Hospitals Struggle to Implement Value-Based Compensation Models

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CQM-thumb1One of healthcare reform’s missions from the beginning has been to change the model by which hospitals compensate their physicians. This means going from a fee-for-service-based compensation model to a value-based one. However, this is an easier ambition to declare than it is to implement, as healthcare leaders are finding out.

According to Joe Cantlupe of HealthLeaders Media, “…Many hospitals are struggling toward developing such [value-based] programs, while others continue to develop contracts with physicians relying heavily on how much volume the doctors are generating.”

Um. No.

In Cantlupe’s words, “That’s not how it is supposed to be.”

Ultimately, you can’t juggle both value and volume and expect positive results, says Craig Samitt, MD, MBA, president and CEO of one of the Midwest’s largest integrated delivery models, Dean Clinic in Madison, Wisconsin. He urges his fellow healthcare leaders “to get past the schizophrenia and…take a leap.”

A key problem may be the lack of engagement from physicians with the hospital on developing these compensation models, Cantlupe writes. Because physicians are so used to volume over value, it should be no surprise when they resist value-based compensation, especially when it  has been fee-for-service for decades.

Samitt has found that getting physicians onboard may actually require “tough negotiating tactics,” something Dean uses quite effectively, telling its physicians, “If you continue to churn out volume, (we’ll) reduce your compensation by five percent next year. Every year you just continue to churn out volume, you will continue to reduce compensation by five percent.”

According to the article, Dean began employing quality incentives as the basis for its physician compensation five years ago, with the goal being “to align physician performance with the value-based care goals.”

And the result? It has been rather successful for both the hospital and the physicians.

Cantlupe writes, “It included 60 percent compensation that was still RVU-based; but other areas were based on age/gender-adjusted panel size and incentives for services, financial performance, clinical quality, and growth. The formula eventually totaled 115 percent, which allowed the doctors to earn above market compensation.”

Samitt explained, “We wanted (physicians) to pick that up, with service, quality, and efficiency, and 100 percent of the physicians chose that. In a single year we made a significant move from volume to value-based incentives.”

So, it can be done. Dean Clinic is proof of this. Why is it so difficult for other organizations to fall in line? We’ll cover that in our next post.

In the meantime, how successful has your organization been at converting from volume-based to value-based compensation models? How did your physicians react?

-by Pete Fernbaugh

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