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Maximize Value August 25, 2015

Price is What You Pay. Value is What you Get: Designing a Value-Based Physician Compensation Program

Partner, Health and Life Sciences, Oliver Wyman
Key Takeaway
Design physician comp so incremental incentive pools are funded thru system-wide savings - Parie Garg @OliverWyman

Parie Garg, a member of the MMC Advantage Provider Transformation team, presents how a physician compensation plan can be designed to both gain doc buy-in and realize the promises of value-based care:

So your organization has decided to move to value, keep up with the changing market trends, and make sure that you can keep the overall cost of care down. Great! The leadership is aligned, the administrative staff are aligned – but you still have one problem. The physicians that your organization depends on are resistant, skeptical, and wary of change.

Understandably so. Past payer and provider efforts to align compensation with value-based care have either provided a pittance to physicians (e.g. the 1%-5% uptick from P4P programs) or have buried them in paperwork, metrics, and measures up to their stethoscopes. To a large extent, gaining physician buy-in hinges on having an appropriately designed physician compensation model that rewards physicians for behaviors that align with the group or payer corporate objectives. In addition to considering the mechanics around compensation, rewarding physicians for outcomes, and accounting for additional administrative responsibilities, the compensation model must also take into account the realities of operating in a market that is increasingly competitive for limited physician resources.

Our team has had significant success in designing physician compensation programs that take into account all of these nuances and complexities. Not only do we believe that an appropriate compensation model can be feasibly designed and orchestrated, we also believe that a simple, elegant solution can be game-changing, and can make or break an organization’s ability to improve quality and lower cost by effectively and speedily bringing physicians aboard. By focusing on the following success factors, health plans and provider systems alike can develop a successful, value-based compensation program:

  • Align on organizational priorities first. Prior to launching any compensation redesign, it is critical that the organization is clear on what behavior changes are to be encouraged within the physician population, how those align with priorities, and how such behaviors and priorities may need to evolve as the organizational strategy evolves. The compensation program should be built to support these principles.
  • Make the compensation program fair, achievable, and impactful. A value-based compensation model should (a) align with market benchmarks (b) reward the high performers and hold the low performers accountable (c) balance production, quality, and efficiency incentives, and (d) ensure that the upside opportunity per distinct goal or metric is sufficient to motivate behavior change. Likewise, assure that models are designed and initial targets are set so that historical levels of MD compensation are achieved in early cycles of the program.
  • Focus on the metrics that matter. Avoid laundry lists of metrics that are dilutive of the total incentive pool, are not statistically valid or reproducible, are outside of the control of the clinicians, or do not contribute to improvement in clinical value. Pick 3-4 behavioral categories that matter and limit distinct metrics to 5-6 per specialty.
  • Evolve the framework over time. As desired benchmarks are achieved, evolve the framework to either include new metrics that are new priorities or change the thresholds or targets to ensure a cycle of continuous improvement.
  • Make the program self-funding. Design the compensation program such that incremental incentive pools are funded through system-wide savings generated from practice or utilization efficiency stemming from physician behavior change. Designing the compensation in such a way allows compensation redesign to be viewed by physicians as a“bonus” rather than a “withhold” and limits arguments and resistance from payers and system leaders.
  • Consider engagement beyond compensation. While compensation is typically used to drive the most meaningful changes in behavior, there are a variety of other ways to engage physicians – and not every behavior change requires an incentive. As such, the compensation model should be derived within the context of a broader engagement strategy that includes elements such as data transparency and compact development.
  • Communicate, communicate, communicate. Take the physicians along on the journey of compensation rather than dictate terms to them. Engage physicians early and often, and appoint physician champions who can co-lead the process and serve as peer communicators.

Designing a physician compensation model is a significant undertaking, with far reaching impacts on the organization, administrative leadership, physician relationship managers, the overall health system and most importantly, physician engagement. By following a few key principles, organizations can launch a model that is both effective and efficient.

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