Value-Based Management: Compensation Planning for Value-Based Models of Care

The ongoing shift from fee-for-service reimbursement to value-based payment and population health models will change clinician and staff compensation models over time. The underlying concepts of payment reform will tie payments to evidence and outcomes rather than per unit of service. Reimbursement for coordination of care, accountability for results and management of care across settings, as well as bundled payments for physician and hospital services, will create new incentives.

David Nash, MD, MBA, FACP, recently addressed the fourth-year medical students at the Sidney Kimmel Medical College in Philadelphia on the topic of “How Your Practice World is Changing.” He informed the graduating students,

“Transparency and accountability will be major themes as we move forward—basically, “No outcome, no income.” This will require fundamental changes in culture—such as practicing based on evidence, reducing unexplained clinical variation, reducing adherence to the notion of professional autonomy, continuously measuring and closing the feedback loop and engaging with patients across the continuum of care.”
May 17, 2017

Pay-for-performance is an important element of good management. The question, however, is “What kind of pay for what kind of performance?” It is easy to forget why we pay people. In our desire to stay on an equal level with others in the field, we lose track of real value and performance. Current pay often reflects past performance, not current or expected performance. Generally speaking, compensation plans are designed to reward long-term as well as short-term performance, encourage retention, recognize special needs of an organization, be based on the achievement of both financial and non-financial objectives and, in general, create value for patients/clients.

How can a practice set up performance-based compensation for clinicians and office staff aligned with practice mission and required outcome measures? The first step is to define, in measurable terms, your mission objectives and perceived value outcome measures. Reasonable incentives are geared toward short-term goals (such as process compliance, team contribution) and higher incentives for long-term goals (such as practice transformation to a patient-centered medical home or yearly preventive service measures met).

Geisinger Health System, a physician-led healthcare system of northeastern and central Pennsylvania, recently announced a move away from incentive pay to a straight salary compensation plan for their clinicians. The compensation is based on their cultural mission and values and above-average performance. “Physicians don't need incentives to do the right thing for patients,” said Jaewon Ryu, MD, JD, Geisinger's, executive vice president and chief medical officer.

This statement is of interest to me; one I believe should be true. Time will tell if this works for Geisinger.

There are four essential management processes that collectively govern the adoption of value-based compensation.

• First, the practice develops a strategy to maximize value.
• Second, it translates this strategy into short- and long-term performance targets defined in terms of the key value drivers. Employees are rewarded on quarterly basis for short-term goals.
• Third, it develops action plans and budgets to define the steps that will be taken over the next year or so to achieve these targets.
• Fourth, it puts performance measurement and incentive systems in place to monitor performance against targets and to encourage all staff to meet their goals. Decide to only reward above-average performance so you can continue to be an above-average practice.
   

Value-based management can best be understood as a union between a value-creation mindset and the management processes and systems that are necessary to translate that mindset into action. Taken alone, either element is insufficient. Taken together, they can have a huge and sustained impact.

Respect and team cohesiveness are also outcomes of value-based management and should be included in overall goals. If you want better-performing clinicians and staff and a more successful practice, you need to consider how you are measuring your employees and the growth of the practice. Measure and track the actions you want to see and reward people based on this, not just on some arbitrary formula. (A word of caution as you prepare compensation plans: There are limits within which pay can elicit performance. Above a certain amount of incentive, pay does not incentivize or even influence performance.)

In summary, a well-structured compensation plan communicates practice mission and value objectives to clinicians and staff. The focus of value-based compensation should not be on methodology, but rather on the why you want to change your practice culture and how to do so. All staff must embrace value-based thinking as an improved way of making decisions if value-based care is to truly become integrated into your organization.

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