Introduction:

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Sixty-four percent of large medical groups are owned by physicians, of which physicians are employees or employee-owners. 62% of medical groups are for profit. In fully competitive market, firms want to survive by either making profit through capturing market share (market approach) or cost cutting (efficiency approach). Which ever may be the strategic posture, it should be implemented by managers, employees and labor force. Medical groups with unhealthy financial condition pose a great economic challenge in compensating physicians in a way that engages physicians in improving financial condition and as well as work environment.

A. Existing models of compensation and reimbursement for physicians:

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1. Fee-For-Service (FFS):

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It is a payment system by which doctors, hospitals and other providers are paid a specific amount for each service (diagnosis and treatment). The private and public insurers pay providers charges or claims considering discounts, allowable and provider write off, co-payment, co-insurance and deductible outstanding etc. Payment is subject to passing following validity tests:

• Patient eligibility for payment,

• Provider credentials, and

• Medical necessity.

Types of FFS:

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• Billed Charges (traditional FFS):

Some variations on FFS have developed in an attempt to provide more cost-effective and efficient care. These are discussed below:

• Fixed fee schedule: Regardless of cost of service. At time patients pay rest.

• Discount from billed charges: discounted rate for providers in PPOs.

• Relative Value Scale or Resource Based Relative Value Scale (RBRVS), developed by (CMS), formerly HCFA.

• Mandatory Reduction in All Fees: For PCPs, if budget for health plan fails.

• Budgeted Fee-For-Service: For specialists, if budget for health plan fails.

• Sliding Scale Individual Fee Allowances: Not related to budget constraint, but to individual performance.

• Case Rate, Flat Rate, or Global Fee for Procedures: all institutional cost in single package, e.g., delivery.

• Bundled Case Rate or Package Pricing: all institutional and professional components in single package, e.g., bypass surgery.

2. Capitation: its development under criticism of FFS:

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The objective of managed care is to provide necessary, quality healthcare in the most efficient and cost-effective manner. There always has been criticism against economic considerations in giving care under FFS. Physicians were criticized for excessive and unnecessary care, for example, ordering a whole battery of extra tests with unnecessary or of marginal value, to get extra fee for doing those tests. This practice increased the burden of risk of health plans. Therefore, to share this risk, with physicians by using scarce resources efficiently and cost effectively, a system of reimbursement was necessary. As a result, a new method of reimbursement, Capitation appeared that created incentives for physicians to provide quality care in the most efficient manner and possibly share in any savings.

Capitation is a dollar amount negotiated between MCOs and health care providers to cover the cost of ongoing health care delivered by a provider for a person during a specified length of time. This per capita flat or lump-sum rate of reimbursement is negotiated periodically. Under the contract, the provider is responsible for delivering or arranging the delivery of all health services required by the covered person regardless of cost.

Types of Capitation:

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• Full Risk Capitation: PMPM payment on or regardless of sex and age (includes specialists’ charges), or payment may be percentage of the insurance premium,

• Global Capitation: Include institutional and specialists’ charges,

3. Other methods for employee physicians in group:

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Staff physicians in medical group have three kinds of duties: clinical, supervisory, and administrative. We may consider two major types of model for compensating Primary care physicians (PCPs):

• Straight Salary/Base Pay:

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The physicians are employees of the health plan and receive a salary. This is typically the method of choice of staff model HMOs. Progression through salary range depends on:

o Departmental or institutional financial performance,

o Academic productivity,

o Quality, and

o Patient satisfaction.

• Incentives:

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Incentives are programs used in addition to the underlying method of provider reimbursement to provide additional inducement to the physician to practice in a particular manner. The health plan keeps the money allocated for these incentive arrangements in a separate account called a “pool”, so that the physician knows what money is available and how the health plan distributes it. It can also be distributed by provider network such as: merit pay. Incentives can modify Physician behavior to Increase productivity. Measures of individual incentive awards may include:

o Utilization management (maintaining fiscal viability and cost effectiveness of patient care).

o Productivity (individual and organization-wide).

o Work RVUs,

o Custom point systems,

o Gross revenue,

o Net collected charges, and

o Net operating income.

o Scope of practice.

o Utilization of resources.

o Quality of care provided.

o Patient satisfaction.

o Physician communications (internal with colleagues and external with patients).

o Academic performance (teaching, research), and

o Professional activities.

