With further implementation of the Affordable Care Act (ACA), payment to physicians for healthcare outcomes will become increasingly large relative to payment for healthcare services. As a result, major differences in achieving these outcomes among physicians will also emerge.

Pay for Outcomes Has Been Growing
Compensation plans for physicians working for hospitals have been evolving to include a base compensation level tied to production, plus incentives based on several factors involving quality, access, and patient satisfaction activities. Physicians may be compensated for these incentives within relatively narrow limits today (typically ranging from 5 to 10 percent of total cash compensation) compared with what might be needed and/or available in the future (with up to 20 to 50 percent of total cash compensation).

Although compensation plans over the next three to five years will continue to look similar to the most progressive compensation plans deployed today, a growing percentage of overall compensation will be dependent on value- and outcome-based improvements. As an industry, we are constrained in our ability to document both efforts and results within these new incentive programs. The difficulties involved in quantifying and benchmarking the overall use of these tools to affect care and outcomes in turn affects our ability to establish fair market value (FMV) of the newer arrangements created by the increasing shift to pay for outcomes.

Restraints on Change Do Exist
The physician desire for guaranteed/highly predictable compensation coupled with the reluctance of management and legal counsel to advocate for a different compensation approach have impeded our ability to make significant rapid changes in compensation plans that conform to these new emerging healthcare payment realities. This pressure tends to create a market floor that limits how low "guaranteed" compensation can go while trying to fit new potential compensation payment arrangements based on outcomes within existing published market compensation and production data.

With this floor, and with the limits on top-end compensation created by FMV and commercial reasonableness requirements, along with the absence of pertinent survey data on physician compensation, the range and variability of compensation is compressed to tighter bands compared with the range of variance in performance. Moreover, some group practices resist the notion that compensation variations reflect quality performance because it is contrary to group culture-in which all physicians generally share equally in the workload across the practice, and in which "best practices" tends to reduce individual-performance variations to produce best group-wide results.

Newer Models Accommodate Change, to a Point
Healthcare marketplace physician compensation today ranges from complete salary, without any bonus and salary increases based on management judgment, to criterion and data-intensive models that "automatically" generate compensation levels based on the relationship of production data to compensation. An increasing number of salary-based models pay for the ability to do the complete "job" including specific "minimum work standards," which seem to provide more opportunities for individual physician and group performance-based compensation to be recognized in response to changes in market conditions, demands, and opportunities.

The clear challenge is in being able to credibly benchmark more innovative models not reflected in current market compensation and production survey data as the market increasingly embraces value-sourced compensation. 

Rick is a managing director, healthcare practice, Navigant, Chicago.

Publication Date: Tuesday, November 27, 2012