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February 1, 2022

How do physicians get paid? (Hint: It's mostly not value-based.)

Daily Briefing

    Despite a significant push towards value-based care in recent years, many health systems still largely compensate physicians based on the volume of their services, according to a new study from RAND Corporation.

    A push for value-based care

    According to Fierce Healthcare, there has been an ongoing push across the health care industry, particularly from payers, to move towards value-based payment structures instead of volume-based payment structures. Value-based payment structures incentivize health care providers to improve the quality of the care they deliver and reduce spending, which can significantly impact patient outcomes and costs.

    For example, Humana in September released data showing Medicare Advantage members who received value-based care had more preventive care, lower costs, and better outcomes in 2020 compared with traditional Medicare members.

    Similarly, Blue Cross and Blue Shield of North Carolina reported that Blue Premier, its value-based care program, saved $197 million in 2020. The program has continued to grow amid the pandemic, adding new provider participants and further improving quality and costs for its members.

    How most physicians get paid

    However, despite this push towards value-based care, most health systems still pay their providers based on volume-based incentives, according to a new study from published in JAMA Health Forum.

    For the study, researchers examined the physician payment structures used in 31 physician organizations affiliated with 22 health systems in four states, including California, Minnesota, Washington, and Wisconsin. They also interviewed physician organization leaders and conducted a survey of compensation arrangements for both primary care and specialty physicians between November 2017 and July 2019.

    Overall, the researchers found that volume-based compensation was the most common type of base pay for 84% of primary care physicians and 93% of specialist physicians. Of physicians' total pay, volume also made up the largest component at an average of 68%.

    Financial incentives for value-based goals, including clinical quality, cost, patient experience, and access to care, were also commonly included in physicians' pay, but they only made up a small portion of the total compensation. For primary care physicians, only 9% of their compensation was tied to value-based goals, while only 5% of specialists' pay was based on these objectives.

    Because these value-based goals only make up a small portion of physicians' pay, they are "likely to only marginally affect physician behavior," the researchers wrote. Instead, physicians most commonly reported increasing the volume of the services they performed to increase their compensation.

    "Despite growth in value-based programs and the need to improve value in health care, physician compensation arrangements in health systems do not currently emphasize value," said Rachel Reid, the study’s lead author and a physician policy researcher at RAND. "The payment systems that are most often in place are designed to maximize health system revenue by incentivizing providers within the system to deliver more services."

    According to the researchers, making value-based incentives a larger part of physician compensation may be necessary to maximize the potential benefits of value-based payment structures.

    "For the U.S. healthcare system to truly realize the potential of value-based payment reform and deliver better value for patients, health systems and provider organizations will likely need to evolve the way that frontline physicians are paid to better align with value," Reid said. (Landi, Fierce Healthcare, 1/28; Mensik, Healthcare Dive, 1/28; Livingston, Insider, 1/28)


    Advisory Board's take

    The realities of compensation transformations in the Covid-19 era

    Megan Clark
    By Megan Clark, Managing Director

    Before we dive in, lets name the elephant in the room: there is no such thing as a perfect compensation model.

    Lots of things influence physician compensation. Not the least of which could be how recently an organization changed its compensation model (there are limits to how frequently you can adjust the model and keep the trust of your physicians) and competition for physicians in the market.

    In our slow move to value-based care, it's easy to want to see more progress. And we'd be more discouraged by these numbers except for two things: (1) the compensation models were pulled pre-Covid-19 and (2) physician compensation is a lagging—not leading—indicator of change.

    Before the pandemic, interest in value-based care was fading, and momentum that once seemed inevitable had slowed considerably. Covid-19 re-started conversations because a sharp drop in volume exposed yet another weakness of a system built around fee-for-service. That said, as organizations continue to weather wave after wave of Covid-19, enthusiasm has tapered a bit. Organizations now need to strike the balance of prioritizing meaningful change without taxing an exhausted workforce. This is not an easy balance to strike. So, I assume we'll see progress—slow at first—that helps move toward more value.

    But we wouldn't expect to see a large change in compensation yet. It's tempting to change compensation early in transformation efforts because it can seem a surefire way to make change happen. But changing compensation without setting up broader strategic buy in and the infrastructure to succeed is a recipe for disaster. (We've commented before about better ways to approach physician buy in for VBC.) Putting individual compensation at risk for new strategic priorities needs to move in lock step with the organization's commitment (i.e., investment) in these new strategies.

    Compensation change is going to look different at different organizations. We'll keep seeing a shift away from individual productivity, but it could be a move to team productivity—which would still be a win. It could be more cost and quality metrics. It could be metrics around telehealth or access. Compensation is ultimately a blunt tool for rewarding change and the best models leave flexibility to recognizing that group priorities will continue to evolve over time.

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