What Will Future Physician Compensation Look Like?

Currently, one of the more perplexing issues around fair market value physician compensation relates to designing comp models that effectively reward physicians for quality and cost savings in a market that is still driven by fee for service (FFS) reimbursement. Compliance-minded hospitals are understandably concerned about adopting (seemingly aggressive) models that stack quality payments on top of existing FFS models, particularly if total compensation exceeds what is commonly considered outside the upper range of FMV. Unfortunately, what those models should look like, especially what resulting (compliant) physician compensation should come from those models, represents somewhat unchartered waters.

Most of the data available for determining FMV, particularly published surveys, are typically based on data from prior years and (as of yet) doesn’t  reflect a reimbursement and compensation market predicated on quality and shared savings. This makes for interesting times as hospitals look to be proactive about incentivizing and rewarding physicians for quality and cost savings in a meaningful way without running afoul of current health care laws, chiefly those concerned with FMV and commercial reasonableness.

Current notions of FMV regarding physician compensation are almost entirely based on a model that rewards physicians for volume. Of course this is logical given that until quite recently, almost all reimbursement for physician services was based on volume. Correspondingly, market notions of what total reasonable compensation looks like is shaped almost entirely by how much the most productive physicians in the market are capable of producing (usually measured in terms of WRVUs).

This brings into question how comparable existing compensation norms are to what we might see in the future under quality-based payment models. As we are just at the cusp of moving physician models to quality, currently there is little or no guidance on what can be considered “too much” to stack in the form of quality or shared savings distributions to physicians on top of existing volume-based compensation models. It has been said many times that the move to a quality/outcomes based model is not a “pay raise for physicians”. What isn’t so clear, however, is how the pool of compensation may be distributed across physician specialties and individual performers.

Obviously one of the biggest concerns for hospitals is remaining compliant with existing laws related to FMV physician compensation and commercial reasonableness. The biggest issue here is that the current health care regulatory structure is based entirely on regulating volume in a FFS world and, in some cases, actually creates barriers between hospital and physicians to collaborate to achieve quality and cost savings. CMS seems to be aware of this is and evaluating ways to address this disconnect. However, the wheels on initiatives such as alternative payment waivers will likely be moving at a slower pace than the market and this will likely cause a lot of headaches for hospital and physician collaboration and determining if forward-thinking models are compliant.

Regardless of the reimbursement model (FFS or alternative-based), FMV for physician compensation should continue to relate directly to the personal efforts of each individual physician. What will change is how we evaluate and reward those efforts. No longer will this be limited to volume production, but will have to mirror evolving reimbursement models that direct dollars to quality and cost savings. Those physicians who contribute the most to quality, outcomes, and lower cost will likely be rewarded with the most generous salaries, likely at the expense of those physicians who don’t. If it can be demonstrated and defended that a physician or physician group contributed significantly to a shared savings distribution and “stacking” that distribution on top of existing compensation results in a physician’s total compensation far exceeding current data on that specialty - is it really not FMV? That is a perplexing question and one that no one seems to have a really good answer for at the moment.

Is it too big to imagine a complete overhaul in what we currently regard as the upper limits of individual compensation? Could a budget neutral reimbursement model result in big swings between those physicians that deliver high quality and cost savings and those that don’t? Could the gulf between the highest and the lowest paid physicians greatly increase in the future? Given the new role primary care physicians will play in a quality-based model, is it inconceivable that the current limits on what is considered FMV be completely altered? I think that it is certainly possible that we will begin to see a shift in overall compensation move from specialists to primary care. How much will certainly be dictated by market factors. It will certainly be interesting to see how it evolves.

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