How to prepare for value-based compensation
How to prepare for value-based compensation

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Facing the trend: Preparing for value-based compensation

Table of Contents

Dr. Amy Howell

If you’ve heard horror stories about production and fear that your mission to serve will be undermined by assembly-line medicine, relief might be in sight.

New reimbursement strategies from private payers and the federal government are evolving away from volume and toward value. Still, nobody said that change is easy.

Value-based compensation: The shift from quantity to quality

“We’re trying to change the conversation from how much we spend on health care to how well we spend on health care,” says A. Mark Fendrick, M.D., director of the University of Michigan’s Center for Value-Based Insurance Design, or V-BID, and professor of internal medicine and health management and policy at the university.

As the conversation—and physician payment priorities—shift, physicians face plenty of changes and confusion in how to gather data, negotiate contracts and maximize revenue. If and when it all comes together, the goal is for physicians’ missions, quality of patient care, payment for services and physician compensation to align better than they do today.

For physicians seeking practice opportunities, it’s important to understand how stressing quality and value over volume will adjust how physicians practice and how employers and physician organizations compensate individual physicians. It’s also important to ask the right questions when evaluating practice opportunities.

Three forms of healthcare services

Reimbursement for health care services comes in three basic forms: Medicare, Medicaid and commercial. Most recently, Medicare payment was based on fee-for-service. Physicians were reimbursed according to relative value units (RVUs) for services that were based on time and intensity of work and adjusted for factors such as geographic location. This methodology emphasized volume of work.

Among commercial payers in particular, quality and cost controls came from managed care plans, often by restraining utilization of medical services. In turn, physician groups often assumed the risk for covered patients through capitated arrangements, in which providers were paid a set fee per member per month, regardless of the members’ health status at enrollment or as a result of their care.

Much of the evolution in reimbursing providers based on quality and value likely occurred as “a backlash toward utilization management practices of the 1990s,” says Lindsay Erickson, manager of the value-based Pay for Performance program for the Integrated Healthcare Association in Oakland, Calif. IHA is a California nonprofit leadership group that brings together multiple stakeholders in a pay-for-performance program.

Across the country, payers and physician groups have negotiated how to handle risk under systems that reward providers for volume and low use of services even though the physicians might care for a group of patients with proportionately high chronic disease status or comorbidities.

At the same time, patient copayments under most managed care plans were based largely on cost of services. The financial incentives for physicians and patients did not match their quality or value.

Reforming the healthcare system


Controls on utilization and shared risk have yet to produce the sort of quality outcomes and cost savings promised. Providers, payers, employers and policymakers have been seeking a solution that improves patient satisfaction and outcomes while also reducing the cost of health care. This has given rise to private and public emphasis on accountable care organizations, or ACOs, and to changes under the Patient Protection and Affordable Care Act (ACA).

The rapid growth in health care spending and sub-optimal quality of care caught the attention of Zirui Song, M.D., when he was a medical student at Harvard. “I realized that these issues would touch patients in a real way and also impact my classmates and me as providers,” Song says.

“For the care of an aging population and future generations, I thought it was imperative that my generation of physicians figure out how to put health care spending back on a sustainable path while improving the quality of care.” Song sprung into action, training to become a physician economist. He just graduated with an MD/PhD and became an internal medicine resident at Massachusetts General Hospital in Boston.

Song didn’t stop at learning about health care economics, however. He has headed research on Medicare office visit payments and showing how ACOs can lower medical spending and improve quality of care.

Dr. Song

His efforts in gathering grants and leading research on health care costs and quality led to his selection as one of Forbes magazine’s “30 under 30” in science and health care. “Despite their growth in some areas, global budgets and ACOs are still in infancy nationally,” says Song.

Under transitional value-based models, California providers receive capitated or global payments along with bonus payments for meeting quality measures. “At this point, we’ve structured a shared savings program, not a shared risk program,” says Erickson. She sees that as a step in the right direction, providing incentives that help physicians learn about and feel comfortable with resource use while having some return on investment.

Many of the plans also have risk adjustment. “Risk adjustment says ‘we’ll pay you more for a patient who has complex comorbidities or chronic diseases because it might take a lot of money to take care of them,’” says Amy Nguyen Howell, M.D., MBA, chief medical officer for CAPG—The Voice of Accountable Physician Groups in Los Angeles.

CAPG represents 180 physician organizations in more than 26 states plus Puerto Rico that practice capitated, coordinated care.

Under the ACA, accountable care organizations and shared savings already are affecting Medicare reimbursement, which makes up a mighty proportion of some providers’ patient mix. An important premise is coordination of care.

