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Value-Oriented Provider Compensation in an Age of Payment Reform

This article explores the re-alignment of financial incentives in provider organizations to reflect external incentives and the implications for provider revenue streams and the success of payment reforms. It discusses the changes in physician compensation models and the measures used to evaluate value. The article also examines the potential backfiring of financial incentives and provides advice from innovators on implementing value-oriented compensation. It concludes with a discussion on expanding value-oriented compensation in provider organizations.

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Value-Oriented Provider Compensation in an Age of Payment Reform

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  1. Value-Oriented Provider Compensation in an Age of Payment Reform Developed with Support from The Commonwealth Fund Mary Beth Dyer July 30, 2015

  2. Re-alignment of Financial Incentives? • Extent to which Provider Organizations (POs) are aligning physician compensation incentives to reflect external incentives has implications for: • providers’ revenue streams • the relative success of payment reforms in improving value. • Bailit Health conducted a qualitative study of POs during the summer and fall of 2014: • Identified and interviewed16 POs that modified MD compensation to incorporate measures of ‘value’. • POs in areas with higher concentrations of alternative payment models were more likely to modify compensation.

  3. How are Provider Organizations Changing Physician Compensation? • MD compensation models can be quite complex. • No two compensation programs were the same! • Methods for defining base physician compensation: • flat salary, RVUs, modified production models. • Percentage of physician compensation de-linked from salary or productivity varied: • ranged from 10 to 60% in our sample. • Some POs precisely identified all value-oriented measures and the weight of each measure. • Others utilized a menu approach, letting MDs or departments select measures from an approved list.

  4. Measures Used in MD Compensation • 6 domains of value-oriented measures: • Clinical quality/patient safety • Patient satisfaction • Access to care • “Citizenship” • Efficiency • Health information technology use • Some metrics derived from standardized measures • Metrics related to access to care, citizenship, and efficiency were often home-grown. • Many interviewed POs based compensation on individual performance but some allowed components derived from group performance

  5. Can Financial Incentives Backfire? • Motivation theory and research suggests that in certain circumstances, financial incentives can actually backfire and create a decline in performance. “Quality has improved, but I am not sure it’s related to the physician compensation arrangement. There are people who feel that when you offer a financial reimbursement you can actually do harm.” • A few POs indicated that non-financial incentives might be more or as important to behavior change. “Is compensation a driver, or is it used to keep people away from doing what they want to do? Transparency is a bigger motivator than what we do with money.”

  6. Daniel Pink’s Motivation Version 3.0 Source: Pink, Daniel H. Drive: The Surprising Truth About What Motivates Us. New York, NY: Riverhead Books, 2009. Print.

  7. Advice from Innovators • Clearly link changes in physician compensation to broader strategic and financial objectives for the PO. • Physicians need to understand and appreciate how compensation changes align with the PO’s overall financial performance. • Make sure everyone understands the measures and the application of the compensation formulas before compensation is actually changed. • Take the time needed to educate physicians about the data and documentation needed to perform well. • Focus financial incentives on evidence-based measures that are credible to physicians and that they feel they can influence. • Where possible, focus on standardized measures.

  8. Advice from Innovators • Limit the number of measures. • Don’t underestimate challenges of collecting, analyzing and reporting required data. • Provide regular feedback on individual physician performance in an easily accessible format; monthly electronic reporting is best. • Make sure there is not too large a time between measurement period and payment of performance incentives - one year at the very most. • Even though it can be difficult initially, provide complete data transparency for all aspects of performance, e.g., productivity and payment. • Don’t underestimate the power of peer profiling as a complement to physician compensation changes.

  9. Expanding Value-Oriented Compensation • Most provider organizations have not settled on what they consider to be the ideal model and are considering future changes or expansions. Some reported: • plans to alter the performance-based compensation elements, balancing the need for productivity with patient access and engagement more broadly defined. • efforts to include measures that encourage non-RVU-producing work by PCPs and their teams, such as e-mail communications and closing charts within 48 hours for more effective team-based care. • a desire to expandtheir efforts to other providers, including specialty physicians, hospitalists and non-physician providers.

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