Physician Compensation in a World of Health System Consolidation and Integration

Abstract

As U.S. healthcare market dynamics encourage increased consolidation of physician practices with community health systems, questions relating to the future of provider compensation designs loom large. A provider compensation framework becomes especially important as health systems' operating revenue structures shift and they assume financial from third-party payers, including governmental payers. To offset that risk, leaders of community health systems must determine how to align the financial incentives of employed physicians and other licensed providers with those providers practicing in the new world of value-based reimbursement models. Some of those leaders might perceive the changes in healthcare reimbursement models as disruptive to employed physician compensation models built on productivity measures--whereby physicians are encouraged to do more and bill more. However, leaders of well-established integrated health systems seem little concerned with how a reforming healthcare market may disrupt physician compensation designs. By definition, the integrated model allows for internal control over the design and management of these plans, permitting responsiveness that is unavailable to the conventional models where community hospitals and independent physicians are individually exposed to and reimbursement model disruptions. In a recent study by faculty and staff affiliated with the MHA and Executive Studies programs at the University of Minnesota on behalf of MedPAC, 15 senior leaders of integrated health systems in the United States were interviewed about the future of community health system reimbursement models and physician compensation designs (Christianson, Zismer, White, & Zeglin, 2011). A portion of the study, on the issue of alignment of incentives, was conducted in a structured interview format. Among the important insights gleaned from these leaders were the following (Christianson et al., 2011): (1) A belief that reimbursement for health services in the U.S. is likely to be somewhat of an experimental science for the foreseeable future, meaning leaders expect revenues to flow by multiple methods and models. Many of the leaders interviewed were positive toward the strategy of risk contracting as a way to effectively move market share from competitors to their organizations cost effectively (i.e. for financial for defined populations); (2) the ratio of employed physician extenders to employed physicians ranged from .6 to in excess of 1.0; meaning, if an integrated health system employs 500 physicians, it is likely it will employ from 300 to in excess of 500 licensed physician extenders; and (3) because third party methods are likely to result in disruptions in the historic operating revenue flow methods, integrated health systems have disconnected how the organization is paid from how physicians are paid. In other words, [integrated health systems] seek to provide stability in provider compensation plans even as the health system engages in methods that are strategic in nature and different from the conventional fee-for-service revenue models. STABILITY IN PROVIDER COMPENSATION The third observation is worth deeper examination. Leaders of integrated health systems who have significant experience with the integrated model emphasized the need to ensure stability of provider compensation, especially in the face of changing health system reimbursement plans. Furthermore, these leaders acknowledged a growing need to redefine the concept of provider productivity in the reform of health system payments to reflect the fact that physicians and other providers are engaged in professional activities beyond generating work relative value units (RVUs) (patients seen and charges billed). They include such compensable activities as clinical team management; clinical program leadership; and co-management of resource and capital asset-intensive centers of patient care, such as diagnostic and procedure centers, hospital beds, and large-scale ambulatory centers. …