In fact, the ACA brings quality measures, patient-centered care concepts and use of data and technology under the reimbursement umbrella.

How reimbursement changes affect physicians

Whether payers base reimbursement on shared savings or shifted risk, value-based models lead to fundamental adjustments in provider culture and practice.

For example, team-based care, such as that provided in the patient-centered medical home, is emphasized in the ACA and as part of patient-centered care. According to Howell, a team-based approach relieves some of the time pressure placed on the primary care physician.

CAPG is “redesigning workflows so that everything doesn’t have to happen within that 15 minutes the patient has with the physician,” says Howell. “If your medical assistant is weighing a patient and taking blood pressure, the medical assistant also can ask the patient about preventive care like vaccinations,” says Howell.

Redesigning workflow and creating a team approach can improve access and the quality of patient care, Howell says. The approach also can improve the physician organization’s performance on important quality metrics.

“Quality might not just be based on clinical outcomes,” says Todd Evenson, MBA, vice president of consulting services and data solutions for the Medical Group Management Association (MGMA) in Englewood, Colo. “It might be based on perception of quality by the patient.”

Patients can perceive value in clinical indicators, wait times or whether the office’s parking lot is dirty. “What I emphasize to many groups is to make sure that they are building a strong physician/administrator partnership,” says Evenson.

If done in a patient-centered manner, involving the patient as part of the team also should help physicians. When patients participate in coordinated and culturally appropriate care, they typically are more satisfied with the results and are more compliant with preventive care recommendations and disease management strategies. That’s the final piece of the puzzle: patient engagement. “At some point, every person has a duty to make sure you are accountable for your own health care,” says Howell.

Removing financial barriers to high-value primary care services improves access, which improves patient adherence, and ultimately improves quality and increases volume at the same time. “Mammograms, flu shots, smoking cessation, vaccinations for children, all of these are now mandated to be zero cost for patients,” says Fendrick. “If you mandate zero costs for something for patients, they buy more of it.”

Fendrick testified before Congress on the discordance of paying physicians based on measures that “at the same time, you’re making it harder for the patient to do.” In the V-BID program, Fendrick, who still practices in addition to his policy and academic work, emphasizes alignment of patient and physician incentives with what he calls “clinical nuance.” Not all physician visits, diagnostic tests or medications are of equal value.

“When people ask me to name three high-value services, I tell them coronary stents, colonoscopy and back surgery,” says Fendrick. “And when they ask me to name three low-value services, I say coronary stents, colonoscopy and back surgery.” Fendrick explains that when a patient has an acute heart attack, a stent has high value. But with barely treated unstable angina, a stent may have no value at all.

“With value-based insurance design, instead of setting patient cost sharing on price, we base it on value,” says Fendrick.

Critical to the future success of health care reform is how reimbursement redesign and patient-centered care efforts affect physician practice, patient behavior and satisfaction and clinical outcomes.

“The key question, in the long run, is whether global budget and other ACO-type contracts can encourage providers to change the culture of practice, improving value and decreasing waste, so that health care spending is restored on a sustainable path organically rather than by the financial risk of a contract,” says Song.

From practice to payment

Most payment systems contract with physician groups or physician organizations. It’s then up to the practice or the physician’s employer to structure internal provider incentives that align with the organization’s mission and with reimbursement incentives.

With the ACA, a trend toward aligning physician payment or bonus incentives with quality has been formalized and perhaps accelerated. Evenson counsels physician groups to begin adjusting their compensation plans to reflect alignment with quality. “Just be prepared,” Evenson says.

“Find a quality incentive or metric that as an organization you can agree upon.” This helps all of the providers in the group begin to understand how quality incentives will work in the future. “You can easily change the metrics to align with reimbursement structures,” he says.

Physician incentives based on quality measures must be meaningful, however. During the transition phase, as percentage of revenue based on fee-for-service, capitation and risk evolves, determining fair compensation plans may require the type of economic education Song has acquired.

According to Howell, every group sets up its own method of quality incentives. “There’s no standardized formula,” she says. “The metrics may be different and incentives often are not aligned.” Each physician group and health plan may have different incentives on which they base risk or bonuses.

“Let’s say flu vaccine is a measure,” says Howell. Two health plans a group contracts with might set different weights for the incentive, and a third plan may not incentivize for flu vaccines at all. This makes it really difficult for physician leaders to design compensation incentives for their physicians’ performance on patient flu vaccines.

The complexity of physician reimbursement and compensation plans already has contributed to many physicians preferring salary or salary-plus-bonus compensation models to private partnership tracts.

