The Evolution in Physician Compensation

Advances in computer sciences technology are resulting in a profound change in the business of practicing medicine. The ability to collect and analyze information concerning the cost of care and outcomes delivered to large patient populations (i.e. “metadata”) is creating a new and extensive knowledge/data base. This information is providing support for the shift from fee-for-service reimbursement to alternative delivery and payment models. ACOs and bundled payments, for example, weigh patient outcomes at least as heavily as resource inputs.

 

Both private and public payers are looking for alternatives to fee-for-service and other productivity-based reimbursement formulae. The American Medical Association has observed: “In an effort to control the growth of health care costs, risk-based reimbursement methodologies are slowly replacing fee-for-service as the predominant means through which physicians and providers will be paid.”(1) “Metadata” is providing the information needed to support the development of payment alternatives. As payers alter their bases for making payment, physicians need to rethink the ways in which they expect to be compensated. They must more closely align their incentives in order to legitimately achieve the highest reimbursement levels available.

 

Recently, the Society of General Internal Medicine’s National Commission on Physician Payment Reform issued a report that proposes a path for transitioning from fee-for-service reimbursement to methods which rely more heavily on performance and outcomes. Tellingly, these recommendations reflect actions the private sector can adopt without legislation or other government action.

 

How should physicians respond to this changing world, where RVUs or other fee-for-service measures no longer will be the key to determining reimbursement or compensation?

 

First, a medical practice trying to restructure its compensation needs to share key data with all of its members. The data should include each physician’s individual productivity or “profitability” plus an accounting of the ways in which each of them adds additional value to the practice.

 

Second, the metrics that the practice will use to evaluate its physicians need to be clearly delineated and agreed upon; otherwise, the practice will not be able to evaluate its members accurately. As a result those members will not be comfortable that their compensation is fair.

 

Third, physicians need to understand that as reimbursement models are evolving, so too must compensation models. What is decided today may need to be revised tomorrow.

 

Physicians who are looking to join a practice should have a clear understanding of how its compensation formula works. This issue will be more challenging than in the days of ”eat what you kill” compensation models. However, as retention will be even more important to control practice costs, it will be important that new physicians are informed of and understand how they will be compensated.

 

Adapting to a world of pay-for-performance mechanisms is becoming a must for both new and established physicians. These reimbursement mechanisms will result in changes in many practices’ cultures and the way in which their physicians relate to each other. Hopefully in the future, physicians will have even more incentives to provide high quality medical services than they do today.