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Quality compensation increasingly a factor in physician compensation


As more and more organizations shift to pay-for-performance compensation, practices that stick to the once-dominant pay-for-productivity model soon may find themselves in the minority.

Key Points

Physicians in group practices traditionally have been paid in two ways: equally without respect to productivity, or with some modicum of productivity after a base salary. Expenses were covered.

Productivity models typically compensate a doctor with a percentage of revenues he or she generates. Other models focus on work relative value units (RVUs), the heavily favored approach in the current wave of hospital-physician employment relationships. Work RVUs are assigned for relative procedures or services to reflect the time and intensity involved with offering each service. They are described as measuring "what it takes" to accomplish a procedure. For example, every Current Procedural Terminology code is assigned an RVU under the Resource-Based Relative Value Scale. Although groups, hospitals, and the Medicare program use work RVUs to calculate compensation, many small practices use straight salary or salary and productivity models.

Some organizations already have moved significantly to change how their physicians are paid.


In 2007, I wanted to know why reported results from pay-for-performance programs were fairly rare. Was it because individual physicians had no incentive to perform because they were not feeling the economic effects of the additional payments? Nothing in the literature addressed the issue of compensating for quality in medical groups.

I enlisted the support of the American Medical Group Association (AMGA), an organization of more than 300 medical groups that includes some of the leading high-value, high-performing health systems identified as exemplars of management and outcomes. I thought that if anyone was compensating for quality, the more integrated groups were likely to have taken initial steps. The AMGA distributed a questionnaire via email to all of its members and published the results in 2008.¹

Back then, 13 groups responded. At least five groups reported having compensated their physicians on quality metrics for more than 10 years. Others had only recently begun, and a third group of respondents had been doing so for 3 to 7 years.


Four years later, on the cusp of major change in healthcare delivery and payment models, it seemed worthwhile to re-examine the issue.

In May 2011, the AMGA sent a new survey that asked groups nine questions about their use of compensation models that rewarded quality and/or value2 (see "Survey gauges use of compensation models").

This time, 35 groups responded. Seven said they were doing nothing and paid doctors based on productivity alone. This finding was consistent with a recent independent examination that found that even among high-performing practices-including some of the biggest names in healthcare, such as the Henry Ford Medical Group, Intermountain Health, Lahey Clinic, and Ochsner Clinic-productivity is still the predominant compensation model.3

Still, we found that practices that compensate physicians for quality performance now exist everywhere. Although this phenomenon might be expected in states such as California, Minnesota, Oregon, and Washington-where managed care is strong and integrated systems have been innovators in payment for a while-responses also came from Florida, Iowa, Massachusetts, Michigan, Montana, New York, Ohio, Tennessee, Wisconsin, and the District of Columbia. Surprisingly, one of the groups that has been compensating for quality the longest is from North Carolina.

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© National Institute for Occupational Safety and Health
© National Institute for Occupational Safety and Health
© National Institute for Occupational Safety and Health
© National Institute for Occupational Safety and Health