Show Me the Money: Exploring Physician Incentive Compensation

A new report from ZS Associates explores the efficacy and impact of physician incentive compensation on the delivery of quality care; when incentives fall short, so can patient outcomes.

Pharm Exec has discussed at length how gifts and incentives offered to physicians from pharma companies have affected prescribing habits, the integrity of healthcare, and the health outcomes of patients. What we haven’t discussed so far is how another type of physician incentives-called incentive compensation, or IC-can impact pharma and public health overall.

IC is an incentive-based portion of the salary of many physicians, from those who work in hospitals to those in group practices. The incentives are typically offered by payers-insurance companies-or by the hospitals or healthcare provider organizations themselves. Why? Because if payers and provider organizations can motivate physicians to achieve certain healthcare outcomes or reach certain goals, everyone comes up a winner. Improved health outcomes lead to lower costs for providers and patients, right?

The problem, however, at least according to a new survey and report from global consulting firm ZS Associates-“Incentives for Health Professionals”-is that the current IC system often doesn’t reward quality of care, but instead rewards quantity of care. This topic of physician incentives is now being extensively researched by the industry, utilizing all the new software information technologies coming downstream. “You can see from our study that the biggest and most common incentive by far is volume of care delivered,” says Angela Bakker Lee, one of the report’s authors and managing principal for the healthcare service providers practice at ZS Associates. “A volume metric is based on the number of times you see patients or perform a certain procedure. More quantity of care delivered by you-gives you a bigger bonus today.” The catch-22 is this: If the current IC system rewards volume of care, but the real goal in terms of patient outcomes is to turn out healthy patients who don’t need subsequent office visits, procedures, and hospital admissions, then the IC system as it is now may actually be counterproductive and could even be sabotaging public health. “It does reinforce this perverse incentive around delivering more care. You don’t want to be rewarding people for multiple visits or treatments that might not be necessary,” says Bakker Lee.

Where does pharma come in? Patient adherence to medications can improve health outcomes, which can in turn result in fewer necessary office visits, tests, and procedures. Pharma needs to be aware of what motivates physicians in the care they provide, and what effect those physician behaviors are having on their customer base-the patients. Pharma, too, is facing a catch-22, wanting to contribute positively to patient outcomes, yet stuck in a situation where optimal efficacy of its products may lead to fewer IC opportunities for physicians. It’s a vicious cycle. “The quality of the work I do depends upon having enough time to spend with patients. To be pushed into seeing more patients in a day compromises the care that I can offer … and does not necessarily help with the outcome measures that the organization hopes I will be able to achieve,” explains one healthcare specialist in the ZS report.

The incentives come from payers, often to the group practice or hospital the physician works for, and then trickles down to the individual practitioner. The group practice or hospital will qualify for an incentive based on the contract they’ve worked out with the payer. For the most part, payers have-and want-no involvement in determining how those incentives are broken up to individuals: “I absolutely refuse to have any discussions about distribution between individual providers because I don’t want to get blamed for the way they’re distributing their funds … Getting involved would be the worst thing anyone could ever do,” says one payer in the report. “It’s their decision whether to disseminate. We have absolutely no idea how much the individual providers get,” says another. When the payments do finally reach the HCPs, it’s often in a lump bonus at the end of each year. “Essentially there’s multiple ways that these incentives are coming into play,” says Bakker Lee, “and what we’ve found by and large is that often physicians aren’t even aware of these incentives that they qualify for, or what they’re being paid, or what they’re really eligible for or being compensated for at the end of the year.”

But switching the metrics needed to achieve IC-from value-based to quality-based care delivery-is only the first step in overhauling the incentive compensation system, says Bakker Lee; several other issues need addressing as well. “There’s [already] a lot of attention being paid to fixing the metrics,” she says. “What we’re calling out in the study and what was a bit of a shock to us was not just that the metrics needed to evolve [away from volume] -we expected to find that-but the shock was finding that the design and the administration of the incentives is pretty far from what we would call best practices.” For example, she says, the actual amount of IC payout that an individual healthcare provider receives is often just way too low to be noticed; far below what Bakker Lee refers to as the “awareness threshold.” According to the study, although up to 85 percent of HCPs have some form of incentive in their compensation, fewer than one-fourth report that they actually receive incentives today. For example, although other studies have reported that group practices pay 18 percent to 31 percent of total compensation to individual HCPs in the form of an incentive, this is not what individual doctors and nurses perceive to be the case, as shown in the ZS survey. In this study, only 22 percent of respondents reported that they received an incentive payment-that’s a huge perception gap. And of those who are aware of any incentive payment, 30 percent of individual HCPs do not find their current IC motivating.