• Bonuses:

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The physician receives a bonus at year-end for satisfying some specific utilization or medical expenses or benchmark.

4. Incentive-plus-draw:

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• Withholds:

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To make physician aware of expenses and to practice more cost effectively, a percentage of the physician’s income is withhold to cover any excess medical expenses. The physician receives any money leftover at year-end.

• Retainer:

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Same a withhold but applicable for specialists. The purpose is different: To make specialists available when required for the members.

5. New Methods of Reimbursement

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As the healthcare industry has changed, many of the established managed care reimbursement methods have fallen out of favor or been disallowed by laws and regulations. The results are new and creative methods of compensating providers:

• Episode-Based Global Fees:

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Includes episodes of care as well as surgical procedures, such as: chronic condition of diabetes followed through the course of a year, self limiting condition of myocardial infarction involving six months of follow-up care, Or non-surgical coronary revascularization with one year of follow-up care.

• Contact Capitation:

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Specialist physician is paid a lump sum upon the physician’s first contact with a new patient for cost of care against a set ‘contact period’ (e.g., 6 or 12 months). PCP referral is still required for the initial visit – better suited for multi-specialty group.

• Market Share Capitation:

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It is better suited for single specialty group. The group gets a set percentage of capitation budgets of the health plan depending on the history of cost of care in that specialty category.

• Physician DRG:

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Physicians receive a set payment, adjusted for the severity of illness, for each Diagnosis Related Groups (DRG). If the physician provides care in a more efficient manner, the physician keeps the savings, in the same way that a hospital keeps the savings if it can reduce the length of stay in Hospital DRG.

• Direct contracting between employers and physicians with health plan in middle.

• Gain Sharing:

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Best suited to situations where the physician reimbursement is by fee schedule and the hospitals receive payment on a DRG basis. It requires the physician to consider the entire healthcare delivery system. It provides incentives for quality and cost-effective care, but is prohibited under federal programs.

• Reimbursement for Internet Consultations:

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A fixed dollar amount for keeping and updating records of chronic patients online

• Quality-Based Incentive Arrangements:

• Fee Incentive Methodology:

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Some health plans are using a flat fee methodology to change physician behavior. This methodology does not affect the underlying physician reimbursement, but it induces the physician to work in a manner that fits with the needs of the patient and the health plan.

B. Choosing methodology for reimbursement for Internists in medical groups who serve minority population:

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Factors and reality to consider before choosing a method:

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• The role clarity and work environment in medical groups which is important motivator.

• Physical infrastructure like FMIS, date collection, interpretation, communication, culture of knowledge sharing that are necessary for scanning improvement zone and closing the gap.

• The demographic and technological influence on medical group market and their unhealthy financial condition creates compelling reasons to take efficiency approach for Hispanic patients. Efficiency approach demand more focus on variable pay or reward (pay for performance and non monitory reward like time-off-the job, contests and prizes, work flexibility etc) to ensure extra effort and greater productivity (performance motivation). But to make it work, employees must see clear connection between effort, performance (expectancy), reward (instrumentality) and satisfaction (valence). This is possible if medical groups set ‘participatory SMART goal’ that is aligned with fair Performance Appraisal.

• Again, medical groups have to focus on innovative and specialty services for solvent Asian patients who are minorities too. As in medical groups physicians are employees (internists) they have to retain talents from them by appealing salary band with long term bonus, profit and/or gain sharing etc. This kind of compensation creates sense of belongingness (Membership motivation).

• The size of revenue/grant from Medicare/Medicaid – Salary arrangements are less frequent where the price of physicians’ patient care services is high and revenues from grants of Medicaid are low3.

• The local regulatory environment is also extremely important.

Objectives of reimbursement method:

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With multifaceted objectives of primary and specialty care – controlling cost and increasing profit, the best compensation plan would be that which:

• Is a market based approach to attract and retain highly qualified talent physician leaders. This retaining is necessary to compete effectively in today’s labor market.

