Volume — Not Value — Still Drives Physician Compensation

Key Insights

• New research suggests that “most physicians employed in group practices owned by health systems are paid primarily based on the volume of care they provide.”
• Although many of the surveyed health systems have incorporated “value-oriented goals,” these incentives account for far less revenue than volume-based incentives.
• Anthem and other forward-looking healthcare organizations are exploring capital-efficient partnerships to drive value-based care.

Study: Majority of Revenue Comes from Fee-For-Service Arrangements

A recent study published in JAMA Health Forum found that the majority of employed physicians rely on volume-based, fee-for-service payments. Researchers with RAND Corporation examined payment structures from 31 medical practices owned by 22 health systems across four states. The data showed that volume-based compensation was the most common form of base pay for 83.9 percent of primary care physicians and 93.3 percent of specialists. Similarly, quality- and cost-based compensation accounted for only 9 percent and 5 percent of total physician compensation, respectively.

According to a press release, health systems commonly used performance-based incentives. These “value-oriented goals” include measures such as: clinical quality, cost, patient experience, and access to care. However, payments based on these metrics “represented only a small fraction of total compensation.” As a result, researchers determined that such incentives do not significantly impact physician behavior. Instead, 70 percent of physicians seeking to increase payments prioritized increasing “the volume of services delivered.”

Although these results may be disappointing, the Advisory Board noted two key facts about the study. First, physician compensation is a “lagging — not leading — indicator of change.” Second, the analyzed compensation models were from before the pandemic and the COVD-19 pandemic has “highlighted the importance and viability of value-based payments,” according to Rick Foerster, Senior Vice President of Value-Based Operations at Privia Health.

“[T]o 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,” Rachel O. Reid, the study’s lead author, said in a statement.

Partnerships to Help Health Systems Dive Value-Based Care

The study concluded that, “as health systems and their employment of physicians continue to grow,” greater adoption of “value-over-volume incentives” can help “realize the full potential of value-oriented payment reform.”

 
Thought leaders have advocated for health systems to lead the volume-to-value transition. Frank Letherby, CEO of Community Health Services at Health First Inc., offered three focus areas for value-focused health systems:

• Using technology as a tool, service, and value driver
• Leveraging talent to support operations
• Finding a partner for alignment

 
Partnerships can enable capital-efficient and mutually beneficial growth. The Advisory Board noted that one crucial component of a constructive partnership is earning physician loyalty. Active support and sharing data that informs decision-making can build trust, alignment, and loyalty. As Mike Flammini, Chief Business Development Officer at Privia Health, said in a podcast with Sg2: “[We] believe we can add the most value if we’re working at the elbow of those physicians, which means that we have to have their trust. Part of that trust will come through the partnership that we have. … Part of that trust comes from those doctors being able to see the results that we’ve had in other markets and know that we’re going to help them get there.”

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