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Maximize Value October 02, 2015

Incentivizing Docs: Lessons for Payers From the World of Physician Compensation

Partner, Health and Life Sciences, Oliver Wyman
Key Takeaway
Payers need to align w/ provider’s existing comp & incentive models to drive change - Tom Mikuckis @OliverWyman

As payers are under ever-increasing pressure to control costs and improve the quality of care, the focus on stronger incentive programs and a greater shift to value-based payments shows no signs of slowing. A recent Forbes article noted that figures from the Medical Group Management Association show nearly 11% of primary care doctor payments come from value-based contracts compared to just 3% in 2012 and 6.7% in 2013. Oliver Wyman Principal Tomas Mikuckis, with Parie Garg and Eric Lu, shares observations of how this trend is playing out in the market:

We’re seeing payers implement a range of innovative new ways to encourage providers to deliver higher quality, lower cost care. Many payers are further increasing and refining P4P-style bonus payments to incentivize providers to achieve desired target outcomes, especially as quality in Medicare Advantage Stars becomes a do-or-die priority for many Medicare Advantage plans. Shared savings models are becoming more prevalent to align payer and provider incentives to lower costs. And the market is shifting towards full-risk arrangements where financial success is wholly based on total cost and quality performance.

These initiatives all require great effort and investment – but how can payers ensure they are achieving the value they need from providers? And more importantly, in a world of increasing pressure on cost performance, how do payers make sure they are not throwing good money after bad, but establishing incentive programs that are effective and valuable in driving change in outcomes?

Payers must shift from the historical approach of designing initiatives that target the desired value-based outcomes in a vacuum. To truly grab the attention of providers and drive behavioral change, payers must understand and align with the provider’s existing compensation and incentive models. The models can differ significantly across a payer’s network. While independent providers may be compensated primarily from the payer’s fee schedule, employed providers receive salaries and bonuses that are calculated largely based on volume-based productivity performance. Understanding how the payer’s initiative will impact the overall compensation for a physician is critical to gauge how strongly they will respond.

More importantly, as provider organizations have started to shift compensation models for their physicians to align with value-based outcomes, there are a number of lessons learned from the world of physician compensation that payers should consider when developing new value-based initiatives:

  • Cause and effect: Most incentives tied to specific value-based metrics assume that the rewards will influence a physician’s practice patterns and resulting performance on that metric. However, physicians may not receive those payments directly because their compensation is distributed via their employer’s own compensation model, or incentives are retained by their IPA or PO. Understanding where the dollars go, and collaborating with physician groups to ensure they reach their target audiences, is critical.
  • Don’t operate in a vacuum. Just as payers are shifting towards value-based payments, provider organizations are also shifting towards incorporating value-based outcome performance into their compensation models. Payers should collaborate with providers to ensure that the targeted outcomes are aligned and that they are incentivizing physicians to perform against the same set of goals.
  • Put your money where your mouth is. Payers should gauge whether the level of compensation they are paying for desired outcomes is significant enough to materially impact a physician’s overall compensation. Otherwise, the payer’s goals will be overlooked as providers focus on maximizing their performance in their organization’s compensation model. This is especially true for independent physicians, where significant reimbursement may still be FFS-based, value-based initiatives can fail to gain traction if they are not accompanied by a clear direction for broader reimbursement transformation.
  • Pick your battles. Focus on a shortlist of KPIs. Physicians are extremely busy – they must care for a range of patients who often are members of several different plans. They don’t have the bandwidth to focus on a laundry list of target outcomes and optimize their performance across a myriad of different initiatives. Instead, they hone in on the easiest-to-understand, highest value initiatives. Keep it simple for them by focusing initiatives, communications, and performance reporting on a targeted set of the most important metrics that they can impact. Value-based provider compensation models that are beginning to be developed for employed physicians can offer key lessons learned for how to strike the right balance. Many payer models today have excessive complexity and fragmentation that lead to negative perceptions among providers, and payers who can have the easier understood and actionable approaches are more likely to build the stronger partnerships and buy-in required.

As the healthcare market shifts towards value-based payments, it will be critical that payers implement effective initiatives and compensation models that improve cost and quality performance. The above learnings can help payers work with existing physician compensation models for both employed and independent physicians in order to drive change.

Ultimately, incentives, compensation, and reimbursement are necessary but not sufficient to truly drive significant improvements in cost and quality of care – provider infrastructure and capabilities, clinical transformation and resources, leadership and strategic alignment, are all additional inputs without which any incentive program is unlikely to maximize impact.

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