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Transform Care Infographics August 04, 2016

Physician Compensation Plans in Value-Based World

Partner and Chief Medical Officer, Health & Life Sciences, Oliver Wyman
Key Takeaway
Under #MACRA, compensation plans need to be revised to encourage the practice habits that will drive quality.

The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) eliminates prior performance programs, establishes new payment models for clinicians, and sets new quality and performance metrics upon which Medicare reimbursement will be based starting in 2019. Under MACRA, individual providers’ performance in four new categories will be evaluated and ranked on a nationwide basis. Those scores will then be combined into an overall Composite Performance Score to determine clinician fee schedules for the Payment Year. It is believed that these changes will have significant impact on the compensation plans used by most hospital systems and group practices.

Here, Dr. Bruce Hamory, Oliver Wyman’s chief medical officer, and Susan Douglass Quirk, partner with Mercer, present what hospitals and group practices need to know about compensation under MACRA. They also offer advice as to how to best structure effective, transparent compensation plans for the age of MACRA.  

What You Need to Know:

MACRA establishes a new Medicare payment model

At the heart of MACRA is the Merit-Based Incentive Payment System (MIPS), a new framework that places all Medicare clinicians in one of two payment tracks:

  • Fee For Service Merit-Based Incentive Payment System (FFS MIPS)
  • The Advanced Alternative Payment Model (Advanced APM), which also provides lump-sum incentive payments to clinicians who participate in qualifying Advanced APMs

Most physicians will initially fall into the FFS MIPS track. Under MIPS, clinicians will be evaluated on four performance categories: quality, resource use, clinical practice improvement activities, and advancing care information.

The scores in each category will then be weighted (quality and resource use are weighted more heavily) to come up with an overall Composite Performance Score (CPS). Physician reimbursement will then be adjusted based on how individual scores compare with the mean or median composite score for all MIPS-eligible clinicians. Providers who score higher than the threshold will see payments adjust up; those who score below will see payments adjust down. A provider’s CPS will have increasing impact on payment adjustments as time goes on. By 2022, the potential adjustment will range from -9 percent to + 9 percent, with a 27 percent upward adjustment theoretically possible given additional incentives.

MACRA takes effect sooner than you expect

The current fee schedule increase of 0.5 percent per year ends in 2018 and is replaced by the MIPS formula in 2019. However, the evaluation period starts much sooner. Performance in 2017 (either for the whole year or some part of it) will determine the 2019 fee schedule for each eligible clinician and the group/clinic in which they participate. So, the time is now to be proactive and to work with physicians to understand how to move each of these key metrics.

More of your care team is subject to the new performance standards

Of significance to hospital systems and group practices is that MACRA expands the definition of clinician beyond physicians to include nurse practitioners, physicians’ assistants, CRNAs, and clinical nurse specialists performing face-to-face visits. Beginning in 2019, the fee schedule of these providers will also be determined by their performance on MIPS standards.

Unfortunately, the majority of today’s compensation plans apply only to physicians. For hospitals and practices that are late to the team-based care movement, this could be a real challenge. These organizations should now move quickly to adopt team-based care as a strategic imperative. The combination of extra credit in the Improving Clinical Practice category and the inclusion of APRNs, PAs, and CRNAs in the total scoring for their employers will reinforce this direction.

Steps You May Need to Take:

The majority of today’s compensation plans are still heavily production based and measured by relative value units, clinic visits, or panel size, with just a small proportion of incentive based on quality, access, or patient satisfaction. Going forward, these compensation plans will need to be updated and revised to encourage the practice habits that will drive quality and performance.

Here are the starter-steps hospitals and group practices should take to ready their compensation plan for MACRA implementation in 2017:

Involve all your clinicians now

The vast majority of organizations are not engaging with clinicians to implement the necessary day-to-day practice changes that will allow them to meet new quality goals; and that is setting their clinicians up for a rocky, and potentially expensive, transition to MIPS-based payments.

Practice changes that will help clinicians meet new goals include:

  • More rigorous application of evidence-based medicine pathways to standardize treatment regimens, thus ensuring both their efficacy and efficiency
  • Improved application of electronic technology to improve the clinician’s care and efficiency
  • Better delegation of routine tasks to other office personnel and constant attention to proactively identifying and meeting the needs of their “attributed” patient population

However, dictating such practice changes with a heavy hand will be counterproductive. It is essential that the clinicians themselves lead the care transformation effort, and also be heavily involved in the redesign and implementation of the compensation system.

Move your current compensation system heavily in the direction of rewarding for value

To align behavior with expected outcomes and performance, a substantial part of total market competitive compensation – 20 to 25 percent – should be dependent on adherence to evidence-based medicine pathways and a small number of the other parameters in MIPS.

Be mindful of real-time performance payments

The proposed regulations suggest that poor performance at a group or organizational level be translated into individual compensation and not held solely at the group or corporate level. Given this, organizations must be thoughtful about the timing, conditions for, and amounts of any interim real-time performance payments – pending the final determination of any changes to Medicare payments.

Consider the impact of changes in specialist compensation to your bottom line

For MIPS, the assignment of patients is not limited to primary care providers; many specialists will also meet the eligibility criteria. To determine the fee schedule for clinicians billing under the same Tax Identification Number, the MIPS CPS for each clinician will be added and then averaged to determine the fee schedule applied to the entire group.

Any potential adjustments (upwards or downward) to the fee schedule will be as a percentage of the total, rather than a flat amount. This means that higher-earning specialists could either make (or lose) more money in absolute terms than others. It also means that groups could proportionately gain (or lose) money depending on their mix of specialists and primary care clinicians, as well as the number and performance of their associated advanced practitioners.

Step up your EHR game

Although the evaluation period will begin in 2017, payment adjustments won’t take effect until 2019. That means providers won’t see the impact of their current practice behavior for two years. CMS proposes to feed performance back to clinicians on an annual schedule; but that is no substitute for real-time reporting. Medical groups and hospitals should take the lead on monitoring clinician behavior and providing feedback. And that will place extreme emphasis on the functionality of the electronic health record and the robustness of its reporting capability.

In addition, any compensation plan that focuses on the quality standards established by MIPS will depend on clinicians fully utilizing appropriately configured Certified EHR Technology (CEHRT). This means that EHRs most likely will have to be reconfigured to “optimize” to the specialty; and order sets and documentation will need to be configured to conform with MIPS requirements for reporting.

Be mindful of anti-kick-back and other statutes in your redesign

New plan designs must be very mindful of the Stark Law, the Anti-Kickback Statute and IRC 4958, which prohibit payment-for-referrals and ensure physicians are not overcompensated based on nationally derived and specialty-focused survey data.

Two key questions can help hospitals and group practices evaluate whether physician compensation agreements violate the law are:

  1. Is the physician paid more if – or because – he or she sends business to the hospital?
  2. Is the payment arrangement with the physician “fair market value”, based on the physician’s specialty? Do you have a “fair market value” opinion supporting the proposed total compensation?

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