So where’s the disconnect? “Bonuses are not significant enough at this stage in my life; unfortunately it is hard to increase revenues when MDs are singled out as the cause of rising medical costs,” says one primary care physician in the survey. Another adds, “The actual dollar amount received is rather insignificant.” Bakker Lee says that the IC “has to be worthy of being noticed-it can’t just be a little footnote on their compensation. Based on our assessment of the data from the report, it needs to rise above the 10 or 15 percent threshold,” she advises. Of course, in an industry as notoriously strapped for cash as healthcare, Bakker Lee recognizes that to expect the ability to throw more money at the problem would be “naïve.” Instead, she insists, it’s a matter of reallocation. “Where might it do the most good?” She asks. “Let’s not waste money. Let’s focus the money in the right areas, to make sure it rises above the awareness threshold. Let’s look at what we’re paying and how we’re paying it, and realize that it may be better to concentrate it. We may be spreading it out too thin for it to have an impact.”

Another problem with the current IC system, she says, is the lack of effective communication to the HCPs-about what metrics they’re striving for, and about how they’re doing in terms of reaching those metrics. The overall tone of HCPs gleaned from the report is one of frustration: “The metrics for determining who receives incentives/bonus checks and how much has never been clear,” says one physician in the report. “I am not kept informed on my progress towards my goal. I find myself constantly inquiring from the organization as to what my projected dates are for achieving my bonus,” agrees another. One specialist, perhaps, sums it up best: “It is a complicated formula and I don’t get updates. It is very frustrating. I basically work as hard as I can-and if there is extra money at the end of the year-then that’s great.”

One potential bridge to close this communication gap between payers and physicians is a monthly or quarterly “pulse-check,” asserts Bakker Lee. “If you notice your incentive scheme only once a year, it’s not a very effective incentive scheme.” The increasing availability of electronic health records (EHR) will go a long way in making more regular metric pulse-checks a reality, she says. “It’s only logical that if we offer the incentive payouts and updates more frequently, HCPs will become more aware of them-then it’s a natural, logical result that they can then act on those metrics-and we will get the [quality of care] measures that we want as an outcome.” While Bakker Lee acknowledges that some HCPs receive occasional email alerts if they’ve missed a quality metric, she says it would be far more effective to send out quarterly or monthly scorecards that show where physicians stand in terms of meeting their metrics, and perhaps how they compare to their peers. “That’s much more effective, but today it’s rare,” she says. In addition to frequency of messaging, she says, clarity of messaging is key: “If you’re going to pay incentives, you want to make sure they’re well understood by the audience you’re trying to reach.”

The ideas put forth in this study-using physician incentives to encourage quality over quantity of care, and delivering those incentives effectively-might be familiar to you if you’ve been following the development of ACOs. ACOs began as a Center for Medicaid/Medicare (CMS) initiative by which hospitals and physicians could share in the cost savings-in the form of bonuses-that resulted from achieving quality-care metrics. And this model for improved patient outcomes and decreased spending has been picking up steam, being adapted by private insurers as well. While Bakker Lee recognizes the similarities in the philosophies between ACOs and the IC system-changes the ZS Associates report proposes, she explains that the two are not always inextricably linked-that is, you need physician incentive compensation for an effective ACO, but you don’t need ACOs to develop effective physician IC plans. “The two are definitely aligned,” she says. “If you think about what ACOs do, throughout the country where they’re being used, they’re a way to reduce cost and improve quality.” However, she says, “I don’t think an effective IC plan requires an ACO model. You can have a hospital or provider organization operating on its own, not part of an ACO, that uses incentives to gain more leverage and have more influence on the goals they want to achieve as an organization.  Incentives on their own, without the rest of the ACO structure, are a powerful motivation for change.”

When you think about leveraging physician IC in the most effective way to bring about changes, says Bakker Lee, “We all have too much at stake in the healthcare system-either as taxpayers or individuals paying our premiums-to leave the system as it is.” Pharma, too, she says, ought to keep a close eye on IC deliveries and changes. “To the extent that the goals of the payer and provider organizations align with the goals of the pharma companies-and one obvious place where that’s true is around medication adherence-then you can look at incentives as something that benefits both. We’ll see the benefits because as these changes take effect, we’re going to see improvements in quality, reduction in cost, and improvements in customer satisfaction-the key is finding where the goals and incentives are aligned. I think that where they are, there’s a natural connection and an alliance that can be formed.”