Additional Contributor: Allison Carty, Pinnacle Healthcare Consulting
Introduction
The process of structuring physician compensation is undergoing a meaningful and significant transformation. Traditional models that have long prioritized volume and productivity are giving way to new approaches that emphasize patient outcomes and the quality of care. As healthcare systems evolve, they are increasingly adopting complex and nuanced payment structures that better reflect modern priorities. This article will explore the key trends reshaping physician compensation, including the growing integration of quality metrics into payment models, the continued role of fee-for-service (FFS) reimbursement, and recent adjustments in reimbursement codes. Understanding these shifts is crucial, not just for healthcare administrators, but for the future of patient care itself.
Quality Metrics in Physician Compensation
The traditional model for physician compensation has largely been volume-based, prioritizing the number of patients seen or procedures performed. However, as the healthcare industry increasingly prioritizes high-quality patient care, there has been a significant shift toward integrating quality and satisfaction metrics into physician contracts. The primary goal for healthcare organizations is to provide the highest quality of patient care, leading them to explore ways to ensure that physician compensation reflects quality outcomes in addition to, or even instead of, volume. Consequently, in many large healthcare organizations and systems, approximately 10-20%[1] of a physician’s earnings are tied to quality-based outcomes. This shift underscores a continued and growing emphasis on value-based care (VBC) and quality-based incentives. Although the transition from volume to value has been underway for two decades[2], it has gained significant momentum in recent years. Historically, health systems were predominantly paid through FFS models, where revenue was less influenced by value. This dynamic is changing as more payors intensify the focus on value-based care.
Organizations that have advanced along the VBC compensation structure are beginning to incorporate additional non-productivity incentives into their compensation plans. These incentives include factors such as patient access and acuity-adjusted panel sizes, which are designed to enhance population health management. For instance, patient access incentives might reward physicians for maintaining open panels or reducing wait times for appointments. Acuity-adjusted panel sizes consider the complexity of a physician’s patient population, adjusting raw patient numbers based on factors like age, sex, and hierarchical condition categories. Although perfect acuity adjustment is challenging, these metrics aim to ensure fair and comparable panel sizes. Moreover, some organizations embed incentives (i.e., such as quality incentives, higher base pay, and shared savings) within payor contracts to further motivate physicians. These incentives often involve redistributing a portion of the additional revenue generated through quality performance back to the participating physicians.
The adoption of quality metrics in physician compensation models has steadily increased, with a May 2023 Medical Group Management Association (MGMA) Stat poll showing that 47% of medical groups now align physician compensation to quality performance metrics, up from 26% in 2016, 36% in 2018, and nearly 40% in 2019[3]. This trend, accelerated by the pandemic, reflects a broader industry shift toward VBC and underscores the ongoing effort to align physician incentives with the goal of improving patient outcomes.
Fee-for-Service: Why It’s Here to Stay
Although the shift toward VBC and quality-based compensation is gaining momentum, fee-for-service models are likely to remain a central part of healthcare reimbursement practices for the foreseeable future.
FFS is straightforward and easy to implement. It provides clear incentives for physicians to increase their productivity, as they are compensated for each service rendered. This model is particularly effective in specialties wherein procedures and diagnostic tests are common, offering a direct correlation between effort and payment. Many healthcare providers and institutions are deeply entrenched in the FFS system. Transitioning to value-based models aimed to improve quality and reduce costs requires substantial changes in infrastructure, reporting, care management, and coordination – all which can be resource-intensive and complex. For smaller practices and certain specialties, the shift might not be feasible or economically viable in the short term. FFS models allow for flexibility in managing diverse patient needs. While VBC emphasizes long-term health outcomes, some acute conditions and immediate treatments are more effectively addressed through a FFS approach. This flexibility ensures that patients receive timely and appropriate care without the constraints of broader population health metrics.
FFS models can coexist with value-based initiatives. Hybrid compensation models that blend FFS with quality incentives offer a balanced approach, allowing healthcare providers to benefit from the strengths of both systems. This integration helps maintain the advantages of FFS while encouraging improvements in care quality and efficiency.
Changes to Fee-for-Service Models
To continue evolving the FFS model, CMS incorporates changes to G2212 code, which compensates for prolonged office or outpatient evaluation and management services beyond the standard maximum required time, marks a significant enhancement in physician compensation models. This code, which accounts for each additional 15 minutes spent by a physician or qualified healthcare professional, recognizes the increasing complexity and time demands of modern patient care. Traditionally, physician compensation overlooked the nuanced and extended time required for comprehensive patient evaluations, especially for those with complex or chronic conditions. By incorporating G2212, compensation structures can better reflect the actual time and effort physicians invest in providing high-quality care. This change not only aligns financial incentives with the goal of thorough patient management but also encourages physicians to spend the necessary time with each patient, ultimately improving patient outcomes and satisfaction.
