Group Practice Innovators: Investing in Success

Karen Minich-Pourshadi, for HealthLeaders Media , September 13, 2011
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For these group practice innovators, it was not the grandest or most expensive programs that proved to be profitable and yielded positive patient outcomes. Rather it was the simple models designed to address the at-risk populations that led to success. Designing their models to include a patient-centered approach improved not only the outcomes, but also the bottom line.

Redefining Compensation Structures 

Healthcare’s fee-for-service payment system will experience a slow demise in the coming years due to the Patient Protection and Affordable Care Act. As this payment model fades, healthcare leaders must not only improve outcomes and quality, but they must also restructure how providers are compensated.

“The medical home is where [compensation structure changes] will occur because the providers need to use a team approach,” says American Medical Group Association physician compensation survey point person Brad Vaudrey, MBA, CPA, who is director at RSM McGladrey, a Minnesota-based international tax and consulting service. This past spring, Vaudrey presented at the AMGA conference in Washington, DC, about the direction of the healthcare compensation market. 

Vaudrey says the medical home model will require providers to redefine productivity and success measures and create team management. “You may see a return to panel management,” he says. Additionally, the creation of accountable care organizations will likely disrupt existing compensation structures.  

“Fee-for-service doesn’t produce outcomes; rather it produces throughput. How we can arrive at the alternative is what we are all trying to figure out,” says William Jessee, MD, FACMPE, president and CEO of the Medical Group Management Association.

Jessee says when it comes to aligning economics with outcomes there is no shortage of possibilities, either. “My feeling is that payers ought to look at a fixed per capita payment—whether you call it capitation or not. But regardless, we need to come up with a system where the organization has the freedom to decide how to pay the providers within [the organization],” he says.

Craig E. Samitt, MD, MBA, president and CEO of Dean Health System in Madison, WI, says regardless of where legislation may lead healthcare, his organization felt compensation models rewarding a fee-for-service payment system was no longer sustainable and so set out to create a value-based payment model.

Dean is one of the largest integrated healthcare delivery systems in the Midwest. A privately held Wisconsin corporation, Dean has been a physician-owned and physician-governed organization since its inception in 1904. Ninety-five percent of Dean is owned by physician shareholders, and the remaining 5% is owned by SSM Health Care, a St. Louis–based organization that also owns several hospitals nationwide.

The system, which Samitt says is creating its own ACO-like model to address population health management, has a variety of pilots under way, including medical home and palliative care. It began taking a more patient-centered approach to care and decided to also focus on value in its compensation plans. How to fairly compensate the physicians participating in the new care models quickly become an area of concern. Dean decided to target five areas:

n Patient satisfaction (e.g., overall rating of the physician)

n Quality (e.g., identify existing quality measurements and create an improvement plan)

n Cost (e.g., achieve “meaningful use” target)
n Growth (e.g., new patient appointment access)

n Maintenance of 2010 goals (e.g., number of open encounters)

To incentivize providers in Dean’s patient-centered medical home pilots away from volume and toward value, Samitt says the organization had to change the compensation structure. “For instance with primary care, things like phone calls to patients
and care coordination need to be rewarded,” he says.

An additional component of aligning incentives toward value at Dean involved addressing how to unbundle payments. While for-profit Dean Health System and nonprofit SSM Healthcare co-own Dean Health
Plan to comprise their collective
integrated system, the payment methodology between the entities was not originally aligned toward value. The organization would receive a bundled payment from the health plan, then it would pay the hospital and physicians using a fee-for-service approach.

The organization created a new service agreement to help it unbundle the payments fairly; it included:

  • Fairness benchmarking conducted every five years
  • Commitment by both Dean Clinic and SSM-WI to evaluate and develop programs that improve member value (quality, service, efficiency)
  • Creating a three-pool structure: Dean Pool, services billed and performed at Dean Clinic; SSM Pool, services performed and billed by SSM primary hospital; and Shared Pool, all other services (e.g., Rx, other MD, other hospital)

The payments within each pool are further split into flex (30%) and fixed payments (70%), and any surpluses or deficits in the three pools are shared equally by Dean Clinic and SSM-WI. Finally, Dean’s Health Plan is investigating how it can function as a commercial ACO and develop incentives to align its value-based goals with its entire network of care providers, including physicians and hospitals that are not part of Dean Clinic or SSM-WI.

“We plan on developing a wide array of new incentive models that will meet the providers where they are in terms of readiness to align with us around value,” Samitt says. “We will want to incent different size groups, different specialties, and different provider types differently, all with the intent of delivering better care at a lower cost to our patients.”

The new value-based payment model is very different from the previous, nearly 100% productivity (volume-based) model. Physicians are paid at 115% of market: 60% on productivity, 20% on population management, and 35% on other measures, including patient satisfaction, quality, use of technology, and efficiency.

“We found with this approach the physician’s compensation levels stayed about the same as before or went up. The way this is designed, it takes them off the treadmill and helps them to be more thoughtful with patients,” Samitt says.

The value-based model has been in place for approximately three years for various pilot programs,
but Samitt says the goal is to transition the whole organization in the coming years.

“You learn from prior mistakes, such as how fast to go when rolling out a new compensation plan,” Samitt says. What he learned the first time around was to measure and benchmark first and explain what is expected. “Then, we set the initial incentives to a very small percentage and we made the goals achievable; once the physicians saw that they could reach their goals and they were comfortable with the new model, then we raised the bar.”

—Karen Minich-Pourshadi


Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
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