• Can engage physicians to improve financial performance of group practice.

• Is understandable, fair and provides utmost satisfaction

Outline of possible methods:

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• No compensation model can improve financial performance in sustainable manner. However, a production driven compensation system based on work RVUs may be effective in engaging physicians to improving financial performance 1, is understandable and may provide greater satisfaction and fairness.

• Medical groups and IPAs tend to blend elements of fee-for-service, salary, and sub-capitation for their physician members, as each payment method offers advantages in terms of motivating productivity, cooperation, and practice efficiency5.

C1. Recommended methodology for reimbursement of internists in medical groups.

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For employee physicians/Internists:

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• A guaranteed base salary with cash incentives based on productivity approach (Quality-Based Incentive) could help8 with an emphasis on HEDIS measures to measure quality of care and patients’ satisfaction. This is particularly important for both Hispanic (needy) and Asian patients (educated, web-savvy, have bargaining power and insist on informed choice) who need preventive and quality care respectively. Bonus payments could be awarded on the basis of evidence in following areas7:

o Preventive care measures, such as immunizations, mammograms, etc.

o Appointment access, number of patient complaints, turnover rates,

o Clinical measures: Use of practice guidelines,

o Health Plan Employer Data Information Set (HEDIS) measures,

o Patient experience: member satisfaction surveys (satisfaction, reduction in litigation, medical costs, and timely, sustained return to work),

• In addition, non-doctors can not increase the patients and physicians base effectively. For this reason, we have to develop and nurture transactional and transformational leadership among physicians to make business success. Therefore, we have to recognize and reward talent physician leaders or go for job shadowing for prospective leaders. To encourage strong leadership skills in managerial work following rewards could be offered4:

o Stipend for managerial work above and beyond their clinical practice,

o Variable stipend–perhaps 5 to 7 percent of net income–as an incentive to grow the practice,

o Make sure that in a productivity-based system, managers are given equal credit for clinical and managerial days.

o Offer short term cash bonuses tied to meeting specific goals like quality care,

o Offer non-monetary rewards, such as: additional vacation time or relief from on-call duty, extra time off and funding for the leader to attend business conferences and seminars to learn practice-management skills. Not everybody in a firm does want direct monitory benefits/reward. Employees don’t see these benefits in terms of money. Rather, they see these as good relation and cooperation between managers that tremendously motivates them to improve productivity.

For, or office and independent PCPs:

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• We can blend reimbursement methods to fit the situations at hand. As for example, capitation basis for acute conditions and Quality-Based Incentive (bonus of FFS basis) arrangements for procedures and visits like preventive services (mammograms and vaccinations).

• Fee incentive methodology will also work. The following are some examples:

o A flat fee for each referral to a disease management program.

o A physician a higher fee schedule to increase preventive care, if the physician has high performance-based HEDIS scores.

o A flat fee for appropriate documentation of the steps taken prior to referral and/or for tracking a patient, once referral takes place.

o A flat fee for timely reporting of encounters to health plans with a small fee per record reported.

Risk adjustment:

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This will be done through continuous process and procedural improvement that tracts data and records of outcome and invigorating a culture of sharing knowledge (both bilateral and within groups). Sharing information will find the improvement zone and quickly improve the quality of care. In this situation, internists should not be penalized for receiving sick patients by withholds. Otherwise, they may refuse sick patients or refer them to other docs that may end up in loosing health plans and market share.

C2. Methodology for reimbursement for specialists in medical groups:

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a. Market Share Capitation (sub capitation):

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If a specialty group sees 20% of the patients who require that type of specialist in a year, that specialty group will receive 20% of the monthly capitation budget for that specialty. This method is only appropriate for single specialty groups. Individual doctors in multi-specialty groups do not have enough share of the market for the method to work. This method relies on historical referral patterns on which to base payments. New physician groups that do not have this history usually receive fee-for-service payments until they establish a referral history. Market share capitation is less difficult to administer than contact capitation because there are fewer items to track.

b. Contact capitation:

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Capitation in its true form does not work well with specialty physicians, because low dollars are associated with capitation contracts for specialists. Consequently, reimbursement for most specialists is on a discounted FFS basis. Contact capitation modifies traditional capitation to better suit the circumstances of specialty physicians. To ensure fair compensation for variations in severity of illness, risk is adjusted in following ways:

? Certain diagnoses or procedures may carry higher contact weights.