Similarly, starting this year, mental and behavioral health providers will benefit from increased relative value units (RVUs) for various critical services, including crisis care, psychotherapy, health behavior assessment and intervention, and substance use disorder treatment. This adjustment represents a 19.1% increase over a four-year period, with the first increment taking effect in 2024[4]. This significant enhancement applies to timed behavioral health services codes under the Physician Fee Schedule, reflecting a broader recognition of the importance and complexity of mental and behavioral health care. The increase in RVUs is expected to positively impact provider compensation, ensuring that these essential services are better valued and incentivized. This change underscores a commitment to improving mental health outcomes and addressing the growing demand for comprehensive behavioral health care.
In addition to coding and RVU alignment for FFS models, Medicare has introduced a change in how split/shared visits are reimbursed beginning this year. Under this new policy, Medicare reimbursement will be based on the provider who either spends more than half of the total time on the visit or who undertakes a substantive part of the medical decision-making. This change denotes that even if a physician does not spend the majority of time with a patient during a split/shared visit, they can nevertheless bill at the physician’s rate[5]. This policy shift introduces several potential considerations for physician compensation, including adjustments in roles and responsibilities within healthcare teams, heightened requirements for detailed documentation to ensure accurate billing, and possible shifts in income distribution that could impact practice economics and team dynamics. Specifically, this change could not only influence how responsibilities are distributed among healthcare team members but also potentially affect compensation structures in practices where split/shared visits are common. As the healthcare industry adapts to this change, the impact on physician compensation will be an important trend to monitor, particularly in relation to how time and decision-making responsibilities are documented and valued in different practice settings.
Conclusion
The future of physician compensation is set to be a balancing act between the old and the new, as the healthcare industry navigates the challenges between fee-for-service and VBC models. While quality metrics and new reimbursement codes highlight the increasing complexity of patient care, the enduring presence of the fee-for-service model demonstrates that some traditions are hard to shake. As these trends continue to unfold, the challenge will be to create compensation structures that not only reward physicians fairly but also align with the overarching goal of improving patient outcomes. By shaping these evolving compensation models, healthcare administrators can directly influence healthcare quality and efficiency, ensuring that adaptations in physician compensation are in line with the aim of improving patient outcomes.
For more information, please contact Jana Sizemore at JSizemore@askphc.com or Anisha Coimbatore at ACoimbatore@AskPHC.com.
References
Debra Wood, RN, Contributor (2022, April 20). Physician Compensation Tied to Quality Outcomes. Retrieved from AMN Healthcare: https://www.amnhealthcare.com/blog/physician/perm/physician-compensation-tied-to-quality-outcomes/#:~:text=%E2%80%9CWhat%20I%20find%20to%20be,quality%20metrics%2C%E2%80%9D%20Lance%20said
Anthony Domanico, CVA and Nicole Montanaro (2022, December 1). Designing & Valuing Quality Incentive Programs for Physicians. Retrieved from VMG Healthcare: https://vmghealth.com/thought-leadership/blog/how-to-structure-a-quality-incentive-program-for-physicians/
MGMA (2024, April 17). Nearly half of medical groups tie physician compensation to quality performance. Retrieved from MGMA: https://www.mgma.com/mgma-stat/nearly-half-of-medical-groups-tie-physician-compensation-to-quality-performance
Guest Contributor (2024, March 13). 2024 Updates and Changes for Mental and Behavioral Health CPT Codes. Retrieved from TheraNest: https://theranest.com/2024-mental-health-cpt-code-changes/#:~:text=The%20value%20for%20these%20services,Physician%20Fee%20Schedule%20(PFS)
Brooke Bennett Aziere and Nancy E. Musick (2023, December 28). Providers Take Note: CMS Makes Changes to Final Split/Shared Visit Rule for 2024. Retrieved from Foulston Attorneys at Law: https://www.foulston.com/resources/cms-makes-changes-to-final-split-shared-visit-rule-for-2024#:~:text=Starting%20Jan.,of%20the%20medical%20decision%2Dmaking
[1] Wood, 2022.
[2] Domanico and Montanaro, 2022.
[3] MGMA, 2024.
[4] TheraNest, 2024.
[5] Aziere and Musick, 2023.
