Performance-based compensation to physicians will continue to gain traction as hospitals seek to improve clinical outcomes and reduce costs. Payments can come from a variety of methods including:
- Bundled payments from the government and other insurers
- Gain-sharing, where non-employed physicians are compensated in part by improvements in outcomes and utilization
- Variable compensation, where employed physicians are compensated in part by improvements in outcomes and utilization
We recently calculated performance-based compensation at a medical center. In this particular case, the outcomes of Medicare patients with respiratory disease were examined. Here is how the process worked, using Verras’ Medical Value Index (MVI)*.
- We severity adjusted the patients’ all-payer data going back three years (2009-2011), covering 645 cases. While our MVI generally covers seven industry-standard metrics, this hospital asked us to focus only on morbidity, mortality and resource utilization. In the chart below, we show the increasing cost per inpatient over three years culminating at approximately $15,000 in 2011. As part of this process, we also identified physician best practices that could be used to reduce cost (as well as morbidity and mortality).
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- We then used these data to make projections for 2012. For example, without implementing any best practices, the cost per patient was projected to be approximately $18,000 (the top line) in 2012. We were also able to provide projections of cost based upon achieving certain levels of efficiency. For example, in the chart above:
- The second line (Target) assumes costs increasing halfway between the projected cost increase and no cost increase
- The third line (75th) assumes a cost increase of 25% of the projected cost increase
- The fourth line (100th) assumes no cost increase from 2011 to ’12
- The bottom line assumes costs actually go down 10% of the expected increase
- Conferring with hospital executives and medical staff, we set the target…the second line that assumed costs would increase to about $17,000 per patient. Not shown here, but that would equate to net direct cost savings (after adjusting for fixed and indirect costs) of $2.5 million.
- Based on these levels of quality and cost improvements, it was determined by the stakeholders that the hospital and physicians would share the savings – 78% to the hospital and 22% to the physicians. Greater efficiencies would increase the physicians’ percentage but their salaries would not be at risk.
- As the table below shows, in addition to these net-saving bonuses of $546,205, the physicians would also receive $35,679 in additional reimbursements for projected improvements in mortality and morbidity. Divided among 14 physicians, that would result in additional compensation per physician of $41,563.
Click on the graphic to enlarge
- Transparent clinical quality and cost efficiency metrics are being monitored. These objective data are made available for the physicians’ review so they can make sure they are making appropriate changes in their practice patterns to achieve the desired results. These reviews also ensure that certain operational system changes are being implemented (i.e. switching to lower cost pharmaceuticals, not running duplicative tests, etc).
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*Verras’ Medical Value Index (MVI) is the means by which hospitals and physicians can quantify their quality and cost efficiency improvements. The MVI uses seven industry-standard measures of clinical quality and cost efficiencies for inpatient care.
Hospitals involved with bundled-payment options or other performance-based compensation systems can use the MVI for the objective and transparent distribution of dollars between the hospital and its physicians.
Verras’ process for allocating performance-based compensation is unique in that it combines both statistically robust analysis of severity adjusted data at a granular level with a collaborative consultative approach to gain consensus between the hospital and physicians on how those payments should be allocated.