What does the new payment model look like?

Bull's eye care.

Individual physicians, especially those just starting to practice, have to ride the moving target during the transition from volume- to value-based care and payment.

When seeking new practice opportunities, there are plenty of good questions physicians should ask to help identify employers or practices best poised to succeed under value-based payment.

Another consideration for new physicians is their individual ability to succeed within a practice, especially under the incentives and cultural shifts emphasized by private and public health care reforms.

“Communication skills can make or break a physician and potentially determine his or her success,” says Howell. She still practices in urgent care on weekends, and sees how cultural and communication issues affect patient care and satisfaction.

“You think you may speak English perfectly, write everything down, document everything,” says Howell. “Then the patient goes home and says, ‘I don’t know what the heck she just told me.’” The patient survey comments may reflect that a physician talked over the patient’s head and was awful, even though the physician thinks he or she did a great job of communicating.

Communicating with family and other providers, and a willingness to collaborate with a team to provide care will serve you well under value-based payment.

Fendrick adds that physicians who are aware of their patients’ barriers to high-quality care and support initiatives to align consumer and clinician incentives also will succeed in the future.

A final piece of quality metrics and patient-centered care is data. Providing culturally appropriate care often means collecting data on patient populations. Data gathering also supports how well provider organizations structure missions and quality efforts or incentives.

When it comes to reimbursement and incentives from government and commercial payers, data will rule the final results. As with incentives and structures, there is no standardized approach nationwide to reporting and data collection. Erickson says there are efforts to align data systems and use the same results.

“I find that often, there is a kind of mistrust of the data,” Erickson says. Physicians need to understand claims and reporting data and be able to translate it accurately. “Giving the data a chance can be really helpful,” she says. Erickson says doing so requires a certain degree of transparency. Physicians should be aware of reports and measures but not obsessed with them.

The roller coaster ride should be worth the wait for physicians who embrace value-based payment. Fendrick is certain that the new model will increase compensation, even in the short term.

Physician-economist Song projects some changes, at least in select markets, in the need for specialists and a probable increase in demand for primary care and preventive services. “It is still too soon to tell whether, or by how much, that may happen,” says Song.

Evenson agrees: “These are enormous initiatives. It really does take time.”

Reimbursement basics

Nationwide efforts to reward physician organizations for improving quality of patient care while reigning in costs have been occurring in the commercial sector for years, and the Affordable Care Act will institutionalize and expand these efforts.

The following are some of the common terms and concepts used in the movement toward quality- and value-based payment.

Accountable care organization

An ACO is a group of physicians, hospitals and other providers who voluntarily work together to coordinate care for Medicare patients.

Capitated contract

A risk-sharing arrangement that pays physician organizations a set amount per member.

Global budget

A fixed maximum that can be spent for a specified group of health care services. The budget usually is set by a government entity.

Meaningful use

This early step in Medicare’s incentive to improve patient care through technology and data tracking and reporting encouraged electronic health record implementation in physician practices and hospitals.

Medical home

Also called patient-centered medical home, this is team-based care that is coordinated across a health care system to address the patient’s care as a “whole person.” Each patient’s medical home should have a primary clinical contact.

Pay-for-performance system

Often used synonymously with value-based reimbursement, P4P systems base reimbursement or bonus payments on quality measures or metrics, not volume. They also often include goals for efficiency, resource use or cost savings.

How to evaluate an employer’s readiness for value-based reform

You can’t predict how successful an organization will be under the transition from volume- to value-based payment methods. But if it’s somewhere you want to work, you can ask a few good questions to determine your fit into the organization’s culture and compensation plans, and determine their readiness for reform.

It’s important to determine a group’s culture, says physician data and compensation consultant Todd Evenson. He says that cultural issues always have been important, but if a practice still is very production focused—and you want more time with patients—it might not be a good fit.

It also might mean that the physicians aren’t preparing for the transition to value-based payment.

Consider the following questions when assessing fit and readiness for value-based payment and alignment of compensation.

  1. How will I be working with others in the organization?
  2. How will I be communicated with about important matters?
  3. Do you measure patient satisfaction? How?
  4. What types of bonuses, if any, do you pay based on patient satisfaction?
  5. Do you have other quality metrics and incentives in place for physicians?
  6. Have you implemented electronic health records?
  7. How do you use technology in your practice for tracking and reporting data?
  8. What kind of voice will I have in patient complaints?
  9. Do you have medical homes or team-based care?
  10. How accessible are your preventive care services to patients?

—Teresa Odle


Teresa Odle

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