concept of productivity have not been totally abandoned. Rather, productivity metrics are being reshaped and packaged with other incentives, especially for specialists. For primary care, the look of managing a panel of patients and overall medical home concepts is predicted to become more pronounced.
Care Design/Redesign
Section III presents a discussion of the care process design system and how this will affect the providers’ coordination of care and, indirectly, their compensation. In the second generation
compensation plans, it is essential to encourage investment in the overall practice and its health and welfare in the context of providing high quality at low cost, as opposed to a focus on individual
productivity. Many would argue that the traditional (i.e., first generation) compensation models discourage investment in the future of the overall quality of care continuum. For example, the basic compensation incentive of work RVUs (wRVUs) times a
multiplier (i.e., conversion factor) equaling total compensation is extremely individualistic, non-team oriented in its structure. While invoking much incentive for individual
productivity, little exists for quality, cost containment, or overall coordination of care. New compensation models (i.e., those coming on in the second generation) are continuing to include the basic wRVU times conversion rate component. In addition, they are introducing requirements of cost control linked with conversion rate requirements. The conversion rate may well be affected going forward in the new models by the level of cost control, quality outcomes, and the like. These are illustrated in the following figures.
Many would argue that the traditional
(i.e., first generation) compensation models discourage
investment in the future of the overall
quality of care continuum.
Figure IV-7 -- Non-Productivity Incentives - Variable Rate per wRVU
Figure IV-9 -- Non-Productivity Incentives - Productivity Incentive Withhold
Shared Savings Bonuses and Opportunities to Double Up
Initially, second generation compensation plans may provide the opportunities to participate in shared savings bonus programs that payers are
offering. They can provide an added premium to the physician participants. This could apply to both primary care and
specialists where the shared savings programs for primary care can be attributed to care transformation initiatives, where specialists could be distributed for their participation. The total shared savings may be distributed to both the primary care and specialists within the overall clinically-integrated network that holds the contract from the payer. Part of this money could be distributed equally, and part tied to actual performance, including quality as distinguished from one physician to
another. Typically, the health system that might sponsor the clinically integrated network also would take a layer of the shared savings and distribute to the physicians only part of the total. For a while, the shared savings may be in addition to the current fee-for-service
Typically, the health system that might sponsor the clinically
integrated network also would take a layer
of the shared savings and distribute to the physicians only part of
reimbursement, though ultimately this more likely will be a part of the total with the fee-for-service/fee-for-volume portion though at a lower than the current rate .
Specialists and Care Coordination
Often, the primary care physician (PCP) is viewed as the key driver of the coordination of care, as they are a large part of this process. However, a major part of the second
generation compensation plans will be the ability for specialists to participate in this coordinated effort and, in turn, to realize appropriate levels of compensation and incentives.
Specialists have in recent years realized smaller percentages of income than primary care physicians. Under the accountable care era, they fear even more reductions, especially for procedural services. Logically, performing fewer procedures and managing through better care coordination, while much better for the system, does not bode well for many
specialists who are accustomed to being paid strictly for the volume of work they perform. Thus, the following are essentials for specialists’ compensation in the second generation plans:
Continue to provide a certain (acceptable) level of individual productivity and incentive pay
Strengthen specialists’ quality and cost efficiency and develop pay incentives tied to both
Include and require specialists to be a part of the care coordination process Not surprisingly, the incentives for specialists should be coordinated within these
components. Specifically, proceduralists should continue to be rewarded for certain levels of productivity, but also for meeting with PCPs and other specialists within their overall continuum of care, to coordinate and manage care. This is the essence of the care process design system presented earlier. The compensation incentive structure going forward will
be more tied to outcomes, with proceduralists rewarded, for example, via providing appropriate discharge summaries in a timely and effective manner to referring physicians that include a plan for future management of the patient, post-procedure. This could be a portion of the total
compensation, with the specialists receiving a fee-for-service rate per RVU, for example, when completing the procedure.
Bringing the Second Generation Plan into Focus
In this paper, we have discussed and illustrated some new and daunting ways to pay primary care and specialist physicians. “Selling” these plans to the physicians that are moving away from their current contract and into the accountable care era type structures will be challenging. Thus, the subject deserves a fair and deliberate education and implementation process and period.
