Physician compensation is poised to change dramatically with the implementation of the Affordable Care Act (ACA). Although the current approach to physician compensation bases payment on services provided, in the future, payment will be for outcomes and the value that the patient, health system, and society derive from them.
Accountable Care Organizations (ACOs) are one centerpiece of the ACA and symbolize the integrated delivery, cost, and quality paradigm. An ACO is responsible for paying the physicians who render the services, working in collaboration with other professionals and organizations in the ACO. Further distribution of earned funds, including shared savings to physician participants, is structured by the ACO itself to further align respective participants’ interests.
Given that compensation will focus increasingly on outcomes—whether based on production, quality, efficiency, outcomes, or a combination of all these components—it should also eventually reflect market-based data to give organizations an ability to establish fair market value (FMV) for it.
There is no “one-size-fits all” answer viewing the future through today’s lens. A successful compensation model depends on a variety of issues. But to date, major innovative changes in physician compensation design have been held back due to regulatory and legal constraints on the market to implement significant compensation plan changes that align directly with, and clearly support, pay for outcomes goals.
On the regulatory side, there are numerous legal limitations on physician compensation. The regulatory scrutiny at the federal and state levels is fragmented and sometimes contradictory regarding guidance in terms of permissible (both legally and FMV compliant) physician compensation arrangements.
On the other hand, the compensation survey process offers a potentially more immediate and practical means to arrive at an FMV compensation approach, the effectiveness of which, however, depends on outcomes-based benchmark data that do not currently exist.
Those with valuation responsibility for compensation plan design must embrace the goal of developing new standards to establish FMV and commercial reasonableness for outcome-based physician compensation plans and help develop best metrics and methods of gathering this information during the next five years. Many hospitals will be increasingly reluctant to use physician compensation per wRVU benchmarks as the basis for measuring employed physician performance because the source of funding via ACOs and other arrangements will be based less and less on this very typical productivity-based metric.
By the same token, regulators must modify rules and regulations. The collaborative nature of the ACO model means that past definitions of anticompetitive conduct cannot be allowed to work at cross purposes to desired outcomes-based services.
Finally, hospitals should begin to design compensation plans that recognize and reward these desired behaviors. Collecting the requisite market data is essential to making such a change, and that collection must begin now.
Future CMS and commercial payer reimbursements for healthcare services will effectively require that the providers do more with less. To thrive in this new environment, healthcare providers must engage in activities that enhance higher accountability and a new service-oriented, results-based compensation culture within their organizations.
Rick is a managing director, healthcare practice, Navigant, Chicago.
Publication Date: Tuesday, January 22, 2013