Where Are We in the Transition to Value‐Based Payments?: Findings from a Study on Health System Physician Compensation Arrangements and Financial Incentives for Performance

Abstract

Policymakers continue to set aggressive targets for alternative payment model engagement, aiming to spur a transition from volume‐ to value‐oriented payment to drive performance improvements. However, the extent to which payments to providers have transitioned to paying for value is unclear. Given their greater ability to enter into payment arrangements with financial risk, health systems may be particularly well‐positioned to reflect value‐orientation in their physician compensation and incentives. In this study, we sought to characterize frontline physician compensation and financial incentives for health system affiliated physician organizations (POs).Between 2017 and 2019, we fielded surveys and conducted semi‐structured interviews with leaders of POs affiliated with health systems. The interviews elicited the structure and features of compensation arrangements for primary care physicians (PCPs) and specialists and the POs’ revenues and incentives from payers. The survey addressed the structure of financial incentives and the top three actions physicians could take to increase their compensation. We assessed the frequency of compensation and financial incentive components and the association between POs’ fee‐for‐service revenue and their physicians’ productivity‐based compensation.A purposive sample of 28 POs in 24 not‐for‐profit health systems in California, Minnesota, Wisconsin, and Washington, of which all provided PCP compensation information and all but 2 provided specialist compensation information.Among included POs, financial performance incentives were used by 25 (89.3%) for PCPs, averaging 4.0% of total compensation (range 0.05% to 13.72%) and 16 (61.5%) for specialists, averaging 3.1% of compensation (range 0.5% to 13.0%). Productivity was the most common base compensation component for both PCPs (24 POs, 85.7%) and specialists (25 POs, 96.2%). Capitation and salary were also commonly used for both PCPs (8 POs, 28.6% and 6 POs, 21.4%, respectively) and specialists (3 POs, 11.5% and 6 POs, 23.1%, respectively). When included as a component of PCP compensation productivity averaged 62.4% of compensation, salary 62.5%, and capitation 46.1%. Increasing productivity was cited as the top action physicians could take to increase their compensation by 19 POs (67.9%) for PCPs and 19 POs (73.1%) for specialists. Improving clinical quality was next most commonly cited action to increase compensation for both PCPs and specialists. The correlation between PO’s percent fee‐for‐service revenue and their physicians’ percent productivity‐based compensation was moderately positive (r = .52) for PCPs and weakly positively for specialists (r = .40).Among health system POs, productivity is the most prominent component of PCP and specialist compensation and the most commonly noted means for physicians to increase their income. Financial performance incentives were commonly used but comprised a very small portion of total compensation. POs’ fee‐for‐service revenue percentage was more strongly positively correlated with the percentage compensation for productivity for PCPs than for specialists.Despite emphasis on transitioning from volume‐ to value‐based payment, productivity remains the principal component of physician compensation in health system affiliated POs that may have greater capacity and motivation to develop alternate compensation and incentive schemes. The ongoing primacy of productivity incentives for frontline physicians is likely to blunt the impact of value‐oriented payment and delivery system reforms.Agency for Healthcare Research and Quality.