Physician Compensation Programs Move Toward Value-Based Pay

The prominence of value-based incentives in physician compensation programs increased by five to seven percent from 2018 to 2019 across four major specialty categories, according to a SullivanCotter report. 

Specifically, the report analyzing survey responses of more than 206,000 individual physicians and advanced practice providers (APPs) from nearly 700 organizations found that value-based incentive components in primary care compensation was up five percent from last year, with 62 percent of organizations incorporating these incentives into their physician compensation programs. Medical, surgical, and hospital-based specialties all fell in the range of 55 to 57 percent. 

“While reimbursement models continue to evolve and organizations are focused on incorporating more value-based components into their physician compensation programs, it is important to note that quality incentive payments still only comprise a small portion of TCC,” pointed out Mark Ryberg, Principal, SullivanCotter. 

The report found that value-based incentive payments remained small at 6.2 percent of total cash compensation (TCC) across all specialties studied. That percentage only increased from 5.6 percent in 2018.

Physician compensation for primary care providers earned the most in value-based incentive payments, at seven percent of TCC in 2019. Hospital-based specialties and medical and surgical specialties followed with 6.3 percent and six percent, respectively. 

Provider organizations have been slow to incorporate value-based incentives into physician compensation programs. But Ryberg anticipates more physician compensation to be tied to performance metrics, such as clinical quality, patient experience, and access, as new models of care focusing on population health support the transition from volume to value.

“We expect to see continued growth in value-based incentives as organizations work to further develop and refine these programs to ensure they have credible measurement and reporting systems in place before moving forward,” he stated.

Ryberg and his colleagues also expect physician compensation in general to increase as the healthcare industry faces a growing demand for talent amidst a looming shortage of physicians.

TCC continues to rise as the demand for physicians and market supply increases, the report found. There is a year over year increase in median TCC across specialty categories, such as primary care, hospital-based, and medical surgical specialties. 

Although there has been an increase in TCC in specialty services over the past ten years, productivity continues to remain flat, and occasionally has declined. For example, the median TCC for primary care physicians increased by 14.7 percent, but work RVU (wRVU) productivity declined by 0.2 percent from 2014 to 2019, the report stated. 

Over this same period, the hospital-based physician was the only specialty group that saw an increase larger than 1.5 percent, with a 5.2 percent growth in median wRVU productivity.

"With growing concerns regarding provider supply and demand, organizations are evolving their compensation programs to align with an increasingly competitive talent market. With a looming physician shortage placing pressure on organizational recruitment and retention strategies, this demand continues to push physician compensation upwards without being supported by corresponding gains in productivity or reimbursement – resulting in higher levels of organizational investment per physician," stated Dave Hesselink, principal at SullivanCotter.

As organizations look to grow their primary care providers, there is a notable pressure on family medicine and internal medicine compensation without those changes in wRVU. In order to meet population health standards, organizations must add an extra measure of performance such as panel management and telehealth to their primary care scorecards. 

Organizations must also look at the key environmental factors that are currently driving the need for new approaches to physician compensation and performance programs, as both value-based pay and TCC findings are affected by these trends. For example, one of the driving factors is that new models of care focus on population health and support the transition from volume to value, while enhancing quality and affordability. But there is also a growing demand for talent amidst a looming shortage of physicians, which results in a more competitive labor market.

In addition, aligning position performance with overall organization goals is another prominent force, and there must be a development of physician compensation plans that are ready to address CMS quality program challenges, such as MIPS and potential changes to the Stark Law.