How to Structure Incentive Plans for Physicians

By Jim Otto
 
The fee-for-service model that is pervasive in the healthcare industry is slowly giving way to a compensation model where physicians are incentivized for healthy outcomes and patient satisfaction. Most physician incentive plans already contain these measurables, so it will not be a situation of overhauling, but rather a gradual shift in emphasis and weighting. Incentive programs for nurses, physician assistants and other clinical staff will continue to vary widely, depending on the organization’s size, specialty and location.
 
Healthcare organizations who receive Medicare and Medicaid reimbursements need to adapt to this new model now. The emergence of ACOs will also likely drive change in physician compensation; however, ACOs are only one strategy for caring for a patient population.  Hospitals, physician groups and managed care providers across the country are experimenting with innovative collaborations to reduce costs and provide higher quality care.
 
Physician groups that generate their income through private insurance companies will likely continue to use the same payment system for a number of years. While two reimbursement models are unlikely in the long-term, the private insurance industry is waiting to identify best practices before changing its model. 
 
Creating new metrics
 
If care providers are likely to be more highly reimbursed for things like healthy outcomes and patient satisfaction rather than services and tests rendered, physician incentive programs will need to shift to be more heavily weighted in these areas.
 
While measuring healthy outcomes can be a murky endeavor with varying definitions of what “healthy” means, by agreeing on treatment best practices and incentivizing doctors for adherence to processes, analysis can be run to see if a macro change in healthier outcomes is taking place for the patient population. For instance, with diabetic patients, physicians could be incentivized for ensuring that patients maintain their blood sugar levels and report those levels to the physician periodically. Process can also be emphasized in physician compensation plans for actions like proper coding EMR systems to ensure more efficient billing processes.
 
Since it is unclear how healthcare providers will be paid in the future, it is imperative to incorporate flexibility when structuring physician compensation packages. Healthcare organizations will need to evaluate all incentive metrics each year to determine whether they still make sense, the relative importance (i.e., weighting) of each metric and how much of a provider’s cash compensation should be provided by an incentive. 
 
Most organizations self-fund incentive pools annually, so the decision on how best to continue to allot funds to such pools will need to be discussed as well. All of these items should be addressed in a way that supports the organization’s mission and strategy, while not disrupting the operations or finances. 
 
For those organizations that are unsure which metrics to use when structuring incentive plans, or how to use them to support the short and long-term strategy of the organization, it’s best to utilize a consultancy with expertise in these issues. Moreover, any changes to compensation structures will need to be regularly communicated to physicians to help them understand the organization’s priorities and how they can help to influence positive change.
 
Private practice physicians and groups should take full advantage of their current situation – they have the ability to observe the evolution of CMS’ reimbursement policies, as well as the way hospitals and health systems react to those changes.
 
Jim Otto is a senior principal consultant in the US healthcare practice at Hay Group. He is based in Atlanta, Ga.