Physician comp is crucial to value-based care. Getting it right is hard.

Mount Sinai Health System in New York is one of many established healthcare organizations that have struggled to navigate the murky waters of value-based payment and prepare for a world without fee-for-service reimbursement.

Dr. Robert Fields, chief medical officer for population health, worries that the health system can’t make necessary changes without buy-in from its physicians. “They need some assurances that you’re not going to mess up their livelihood,” he said.

His fears reflect a growing consensus that value-based payment won’t succeed unless hospitals and health systems, which employ 7 in 10 physicians in the U.S., can alter how their doctors treat patients. And hospital leaders are straining to figure out how to do it without creating a backlash.

Pay for performance

Value-based care is supposed to encourage health systems to reduce utilization and improve quality. But that happens only when clinicians actually curb their use of low-value services and better coordinate and manage care to stop patients from getting sick in the first place.

Adoption of those models is lackluster.

More healthcare executives and experts have taken aim at how doctors get paid, blaming antiquated compensation plans, in part, for the failure of value-based payment to deliver on its grandiose promises.

Physicians still largely get paid for tests and procedures, not keeping people healthy and at home. 

“(Physicians) need to feel like their business model had fundamentally changed,” said Eric Cragun, executive director of government programs at Intermountain Healthcare’s Castell.

And there’s no better way to do that than to make sure everyone has the same incentives. 

“The most powerful thing you can do for physician engagement is to directly compensate them in a way that’s tied to performance on a contract,” Fields said. “That’s really important to drive repeat performance, so you do it again next year and the year after that.”

That’s challenging for hospitals and health systems because most physicians are comfortable with traditional compensation plans based on fee-for-service reimbursement, mainly because it’s easy to understand. 

“Most physicians don’t love the relative value unit model, but to some degree, it’s the devil you know,” Fields said.

Comfort and understanding are key to encouraging physicians to drive performance outcomes. They need to know what value-based arrangements their employer participates in and how their behavior can help bring savings and improved outcomes.

Executives risk a physician revolt if they don’t tread carefully and communicate how compensation changes could affect their staff. “That requires a lot of education and telling a story of how they and their patients will benefit,” Fields said.

Another problem is determining what actions they need to take to help reach success since there are so many different, overlapping models. Providers often don’t know that they were doing the wrong things until it’s too late.

“Physicians need to know what sort of financial incentives they’re facing so they can respond to them,” Caravan Health CEO Tim Gronniger said. He was formerly chief of staff and director of delivery system reform at CMS.

Baby steps

It’s true, the move to value-based care and its impact on salary can be very disruptive and scary.

“If most of your revenue is fee-for-service, you could change the comp model prematurely. The system could really be hurt financially if you don’t drive enough fee-for-service revenue through it,” Fields said.

Many health systems begin their transition to a more value-based compensation system by paying their employed physicians a base salary with productivity targets and quality bonuses layered on top—only about 10% of total compensation might be tied to performance. “That’s the kindergarten phase of value-based compensation,” Fields said.

But health systems could be sending their physicians mixed messages about their expectations. “When you’re trying to do population health in a fee-for-service environment, the marching orders you get are to save money, but don’t leave any hospital beds empty,” said Dr. Daniel McCarter, a practicing physician and national director of primary care advancement for ChenMed.

Hospitals can’t pay doctors for productivity and expect them to focus on patients who aren’t generating billable encounters, Gronniger said. “You need to carve out some administrative time for them.”

Some health systems like Mayo Clinic have eliminated volume and value targets, moving exclusively to pure salary models. But that’s not a near-term option for many organizations because it can lead to lower productivity, at least temporarily.

Mount Sinai is hoping to find a middle ground. Rather than measuring productivity based on volume-based targets like relative value units, the system wants to evaluate providers based on the size and risk level of the population they’re managing. For instance, a geriatrician managing a small panel of complex, older patients might get paid the same amount as a physician who sees a greater number of younger, healthier patients. “There are certain departments that, historically, have been grossly under-compensated in the RVU model. They’re very excited about the possibility of a model like this,” Fields said.

But it’s a work in progress, as Mount Sinai is still modeling the impacts and planning to pilot the concept later this year.

Other healthcare systems favor a more straightforward approach. 

“I have watched other organizations build unintelligible compensation systems. Some of our clinicians came to us because they couldn’t understand what they could pay for their kids’ college at the end of the year,” said Dr. Brian Rank, co-executive medical director at Minnesota’s HealthPartners.

HealthPartners has bucked the new conventional wisdom when it comes to physician compensation. Instead of developing packages tethered to value-based contracts, the health system keeps it simple for physicians by tying their pay to old-fashioned relative value units.

The health system aims to keep its total cost of care 10% below the market rather than target interventions to specific value-based care models.

Doctors don’t get paid much differently than they did in the past. HealthPartners gives each department a pot of money based on work productivity and leaves it up to the department to figure out how to distribute it.

Its clinicians deliver essentially the same care to all patients because nobody knows whether a patient is part of a value-based contract when they walk in the door. The approach has helped HealthPartners avoid some difficulties—like adjusting for patient risk—that other organizations have faced as they transition to value-based care.

“A physician compensation plan is not a tool to build a culture in an organization. You have to hire people who fit your culture,” said Dr. Steven Connelly, co-executive medical director at HealthPartners. “If you rely on culture, you don’t get into arguments about the care that people are providing to patients.”

But that doesn’t mean physicians aren’t held accountable for their performance. It’s just not baked into their compensation. “Sometimes physicians leave the organization based on their particular patterns of billing and coding,” Rank said.

Better information, better performance

In order to make sure doctors know whether they’re helping contribute to quality and cost savings, HealthPartners has armed its physicians with more data about whether they’re on track to meet their goals and how they compare to their colleagues. Castell and other organizations have taken a similar approach.

HealthPartners developed its Total Cost of Care and Resource Use measurement to help lower healthcare costs by reducing overuse and identifying cost-saving opportunities. It allows users to compare cost, resource and utilization metrics by provider, condition, procedure or patient.  The health system makes it available for anyone to use. “We use it to compare our performance to other groups based on claims data,” Rank said.

There’s evidence this approach can have a significant effect on how doctors behave. In a Health Affairs study published last year, researchers found that patients whose physicians received peer comparisons experienced a 3.1% jump in quality scores compared with patients whose physicians only got individual feedback.

How data is presented to physicians can also be frustrating since internal data can tell a different story than what claims data reveals. That happens with some value-based contracts, like 90-day bundled payments and total cost of care models, said Dr. Josh Liao, medical director of payment strategy at UW Medicine in Washington state.

Even so, a core set of internal measures can help physicians meet their performance goals without getting lost in the details of every contract. 

“Those organizations do better because they simplify the process,” said Robert Saunders, research director of payment and delivery reform at Duke University’s Margolis Center for Health Policy.

The biggest barrier to getting physicians on board with value-based care continues to be the dominance of fee-for-service reimbursement, which has proven to be difficult even when the pandemic revealed the trouble with payment for volume. 

“When only a subset of your population is in value-based care, you have to worry a lot about who’s in and who’s out. If it’s 90%, you don’t have to worry about it nearly as much,” said former Center for Medicare and Medicaid Innovation Director Brad Smith, founder of Main Street Health.

For Mount Sinai and others stuck between the past and future of healthcare, the road to value is a long and hazy one. “It’s hard to convince people to practice differently,” Fields said.