Most health systems still base doctors' pay on volume, despite push toward value-based care: study

Despite the growth in value-based payment arrangements from payers, health systems continue to pay physicians based on the volume of services they provide.

A new study published in the journal JAMA Health Forum finds that volume-based compensation was the most common type of base pay for more than 80% of primary care physicians and for more than 90% of physician specialists.

There is an ongoing and intensified push across the industry to move toward alternative payment models that financially reward physicians based on the quality and value of care they provide rather than per service.

But health system compensation and incentives for physicians don't seem to match up with value-based incentives provided by payers. Health systems largely still pay primary care physicians and specialists based on volume-based incentives, which are designed to maximize health systems revenue, according to the study by RAND Corporation researchers.

While financial incentives for quality and cost performance were commonly used by health systems, the percentage of total physician compensation based on quality and cost was modest—9% for primary care providers and 5% for specialists.

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“Despite growth in value-based programs and the need to improve value in health care, physician compensation arrangements in health systems do not currently emphasize value,” said Rachel O. Reid, M.D., the study’s lead author and a physician policy researcher at RAND, a nonprofit research organization.

“The payment systems that are most often in place are designed to maximize health system revenue by incentivizing providers within the system to deliver more services," Reid said in a statement.

In recent years, both private and public payers have adopted payment reforms that seek to encourage health care providers to improve the quality of care delivered and slow spending growth in an effort to generate better value for patients. At the same time, the size of health systems and their employment of physicians has increased markedly. 

To examine whether the compensation structure for physicians resembled the payment reforms focused on value, the study examined the physician payment structures used in 31 physician organizations affiliated with 22 health systems located in four states. 

Researchers interviewed physician organization leaders, reviewed compensation documents and surveyed the physician practice to characterize the compensation arrangements of primary care and specialist physicians. 

Increasing the volume of services delivered was the most commonly reported action that physicians can take to increase their compensation, with 70% of the practices following such a plan. In these cases, volume-based incentives accounted for more than two-thirds of compensation. 

Performance-based financial incentives for value-oriented goals, such as clinical quality, cost, patient experience and access to care, were commonly included in compensation. But those payments represented only a small fraction of total compensation for primary care physicians and specialists, which likely means these incentives have little effect on physician behavior.  

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Insurance companies and healthcare providers have increasingly adopted value-based care approaches in the past decade, a move fueled greatly by the 2010 passage of the Affordable Care Act (ACA).

Payers in particular are making a big move toward value-based care models, as data shows that incentivizing quality outcomes can have a significant impact on patient outcomes and cost. Humana released data in September indicating that Medicare Advantage members receiving value-based care had more preventive care, lower costs and better outcomes in 2020 compared to those in traditional Medicare.

Blue Cross and Blue Shield of North Carolina also reported that its value-based care program, Blue Premier, saved $197 million in 2020. Even amid the pandemic, the insurer's program grew, both adding new provider participants and making additional gains in quality and cost improvements, Blue Cross NC said. 

And, the Centers for Medicaid & Medicaid Services has signaled a commitment to ramping up value-based payment models. Although Liz Fowler, Ph.D., who leads the Center for Medicare and Medicaid Innovation, said last year that value-based care is “at a crossroads right now.”

But these efforts aren't reflected in how health systems currently pay physicians, according to the researchers.

The researchers point to the increasing intricacy of individual alternative payment model finical incentives, including risk-bearing arrangements, coupled with the cumulative complexity of incentives across payers, as one rationale for practices and physician organizations to serve as a "buffer between payers’ incentives and physicians."

"This purposeful disconnect between the incentives and financial risk that physician organizations face from payers and those passed on in physician compensation likely also contributes to the dominance of volume-based compensation and modesty of quality and cost performance incentives," the researchers wrote.

As health systems and their employment of physicians continue to grow, greater translation of the value-over-volume incentives of payers into physician compensation may be necessary to realize the full potential of value-oriented payment reform, the researchers said.

“For the U.S. health care system to truly realize the potential of value-based payment reform and deliver better value for patients, health systems and provider organizations will likely need to evolve the way that frontline physicians are paid to better align with value,” Reid said.

The study was conducted through the RAND Center of Excellence for Health Care Performance with funding provided by the Agency for Healthcare Research and Quality.