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4 Takeaways: The LAN Framework & How We Pay Doctors


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Actionable Insight

"Physicians must feel redesigned compensation is a mutual benefit to spur real change – Parie Garg @OliverWyman"

In January 2015, Health & Human Services Secretary Sylvia M. Burwell announced measurable goals and a timeline to move the Medicare program, and the healthcare system at large, toward paying providers based on the quality, rather than the quantity, of care they give patients. To make these goals scalable beyond Medicare, Secretary Burwell also announced the creation of a Health Care Payment Learning and Action Network (LAN). Through the LAN, HHS has been working with private payers, employers, consumers, providers, states, and state Medicaid programs, and other partners to expand alternative payment models (APM) into their programs. A LAN work group released its APM Framework White Paper earlier this month, as detailed in a Health Affairs blog post. Here Oliver Wyman Principal Parie Garg shares considerations for physician compensation in light of the recommended framework:

1)      While changing physician compensation is not sufficient, it is necessary to stimulate and sustain innovative approaches to patient care
  • The first articulated guiding principle of the work group was to acknowledge that “changing providers’ financial incentives is not sufficient to achieve person-centered care, so it will be essential to empower patients to be partners in healthcare transformation.”
  • Physicians are the lynchpin of the healthcare delivery system and control many aspects of downstream care delivery (which hospitals patients to go, which prescriptions they take, etc.). In order for there to be meaningful change, physicians have to view a redesigned compensation as a mutual benefit operation (beneficial to them and to the health system).
  • Models where physicians have been excluded from the benefit have struggled to make meaningful change and recruit physicians. One doctor put it this way: “No physician is going to join an ACO if they aren’t promised a share of the savings that they helped create.”
2)      The change in compensation needs to be material
  • The upside from the alternative payment models needs to be substantial enough to garner physician attention. Past P4P models with ~5% of upside in return for measuring a large number of metrics have achieved limited success in true, sustainable behavior change, as this New York Times article reports.
3)      Population health-based models should be viewed as the end game
  • Providers are struggling to transition from fee-for-service to fee-for-value. Current systems, processes, and mindset are geared towards fee-for-service rather than fee-for-value.
  • New models will need to be built on the skeleton of the fee-for-service model (e.g. utilized work RVUs to settle on base payment and value-based metrics to provide an upside) and the shift should be gradual. Moving immediately to a population health payment model will be extremely difficult for most organizations.
4)      No matter which model you employ, communication is key
  • Regardless of the choice of APM, communication with physicians and the clinician team is essential to positive momentum. Even the best designed model can fail due to lack of understanding, fear of the unknown, and a general unwillingness to change.
  • If a physician’s take home pay is going to be impacted, but they don’t know what to expect, there will be significant pushback – regardless of the durability of the model.

About the Author

Parie Garg, PhD portrait
Parie Garg, PhD Partner, Health & Life Sciences, Oliver Wyman

Parie has experience building value-based care delivery programs for health plans and provider systems and has guided several companies in the design and development of innovative care delivery models, with expertise in physician compensation and government programs.


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