Value-Based Care is more Likely to Succeed if Physician Compensation Models Change | Deloitte US has been saved
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By Dorrie Guest, managing director, and Howard Drenth, specialist executive, Deloitte Consulting, LLP
For many US hospitals and health systems, the COVID-19 pandemic exposed deep cracks in the foundation of the fee-for-service (FFS) payment model. In the early months of the pandemic, most non-emergency services were deferred, and revenue streams tied to volume dried up. At the same time, physician groups, hospitals, and health systems that relied more on value-based care (VBC) continued to take in per-member-per-month premiums and were less impacted by the ebbs and flows of the FFS model.
We’ve been talking about VBC for years now. But the penetration of these payment models—as well as delivery capabilities—has been slow to take root in many markets. When we speak with hospital and health system leaders, we try to emphasize that there is much more to VBC than signing new types of contracts with health plans. For example, financial incentives should be aligned to ensure that physicians not only buy into the new payment model, but also change their practice patterns. According to the 2020 Deloitte Survey of US Physicians, nearly all of the 680 physicians who participated said they still rely on FFS reimbursement and are on a salary for their compensation. About one-third of respondents (36%) said some of their income was tied to VBC.
There is no one-size-fits-all physician compensation model
Physician compensation is a complex, but critical lever in the VBC model. For example, innovative VBC models can be used to group certain types of physicians when they share patients. A model that aligns incentives for emergency medicine, hospitalists, and primary care physicians, for example, could help reduce new hospital admissions. This could make it easier for an emergency physician to discharge a patient to a primary care physician, rather than transferring the patient to an inpatient unit where a hospitalist would take over. However, without adjusting the compensation model away from pure productivity, this type of collaboration (for reduced costs and better outcomes) runs counter to historical practice patterns.
Primary care typically drives the quality part of the care equation, while specialists/surgeons tend to drive the cost side. Once VBC begins to make up a substantive percentage of the payer mix, organizations should consider how to incent desired behaviors among clinical staff to align with cost and quality goals.
The type of facility is one factor that should be considered when addressing physician compensation in a VBC model. For example, physicians in a primary-care practice, a surgical practice, and a hospital based practice will all look different. There might also be significant differences among the physicians within the same facility. Case in point: Physicians who work at an academic medical center might be predominantly involved in research and only see patients during clinical trials. Other physicians at that same hospital might be involved in teaching, and only interact with patients while conducting rounds with residents. Still other physicians might meet with patients throughout the day. There are also specialties and sub-specialties to consider. Payment models should also recognize a physician’s experience and tenure. A world-renowned orthopedic surgeon, for example, should earn more than a surgeon who is one year out of residency.
Ensure that physicians have a voice
FFS can be a purely transactional model. A patient comes to a hospital or medical office, service is provided, the patient and/or insurer is billed, and the facility/medical group receives payment. Under the VBC model, physicians and care teams should have a financial incentive for preventing members from becoming patients in the first place. VBC is in line with physicians’ intrinsic motivation to deliver the best care to their patients. In our experience, refocusing work from productivity to value can bring more meaning to physicians’ work and help reduce burnout. However, getting physicians to embrace a new compensation model can be a challenge, as we noted in our report on physician-alignment strategies for health systems. Although no single compensation plan will work for all physician-employment arrangements, it is important that physician income correspond with clearly defined performance measures. Redesigning a physician-compensation model should include the following strategies:
As hospitals and health systems take on more VBC, they should update their volume-based physician-compensation models to ensure they reflect the organization’s quality and financial goals. Health system leaders should proactively explain the reasons for the change by shedding light on the benefits for both physicians (higher compensation) and patients (better outcomes). But an effective transition to value-based care cannot happen without getting physicians on board. Physicians who are given leadership roles for developing compensation models could help champion the change.
Dorrie brings more than 25 years of health care management, executive leadership, and consulting experience primarily focused in the physician and ambulatory arena. She leads Deloitte’s Physician and Ambulatory Services team in the US bringing her expertise to providers, health plans, and life sciences/pharma companies as well as with new entrants, private equity, and adjacent industries investing in the future of health. She is also a founding member of Deloitte’s cross-function / cross-sector Value Based Care leadership team. Prior to joining Deloitte, Dorrie served as the VP of Operations for a 600+ faculty physician practice plan and as the Director of Operations for a physician practice management company. Dorrie has extensive knowledge of the ambulatory landscape and across all specialties spanning strategy, clinical operations, business operations, regulatory compliance, human capital, and technology. As a respected industry expert, Dorrie has spoken on the national and international stage and published multiple journal articles. Topics have included innovation in primary care models, healthcare trends for investors, impact of the volume to value shift, designing high value physician networks, growth strategies, population health, care management innovation, and accountable care. Dorrie’s consulting experience includes leading efforts in M&A integration / day one planning; provider engagement; physician payment model and incentive redesign; primary care strategy, network development, and clinical integration; population health and care management innovation; access enhancement; provider/plan collaboration, partnerships, and integration; workforce planning; patient retention and steerage programs; value based care transformation; and clinical access, efficiency, and throughput.