How the Transition from Volume to Value Will Impact Your Physician Compensation Models

With the passage of MACRA in April 2015 we began to get some real clarity regarding Medicare’s plans for moving physician reimbursement from volume-based to value-based. With MACRA set to be implemented over the next few years, now is the time to begin addressing how changing reimbursement will impact physician compensation models. Because future reimbursement will be greatly impacted by physicians’ ability to deliver value and quality, hospitals will need to design compensation models that reward and encourage physician behaviors that support these goals.

What is the Move from “Volume to Value?"

So what does the move from a volume to value-based reimbursement model mean for physician compensation models? Currently most physician compensation models are grounded in fee-for-service (FFS) and, after all, FFS will continue to be an important (and possibly majority) component of reimbursement even once MACRA is fully implemented. One of the first things to recognize is that this is a transformation of the reimbursement model, not just a pay raise for physicians through the addition of more dollars for meeting quality and value targets. In fact, there won’t be many new dollars coming in from payers, but rather a realignment of where the dollars go. The incentive structure under MACRA is budget neutral, so there will be winners and losers. Others payers will most certainly follow a similar path. So the process is really about realigning the compensation model to: (1) reflect the reimbursement model of the future and (2) incentivize physicians to focus on quality, cost containment, and patient management rather than patient or procedure volume.

How and When Do You Transition Your Existing Models?

Many hospitals want to know how to “phase” in compensation models that will more and more reflect payment for value than volume. The best guidance here will be to monitor how reimbursement is moving in your market relative to value and look to establish physician compensation models that reflect actual reimbursement. Obviously, payers are adapting value-based reimbursement models at different speeds; however, most, if not all, payers are already implementing some type of payment for value and the dollars tied to value will only increase. Hospitals will need to be transparent with physicians regarding why changes to the compensation models are necessary and unavoidable. One of the keys here is to be intentional about the transition and include physicians in the process. Educating your physicians on the reason for the need to transition compensation models and how you intend to address the changes in the reimbursement market will foster transparency and trust. Transparency and trust will be vital in getting support from physicians. Today is the best time to dialogue with both physicians and payers regarding the transition from volume to value.

So What Will These New Models Look Like?

In the current environment most physicians are compensated on a per-production type fixed/incentive model (via encounters, WRVUs, etc.). These models essentially guarantee compensation assuming expected volume and work patterns. If there is a quality bonus, this bonus typically only represents only a small amount of total compensation (generally up to 15%). New models will likely keep this basic fixed/incentive structure, however as we move to a value-based reimbursement model, the percentage of compensation “at-risk” for quality and value will certainly increase. The guaranteed amount will proportionally decrease, with total compensation remaining basically static (again this is not a pay raise). That said, high performers stand to increase total compensation via scoring highly on measured outcomes. Underperformers stand to face declining total compensation (remember the process is budget neutral – there are not many “new” dollars in the mix). An advanced primary care example might look something like this: 40-50% guaranteed with 30-40% incentive tied to predetermined quality measures and the remainder paid via a flat per-member, per-month population management fee. Of course, there will be no one-size-fits-all model. Primary care may look very different than specialist models. The key here is to be very creative, involve physicians, consider market reimbursement and the performance measures for which providers will be held accountable, and be willing to evolve at a pace that builds trust and maintains market relevance.

A Few Thoughts on the Regulatory Environment

Of course, compensation models must be structured as to remain within the regulatory confines of fair market value and commercial reasonableness. That said, there is an expectation that compensation initiatives responding to the new payment models may be incongruent with current Stark law provisions. Because of this, the Senate Finance Committee and the House Ways and Means Committee are currently seeking input on how to integrate current Stark law requirements with coming value-based reimbursement models. What changes will be made and what they mean for developing compensation models is yet to be seen. The key here is to continue monitoring these developments and be prepared to consider regulatory implications of any newly developed compensation plan.

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