Physician compensation- How to transition from volume based to value based?

A recent study performed by the nonprofit Rand Corporation and published by JAMA Health Forum showed that physician compensation continues to be centered on volume even though value-based contracting has continued to grow. Speculation is that value-based payment arrangements (VBPs) will continue to grow.  The inconsistency is that while VBPs increase, many health systems and medical groups have not found a way to transition to a compensation plan that reflects these value-based payor arrangements and upholds productivity goals and fair market value (FMV) standards.

As a physician practice executive, I frequently asked valuation experts about incorporating value-based arrangements into compensation analyses and plans.  It was difficult to get a “straight” answer. Valuation companies often fall back to wRVUs and/or volume to substantiate their compensation analyses and opinion letters.  Most organizations fear that if they base their compensation arrangements on value-based incentives, FMV of the physicians’ compensation may be difficult to achieve or validate.

Fair market value and commercial reasonableness should always be considered when evaluating and adjusting physician compensation. Nevertheless, alternative payment models continue to move towards value.  As a practice executive you will need to strike a balance between volume and value.  Should total compensation be built around value-based incentives alone?  Probably not, but how can you begin to make a greater shift towards value?

Here are a few of the elements to consider:

  • Review your VBPs and other alternative payment arrangements, for similarity and dissimilarity in metrics.
  • Do you already collect these metrics and have baselines or are you starting anew?
  • How will the “new “and existing metrics be measured?
  • What value will the metrics carry and how will it translate to the physicians’ base and incentive compensation?
  • What “weight” of the total compensation will you assign to the base salary vs incentives, bonuses?
  • Begin discussions with clinical and non-clinical leadership to understand your current benchmarks/metrics and what will be needed to meet or exceed the metrics included in the VBPs.
  • Develop focus groups and provide working sessions to assure transparency, understanding and “buy in” as you make this shift.
  • Develop a communication plan around the process.

These are just a few of the pieces you should consider when shifting part of your compensation plan from “volume” based to “value” based. Contact us to learn how to modernize your compensation to be reflective of your payor arrangements.  Envision Better Health, LLC –


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