? Selected subspecialties and/or procedures may be covered separately.

? Separate capitation rates may be developed for different age segments.

? The sickest patients or patients with particularly difficult diagnoses may be carved out and paid on a fee-for-service basis.

Contact capitation fits with the objectives of managed care, because it creates incentives for physicians to manage patient care as efficiently and effectively as possible. Keeping patients healthy by disease management and patient treatment compliance reduces the need for additional visits that may not result in additional revenue.

D. Future reimbursement methods in medical groups:

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Global capitation:

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Medical groups have both hospital in-patient and out-patient care. On the background of more stricture by HMOs, if these groups integrates vertically11 and form alliance with physicians and if legislation permits, a global capitation (covers both institutional and specialty cost) may help.

Global Fees or Case Rates:

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Medical groups may integrate horizontally to provide on-stop service (focus factories12) on a particular disease to indicate value for money as because:

• Hispanic population is increasing, is more prone to chronic conditions including cancers and

• Employers are carefully observing situation in health care market and is inclined to opt for defined contribution.

These focused factories can provide all the care necessary for a particular disease (such as breast cancer); therefore, case rates, or episode-based global fees, would seem to be the ideal way to reimburse the providers in these situations.

E. Success of the models:

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To succeed, Medical groups may receive capitation from their contracting health plans and then sub-capitate their physicians and hospitals9, 10. But capitation doesn’t always bring about success. In addition to a better payment structure, these groups should have to develop core competence. They should follow the following steps to succeed:

• First, collect data on practice patterns, outcomes, quality of care, and other performance measures. Share this information with physicians. This would promote positive change. The more information on outcome brought to the negotiating table, the better able medical groups will be to negotiate fair contracts. Therefore, these groups should invest in the information system: both management and financial. This involves a large initial investment, but it is imperative to an organization’s success.

• Second, provide financial incentives to the physicians in the group by sub-capitation or emphasize on the importance of a fair and equitable compensation system that provides the correct types of incentives. To succeed, it is imperative to have financial incentives that induce behavior consistent with the goals of the group (i.e., quality care with little waste).

• Third, use standard care guidelines or pathways. These guidelines allow the group to provide improved quality of care at reduced cost because the “fat”, or unnecessary steps, is removed from the process.

• Fourth, build close relationships with key players in the market. This includes health plans, insurance companies, and PCPs. Oncologists rely on PCPs for referrals, so good relationships are vital.

• Fifth, develop and retain transactional and transformational leadership within physicians who enjoy taking managerial responsibility in addition to their own practice.

• Sixth, risk and responsibility must be balanced between the health plan and the provider. The physician should only take on risk for that over which, he has control. The secret to success is to accept only as much risk as can be handled by the group and to make sure they have the right people advising them on how to handle the risk.

• Finally, medical groups should develop a clear vision and mission to support good and quality work with fair and equitable incentive and would not support bad outcome and environment.

Conclusion:

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The success or failure of a particular reimbursement method doesn’t only depend on the method we use; but also depend on how strong financially the medical groups are and how organized they are in terms of human and structural asset and supportive working environment.

Article Source: http://www.articlesbasecamp.com

1. Physician Compensation Models in Large Medical Groups:Nov. – Dec. 2001, By Jennifer Nelson, Carleton T. Rider, John E. Biermann, and Shawn D. Schwartz www.nejmjobs.org/rpt/physician-compensation.aspx. 2. Arch Intern Med. 2006;166:623-628. Available pre-embargo to the media at www.jamamedia.org 3. links.jstor.org/sici?sici=0361-915X%28198121%2912%3A1%3C155%3ACABHAP%3E2.0.CO%3B2-8&size=SMALL