When new compensation plans are developed, they should not be thrust upon the physicians immediately. There should be a fair period of deliberation through a working group or some other medium, such as an existing or a newly created compensation committee that will provide the level of education and understanding of what the new compensation incentive plan will require. Ideally, the employer should start this process well before the first generation contracts are up for renewal. Best practices would dictate this to be initiated at least 12 to 18 months prior to the expiration of the current contract.1
Another concept to consider for gaining buy-in is the shadowing of revised compensation plans. A shadowing process would show the partnering physician the compensation
1 We believe that there is still time to do this as most accountable care era forms of reimbursement are fairly
limited and do not appear that they are going to become more prominent for at least until 2015, perhaps
The compensation incentive structure going forward will be more tied
to outcomes, with proceduralists rewarded, for example, via providing
appropriate discharge summaries in a timely and
effective manner to referring physicians that include a plan for future management of the patient,
amounts that he or she would receive based on the calculations that are proposed under the new model. Ideally, the planning period is 18 months, and the shadowing starts six months in advance of a new contract. The objective is for the physicians to understand the changes and how they will relate to their pay when the new incentive pay structure takes effect. Shadowing reassures the physicians of future income or signals an early warning that improvements and/or changes in behavior must occur to match or exceed current earnings under the new model. Either way, the physicians should receive extensive individual and group/system-level information/cost and quality data to facilitate performance development.
Transitioning to the second generation compensation plans and making the changes will not occur overnight. It is also important to reward physicians for leadership and overall buy-in to the new model. The importance of education cannot be overemphasized as the key to ensuring an understanding as well as sufficient acceptance of for the new models. As with any new program or revolutionary change, many will push back, almost in denial. Although this is understandable, it is an unacceptable attitude, and it is all the more reason for preparation and preplanning prior to implementation. Shadowing and education should occur regardless of the timeframe. Having less time to prepare does not negate the
requirement to spend time in education, deliberation, and facilitation of the new model. In some cases, interim renewals of three- to six-month periods under the old model may be expedient. A good compromise would be to make some minor improvements to keep the physician employees/contractors loyal and reasonably happy.
SUMMARY AND CONCLUSIONS
Second generation compensation plan models will be challenging. They will entail new or expanded incentives with emphasis on new incentives tied to factors other than personal productivity. A gradual transformation is advised, though this will depend upon the local
and regional market. Certain markets are moving quickly into value-based reimbursement structures while others move slowly, remaining tied to individual productivity.
The necessary building blocks for strong buy-in and
responsiveness to the second generation compensation incentive plans will entail creating a solid foundation of trust between the physician and health system or, in a private setting, between the employer and employee. Trust will require transparency and collaboration with a true effort of creating a partnering
atmosphere. Meaningful incentives for the physicians in the new structure will also be a foundational component. High productivity and market presence will still be a major component of successfully employed physicians and overall
performance. Prioritizing personal production and other areas similar to productivity will remain as a major requirement of the second generation compensation plans.
These characteristics will need to be integrated into the compensation incentive plan structures as we move into a greater emphasis on quality and efficiency imperatives. Again, this will require education, collaboration and transparency.
Finally, the movement into more pronounced population health management scenarios requires coordination of care across the continuum of providers. Within the compensation plan structures, clear and decisive responsiveness to these new requirements that
transcend to economic value, i.e., different forms of reimbursement through shared savings, bundled payments, etc., will become more of the standard.
Certain markets are moving quickly into
value-based reimbursement structures while others move slowly,
remaining tied to individual productivity.
The renewed contracts and their related compensation structures may result in significant frustration among both the physicians and the hospital, as well as in a private setting, employer to the employee. However, if the approaches in the areas reviewed are adopted, the relationship will not only continue, but it may become more positive than ever before!
1
Brill S, “Bitter Pill: Why Medical Bills Are Killing Us”, Time Magazine, March 4, 2013,
http://content.time.com/time/magazine/article/0,9171,2136864,00.html. March 5, 2014.
2 Rosenthal E. “Paying Till It Hurts, A Case Study in High Costs”, New York Times, June 1, 2013.