Tips for implementing value-based physician compensation

Developing a value-based physician compensation plan may be the best defense in the face of the emerging payer reimbursement models from Medicare and other payers, Jeffrey B. Milburn, MGMA Health Care Consulting Group says.

“Reimbursement is shifting from fee-for-service to include incentives for quality, outcomes, improved patient experience and reduced costs,” he says.

Milburn says value-based plans can come in many forms — from pay-for-performance to a patient-centered medical home model — but there are a few important steps practices can take when implementing a value-based compensation plan.

Involve physicians ASAP

If you’re interested in implementing value-based compensation model for your physicians, you’ll want to involve them in the decision and development immediately, Milburn says.

“Communication should be provided at each step of the way, using a variety of methods and presenters. … it is usually better to err on the side of too much information rather than too little,” he says. His book provides a series of questionnaires that physicians can complete to spell out what they want and expect from the new compensation model.

For resistant physicians, commit to working with them without sacrificing the entire plan. For example, “Physicians receiving an increase (in pay) will rarely complain unless it isn’t enough. Physicians receiving less may accept a small decline, but will generally resist any material decline regardless of the reasons. In these cases, changes may have to be phased in to allow for individual adjustments,” Milburn says. For example, if someone’s salary needs to be decreased by 15%, phase it in at 5% per year for three years.  “Most physicians could live with a 5% annual reduction. They won't like it, but they could adapt to it.  By year two and three, they will probably find a way to increase their compensation anyway.”

“Try to make any reductions somewhat equal for all physicians,” Milburn says. “Realize it may be necessary for physicians to accept a plan that is ‘equally unfair’ with no one or two physicians benefiting more than the others.”

Create a compensation plan committee

An in-house compensation plan committee should develop the value-based compensation plan.
For smaller practices, Milburn recommends that the committee include any of the following:

• A physician leader and administrator
• Some other type of administrator-physician team
• All physicians in the practice

For larger practices, he suggests the committee include all of the following – if possible:

• A subset of the organization, including physicians and administrative personnel
• An outside consultant to promote objectivity and “absorb some of the unhappiness” or “take the heat” if needed
• A financial officer or accountant

Other considerations:

• Make sure the committee is separate from your governing board/approval authority body to ensure a different representation, but have at least one member of your governing board/approval authority serve on the committee
• Involve a diverse physician mix to bring different viewpoints of what is considered fair

Use data to build your plan

Data that determine incentive payments and bonuses must be perceived as relevant by physicians. If physicians distrust the information that’s driving compensation, they will reject the entire plan, says Milburn during his webinar, Strategies in Physician Compensation Planning. For example, rather than just saying patient satisfaction is a part of the plan, including a number of patient care measures, including the number of referrals, inpatient admissions, length of stay, ancillary services, patient panel size and patient satisfaction survey results,” Milburn says.

Milburn recommends that incentive amounts should make sense to your particular type of doctor – a bonus that is meaningful and appropriate for a pediatrician might be too small for a cardiovascular surgeon due to the relative differences in their specialty based compensation.