As early ACOs begin to generate savings, incentive distribution is getting more attention. But even for experienced networks, many questions remain about how to develop bonus distribution models that are fair to participants and effective at encouraging continued provider performance improvement.
Here are four principles for designing the right distribution model.
1. Define your own core principles for bonus distribution
Each of the ACOs studied took a unique approach to shared savings distribution. While some consistencies exist at a high level—in the details, each model is fairly different.
To some extent, this variability is a function of how new the ACO model is; even experienced organizations are still trying to determine "best practice" for bonus distribution. But even with more maturity, variability is not necessarily a bad thing, if it reflects careful thinking about what incentive system will work best for an ACO’s particular culture and politics.
As a result, while newer ACOs can look to others’ distribution plans as examples, they should still work to define their own core principles for bonus sharing.
2. ACO incentive distribution should not be confused with physician compensation
Most ACOs we profiled are multispecialty networks including both health system-employed and independent physicians from different practices. As a result, when it comes to paying physicians, their focus is on how to split bonuses received from risksharing contracts—not on how to redesign physicians’ compensation structure for value-based care.
In addition, while ACOs typically base bonuses on individual physician performance, many distribute incentive funds not to individuals directly, but to the taxpayer identification numbers (TINs) to which those physicians belong, i.e., to the group or practice. The TIN is then responsible for distributing earned funds to individual providers.
ACOs that do distribute funds to individual providers should remain conscious of fair market value requirements, placing caps on distribution as needed to avoid exceeding that limitation.
3. Most ACOs prioritize physician engagement
To the extent possible, profiled networks use bonus money to incentivize continued physician engagement in ACO activities, not to cover network infrastructure. While some networks (e.g., physician-led ACOs that have taken on debt to finance their investments) may have no choice, those that have other sources of capital typically reserve bonus funds primarily for providers.
Many, though not all, of the ACOs profiled also choose not to allocate incentive funds to hospital partners, instead directing all available money to physicians. Other ACOs, however, may opt to include hospitals in the distribution in order to help mitigate inpatient demand destruction from better population management.
4. Simplicity is more important than complete attribution accuracy
The primary purpose of physician bonuses is engagement. As a result, the ACO’s main goal should be to design an incentive distribution model that physicians perceive to be fair and understandable. Achieving this objective is more important than accounting with complete accuracy for every individual contribution to network quality and cost outcomes, an effort that experts caution is likely to be highly complex if not impossible.