A study conducted by the RAND Corporation and published in the January 2022 issue of the Journal of the American Medical Association (JAMA) seeking to determine whether health systems primarily incentivize volume or value in their physician compensation models found that almost all physicians are still compensated through a volume-based model that rewards productivity over the value of care provided. This article summarizes the results of the study.
A study conducted by the RAND Corporation and published in the January 2022 issue of the Journal of the American Medical Association (JAMA) seeking to determine whether health systems primarily incentivize volume or value in their physician compensation models found that almost all physicians are still compensated through a volume-based model that rewards productivity over the value of care provided.
The most recent iteration of healthcare reform, formalized in the 2010 Patient Protection and Affordable Care Act (ACA), signaled the shift to both value-based care (VBC), i.e., the goal of improving a patient’s outcomes and the quality of care, and value-based reimbursement (VBR), how health systems and payors financially incentivize physicians to practice VBC over volume-based care.[i] Volume-based care has been, and still is, the default method of care and payment model in the U.S. because it incentivizes healthcare providers to treat more patients in order to achieve higher revenue.[ii] The problem with volume-based care is that it largely disregards a patient’s health outcomes and the quality of care received. As a result, volume-based care and volume-based payment models are increasingly under scrutiny and the Centers for Medicare & Medicaid Services (CMS) is leading the charge with their goal of shifting all Medicare beneficiaries to be treated by a provider in a VBC model by 2030.[iii]
In the article’s introduction, the RAND researchers noted that since the ACA’s passage, physician hires and the size of health systems have increased.[iv] They also noted that the majority of physician payment models were still based on volume-based care in 2019 (the end date of the study’s survey).[v] This result, nine years after the ACA was passed, led RAND researchers to investigate how physicians are compensated and why VBR has been slow to be embraced.[vi]
In determining why VBR has been slow to be incorporated, RAND researchers collected data, conducted interviews, and ran surveys from November 2017 through July 2019.[vii] The researchers collected information from 31 physician organizations (POs) among 22 non-profit health systems across four states (California, Minnesota, Washington, and Wisconsin).[viii] These 31 POs were comprised of 27 medical groups and four independent practice associations; all but one had compensation plans for both primary care providers (PCPs) and specialists.[ix]
The two-year study indicated that increasing the volume of services provided was the easiest and quickest way for physicians to increase their compensation.[x] Twenty-six of the 31 primary care PO compensation models incentivized the volume of services in their base compensation, as did 28 of the 30 specialist PO compensation models.[xi] Further, of the 26 primary care POs that cited volume as a compensation model component, it comprised, on average, just over 68% of the PCPs’ total compensation; for specialist POs, that component was nearly 74% on average.[xii] Beyond volume-based compensation methods, capitation and salary were the next most common forms of physician payment, leaving VBR models at the bottom.[xiii] However, many physicians on capitation and salary payment models still receive benefits from increased volume.[xiv] Of the 31 primary care POs, 26 POs (nearly 84%) did include some form of incentives based on quality and cost effectiveness, although they accounted for (on average) just 9% of a physician’s overall compensation and benefits.[xv] Further, compensation plans for specialists within the POs studied relied more heavily on the volume of patients seen compared to the primary care providers.[xvi] Within the “quality” and “cost effectiveness” incentives studied by RAND were various subcategories; the most prominently incentivized subcategories included clinical quality and patient safety/patient experience/satisfaction.[xvii] However, these subcategories only added up to half of the total compensation incentives from VBC practices.[xviii]
The study highlights the issues with U.S. healthcare system’s payment hierarchy, which includes payors at the top imposing payment policies onto health systems, which, in turn, pass those incentives down to the POs.[xix] The problem, according to RAND, is that health systems often pass down the incentives, but not the larger payment model, to the POs.[xx] The study noted the challenge of “translat[ing] risk-bearing payment arrangements and many measures of quality, utilization, or value to the individual physician level for payment purposes owing to limitations in panel sizes and reliability concerns with measuring individual physician performance.”[xxi] In response, many health systems and physician practices position themselves “as a buffer between payers’ incentives and physicians … [which] also likely contributes to the dominance of volume-based compensation and modesty of quality and cost performance incentives.”[xxii] This leads to the current challenge facing the U.S. healthcare delivery system—how to incentivize VBC.
