Connections for Success



Compensating Physicians for the Value of Their Work

The basis for provider reimbursement has become a burning topic in recent years. Many argue that the current fee-for-service reimbursement system does not provide sufficient incentives for providers to improve quality. Instead, it tends to reward them for providing a high volume of patient visits. Value-based reimbursement (VBR) is designed to shift the basis of reimbursement from volume to value. Public (Medicare and Medicaid) and private payers are promoting value-based payment methodologies for physicians and hospitals — including “meaningful use,” “pay-for-performance,” “Accountable Care Organizations” and “patient-centered medical homes.” So, what does value mean in your practice?

Balance Price and Product

Value is typically defined as the balance between price and product features. In health care, this appears as a combination of reducing costs and increasing quality. The current value initiatives achieve their goals through compensation plans that include target quality metrics that physicians and practices must meet.

Taking Initial Steps Towards Value-Based Reimbursement

There are several steps that your practice should take to adapt to these value requirements from payers:

  • Technology and Data Methodologies
    Note the quality measures that payers are emphasizing and make sure the practice is gathering relevant data;
  • Standard Setting Up
    Consult with your clinicians to set standards for their performance of these activities; and
  • Quality Review
    Compile regular reports on each clinicians’ handling of his or her quality responsibilities and discuss the causes of poor performance.

It is critical that everyone agree on the strategies for improvement. When appropriate, coach clinicians on adapting their practice behaviors.

In addition, many of the quality metrics used by payers are related to patient satisfaction. You can address them by implementing simple patient feedback and aggressively managing any problems raised by patients. If you have not already done so, familiarize yourself with the Medicare Physician Quality Reporting System.

Determine Compensation

Critical challenges will be combining production data and redesigning compensation and incentive structures. Start by deciding what you want to accomplish through the practice’s compensation plan. For example, what changes do you want to implement? And, what goals or objectives do you want to achieve?

The first step is to set up a care delivery system to support quality care, gather productivity and compensation data related to those goals. Likely data sources are internal financial reports, patient care records and payer analyses. To persuade physicians to accept the results and adjust their behavior accordingly, the data must be current, accurate and reliable. An electronic health record (EHR) can be in place and used to record and analyze patient care data.

Once you interpret the data that comes in, compare it to benchmark figures from the practice’s history, practices in the area and the industry in general. Then, identify any problem areas in the practice’s operations — either existing or impending.

The second step is to develop a compensation structure that uses the data to meet practice goals, adheres to legal and regulatory mandates, and aligns provider incentives with payer requirements. If there is time, propose two or three alternative structures that serve the same purpose.

Keep in mind that the compensation scheme must meet two secondary practice needs: physician retention and recruitment. While reorienting doctors toward more value-based practice behaviors, you need to avoid alienating physicians so much that they leave the practice. The compensation plan must also be tolerable for new physicians joining the practice.

Keep Score

Prepare a report on how the proposed plan would impact the practice as it is presently functioning. Present scorecards to each clinician showing how well he or she is performing on the quality parameters. Then, translate this into potential changes in the compensation that the clinician would receive.

Trial and Error

Changing a compensation structure requires trial and error. Through the practice’s governance procedures, decide what works and what does not work with the plan, and make the necessary adjustments. The lessons learned will enable the practice to adopt changes more quickly.

Stay on the Right Track

As your plan takes effect, monitor its effectiveness. For example, are key quality metrics improving? Are physicians satisfied with their earnings? And, are payers satisfied with the practice’s overall performance? To ensure you are on the right track, contact Donna Kang at 312.670.7444. Visit to learn more about our Health Care Group.

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