Physician Compensation: Volume to Value

The many changes to the healthcare sector over the past decade, culminating in the passage of the Affordable Care Act, has moved the attention of large health systems from ‘fee for service’ to ‘pay for performance’ strategies. This shift has brought a new focus on existing measures such as clinical integration and a deeper emphasis on measures based on perceptions such as patient satisfaction. To accommodate this evolving healthcare environment, changes to the way physicians are compensated is required. The new healthcare environment requires a compensation program equally focused on pay for performance - or value.

In addition to a focus on outcomes, healthcare systems are under increasing financial pressure from insurance companies and the government. This environment offers an opportunity to increase the role of physicians as key stakeholders in the overall financial health of the healthcare system.

To address these pressures, healthcare systems are evaluating and implementing value based compensation systems. These models take into account the requirement to manage to performance based metrics and potentially reward those physicians that are fully vested in overall system execution. The metrics employed by these new programs range from individual performance for chronic disease management to financial performance for a cluster of sites or an entire hospital system.

The implementation of a value/performance based system requires executive sponsorship, key decisions along the way and a strong commitment to an active change management program. Some of the decisions required for a successful program include uncovering what the organizational drivers that would lead the system to make these changes. Is it the government, costs, a drive to be best in class or a combination of these or other components? Other decisions include which metrics are the right ones to drive the business toward addressing the organizational drivers. A focus on patient satisfaction as a compensation metric could, for example, increase the payments from CMS as the metric raises over time.

While planning and designing a new physician compensation program, it is crucial to include technology. Most organizations have multiple clinical systems already implemented to capture clinical data, however it is not uncommon that these systems were not set-up to capture or report on certain data elements that are essential to a new compensation program. For every metric, there must be a valid way of measuring performance. Clear, transparent communication concerning performance versus value metrics establishes program credibility.

Value based physician compensation programs are becoming an important aspect of how healthcare systems respond to the broad range of environmental pressures. Linking physician and management compensation to key value metrics provides a significant approach to assist healthcare systems meet and exceed the expectations and requirements of their operating environment.

We would be happy to discuss our expertise in organizing a Physician Compensation Change program as well as other business transformation challenges your healthcare organization is facing.

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