These study results are in direct contradiction to the longstanding narrative that the U.S. healthcare delivery system is shifting away from volume-based reimbursement and toward VBR. Over a decade after the passage of the ACA, the limited incentives for physicians to incorporate more VBC measures into their care routines is unsettling. Despite the low percentage of a physician’s compensation that these incentives comprise, they are higher than before the ACA’s passage.[xxiii] It is difficult to change decades-old payment models, especially when considering that POs and health systems have undergone tremendous growth the last decade. This strong growth makes it all the more critical for health systems to incentivize patient volume to keep pace with competitors for market share, revenue, and physician retention. It is worth considering, however, that incentivizing physicians to incorporate VBC measures is not the only way health systems can affect patients’ care experience. Other ways to improve the quality, safety, and outcomes of care include nonfinancial incentives, leadership incentives, and improving referrals and ordering support.[xxiv]
The shift to VBR is certainly occurring, albeit much slower than expected. Nevertheless, many health systems and physicians are active in pursuing this shift. In response to RAND’s study, Evident Health in California noted that physicians’ minds are being changed, but there is still a long way to go.[xxv] Additionally, a physician and researcher at RAND noted that current physician compensation models are designed for volume, not value, and emphasized the need to re-think payment models across health systems.[xxvi] This comes at a time when many experts are pointing to evidence suggesting that more can be done at an organizational level to pass down value-based incentives (but not risk) to physicians, rather than keeping them.[xxvii] Of course, that alone will not be enough to ensure a smooth transition to VBR.
As noted above, physician buy-in is crucial to the movement because many will not want to assume more risk if they are not appropriately compensated for it. Beyond physician buy-in is health system buy-in. While many systems are forced by payors, through VBR models to incorporate VBC practices, health systems will need to know for certain that they can maintain revenue levels under a VBR model. The shift to value-based care is underway, but is by no means secure.
This article was previously published in Health Capital Topics, Volume 15, Issue 2, February 2022, and is republished here by permission.
[i] “Physician Compensation Arrangements and Financial Performance Incentives in US Health Systems” By Rachel O. Reid, Ashlyn K. Tom, and Rachel M. Ross. Journal of the American Medical Association, January 28, 2022, https://jamanetwork.com/journals/jama-health-forum/fullarticle/2788514 (Accessed 2/17/22).
[iii] “CMS Lays Out New Strategy for Advancing Value-Based Care, APMs” By Jacqueline LaPointe, Revcycle Intelligence, October 21, 2021, https://revcycleintelligence.com/news/cms-lays-out-new-strategy-for-advancing-value-based-care-apms#:~:text=CMS%20now%20expects%20all%20traditional,based%20care%20model%20by%202030.&text=October%2021%2C%202021%20%2D%20The%20delivery,by%202030%2C%20according%20to%20CMS. (Accessed 2/21/22).
[iv] “Physician Compensation Arrangements and Financial Performance Incentives in US Health Systems” By Rachel O. Reid, Ashlyn K. Tom, and Rachel M. Ross. Journal of the American Medical Association, January 28, 2022, https://jamanetwork.com/journals/jama-health-forum/fullarticle/2788514 (Accessed 2/17/22).
[xxv] “Boosting volume key to higher doctor pay despite value-based care push, study shows” By Maya Goldman, Modern Healthcare, January 31, 2022, https://www.modernhealthcare.com/physician-compensation/boosting-volume-key-higher-doctor-pay-despite-value-based-care-push-study-0 (Accessed 2/18/22).
[xxvi] “Physician Compensation Focused on Volume of Services Rather than Value, Study Finds” By Christopher Cheney, Healthcare Leaders, January 31, 2022, https://www.healthleadersmedia.com/clinical-care/physician-compensation-focused-volume-services-rather-value-study-finds?spMailingID=20126206%E2%80%A6%203/3 (Accessed 2/18/22).
[xxvii] “Value-based care is more likely to succeed if physician compensation models change” By Dorrie Guest, Deloitte, December 17, 2020, https://www2.deloitte.com/us/en/blog/health-care-blog/2020/value-based-care-is-more-likely-to-succeed-if-physician-compensation-models-change.html (Accessed 2/18/22).
Todd A. Zigrang, MBA, MHA, ASA, CVA, FACHE, is president of Health Capital Consultants, where he focuses on the areas of valuation and financial analysis for hospitals and other healthcare enterprises. Mr. Zigrang has significant physician-integration and financial analysis experience and has participated in the development of a physician-owned, multispecialty management service organization and networks involving a wide range of specialties, physician owned hospitals as well as several limited liability companies for acquiring acute care and specialty hospitals, ASCs, and other ancillary facilities.
Mr. Zigrang can be contacted at (800) 394-8258 or by e-mail to email@example.com.
Jessica Bailey-Wheaton, Esq., is vice president and general counsel for Heath Capital Consultants, where she conducts project management and consulting services related to the impact of both federal and state regulations on healthcare exempt organization transactions, and provides research services necessary to support certified opinions of value related to the fair market value and commercial reasonableness of transactions related to healthcare enterprises, assets, and services.
Ms. Bailey-Wheaton can be contacted at (800) 394-8258 or by e-mail to firstname.lastname@example.org.