March 20, 2016

New Compensation Arrangements Emerge for Specialist Physicians

By Tom Reinke, Manager, Advisory Services

New Compensation Arrangements Emerge for Specialist Physicians

Leading healthcare systems are moving away from productivity-based physician compensation arrangements to new models that are consistent with the payment reforms being implemented by CMS and private payers.

Medicare and private payers are moving quickly to new payment models that mandate financial risk for specialist physicians. Until now, specialists have generally been isolated from payment reforms such as patient-centered medical homes and accountable care models. In contrast, primary care physicians have seen their salary models move to new arrangements with holdbacks, quality measures and meaningful bonus arrangements. That change was brought about by private payers who have added quality and cost performance measures to their primary care physician HMO provider contracts.

The best example of mandated financial risk for specialists, and a harbinger for the future, is CMS’ new comprehensive care for joint replacement program. It mandates that doctors and hospitals in selected geographic areas accept financial risk including refunds to the federal government. The refunds will occur if government-set cost reduction targets are not met.

The Oncology Care Model is another example of a specialist-focused payment reform model. It takes effect this year and holds medical oncologists responsible for the cost of chemotherapy episodes.

The Medicare Access and CHIP Reauthorization Act (MACRA) authorized CMS to move ahead with new payment models that include financial risk for providers, and it gave CMS the power to unilaterally implement new payment arrangements.

Private payers are moving in a similar direction with their own new payment models.

In response to these developments, health systems and physician organizations are starting to develop new compensation models for their specialist physician employment agreements. Many employment agreements have 5-year terms, and new compensation terms are being incorporated now as a proactive approach to avoid mid-term contract revisions.

These new compensation models retain some elements of productivity-based compensation and incorporate new arrangements that align a portion of compensation to the performance measures in new payment models. The productivity-based component is based upon work relative value units (WRVUs) or cash collections. The old productivity measures serve as a reference point in setting a floor for salaries and setting minimum and maximum compensation amounts. The new models also begin to move toward traditional salary-based compensation and add in additional performance measures tied to quality and financial performance.

The new compensation models require additional changes in the relationship with specialist physicians, requiring doctors and their employers to work together much more closely. Along this line, some providers are also developing comprehensive physician compensation plans that explain the bases for compensation, set objectives for compensation levels, outline performance measures and tie physician compensation to larger corporate strategic goals. One objective of these comprehensive plans is to create a stronger relationship with doctors and to more fully integrate them into the organization.

Employment agreements and compensation plans based solely upon productivity measures can be viewed as a demeaning way to value physicians. However, as health reforms move to a value- based delivery system, physicians become more essential for the central role they must play in creating that value.

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