What Do ACOs Mean for Physician Compensation Models?

Blog posted by Shannon Lorbiecki

The accountable care organization (ACO) is intended to create a mechanism and incentives for a group of otherwise unrelated providers to collaborate in care coordination and best practices in hopes of improving utilization and reducing cost. If the ACO does this successfully, the participants will share in the savings.

I believe the requirement for hospitals and both primary care and specialty physicians to work collaboratively for an effective ACO will continue encouraging closer alignment between these parties. We will see a variety of models tested beyond simply more physicians employed by hospitals: professional services agreements and clinically integrated provider networks to name a couple approaches. One thing that remains unclear: how physicians will be compensated in a way that meets the ACO incentives.

Productivity incentives

In the 1990s era of capitation and hospital acquisition of physician practices, many hospitals and health plans tried, unsuccessfully, to take away individual physician productivity incentives in a failed attempt to align incentives. Hospitals paid physicians on a salary basis in order to ensure those incentives did not lead to over utilization. This often resulted in a lack of physician productivity. Some physician groups (although only those largest to assume the risk) accepted at-risk capitation agreements. There are horror stories written about actual or potential abuse of a system that possibly rewards providers for withholding or limiting care.

RVUs

In the 2000s we have seen a dramatic shift to paying physicians almost exclusively based upon productivity, typically measured in terms of relative value units (RVUs). This system may encourage utilization. For example, if a physician does not get RVU credit for a phone or email consultation, it may result in more patients coming to the clinic for more costly office visits.

A new approach?

So what other options are there? The ACO could pay physicians based on the size of their patient panel. This might work if an effective means of adjusting for risk can be identified. Risk adjustments could include age, chronic conditions, lifestyle factors, family history (that raises a whole set of ethical issues), and other means of health risk assessment. In this case, assigning patients to the correct provider will be essential.

Even large, integrated delivery systems are revisiting the question of what physician compensation approach will be most effective in today’s environment, while positioning for future delivery model reform.