The Importance of Fee-for-Service in Value-Based Payment

This is a conversation about physician compensation, which is often oddly misaligned from the way that the whole physician or provider organization is getting paid.

Now, first thing to point out: There are lots of different kinds of physicians doing all kinds of different things. As with most everything in healthcare, lumping everybody together and making general proclamations about what is best is a really cruddy idea.

With that disclaimer, if you think about the main models of physician compensation, there are two; and this is oversimplified, but let’s call one fee for service (FFS), which is really getting paid for generating RVUs (relative value units)—in short, getting paid for volume. The more you do (especially the more expensive things you do), the more you get paid. And then we have getting some kind of capitation payment. A capitated payment is some kind of per member per month-ish flat payment to ideally keep patients healthy, and you will make the most money if you can figure out how to have the least volume of expensive stuff. As an individual doc getting a salary to care for a patient panel of a certain size, let’s just consider commensurate with that.

These incentive models obviously have a big impact on any given doctor’s ability to get paid to do things that they think they should be doing. For example, the current fee-for-service RVU fee schedule frequently rewards those doing the stuff a lot of specialists do much more than those doing primarily cognitive work, including those doing work for patients who aren’t sitting in the exam room at the time—like a PCP arranging for a patient to go to hospice or answering patient portal questions.

In my opinion, the goal here should be to pay docs and others fairly for providing high-value care. These payments also should actually be proven to actually incent that high-value care.

Here’s the obvious problem: Neither of these two things, either the quantifiable definition of high-value care and/or the best way to pay for it, has any kind of canon. There are no rules which are considered to be particularly authoritative and definitive here, really.

So, what is the downside of not aligning physician compensation models to what good looks like, meaning to the kind of care that patients really need in that particular community?

A couple of downsides for you: One is moral injury. Not the only reason, but a reason for moral injury is getting paid in misalignment with what is best for patients. That sucks. You want to help your patients as best you can, and then you can’t earn a living and/or you get in trouble with the boss if you do what you think is right. This can cause real mental anguish for especially PCPs but also others who see the need to do anything that doesn’t have a billing code.

Here’s another downside to not worrying about physician compensation, and it’s for plan sponsors (employers, maybe) who are trying to get integrated care or a medical home for their employees. I was talking to Katy Talento about this. She was telling me that in ASO (administrative services only) contracts, there are often line items for value-based care and for capitated payments. So, good news?

Well, let’s follow the dollar here, because we wind up with a disconnect that doesn’t help patients but certainly can earn a nice little kitty for those who can get away with it.

Here’s where that dollar goes: This VBC (value-based care) or capitated payment kitty may go to a health system that the ASO says is to be a medical home for employees or plan members.

But the PCPs mainly who are treating members in those medical homes are getting paid, it often turns out, fee for service with maybe some quality kickers. So, the plan is paying a value-based care payment, but the PCPs are getting paid FFS. Is anyone shocked when the members report that they don’t actually feel like they are getting integrated care, that they are getting rushed in and out because maximizing throughput becomes a thing when you’re getting paid for volume?

Dan O’Neill also talks about this at length in episode 359, because IPAs (independent physician associations) are doing kinda the same thing. Getting so-called value-based care contracts with MA (Medicare Advantage) plans or CMS or employer groups, I’d imagine, and then paying all the individual practices or the solo practitioners fee for service and scooping up the excess payments themselves, most docs manage to provide high-enough-quality care that the contract holder can scoop up the profit off the capitation without actually having to share the capitation to achieve this high-enough-quality care.

In this healthcare podcast, I am digging into all of this physician compensation ballyhoo with Rachel Reid, MD, MS. She was an author on a study at the Center of Excellence on Health System Performance at RAND. This study specifically set out to look at how health systems and provider organizations (POs) affiliated with those health systems incentivize and compensate the physicians who work there.

Short version: Yeah, it’s confirmed. Most docs are paid using the classic RVU productivity measures representing a big chunk of their compensation, even PCPs. There’s frequently some kickers or extra payments to achieve some kind of quality metric, but this is the icing, not the cake. The cake is still very fee for service-y. This is true regardless of how the physician organizations, the provider organizations themselves are getting paid by payers.

I asked Dr. Rachel Reid a bunch of questions about this, but one of them was (this seems weird, a weird misalignment), Why is this happening? And Dr. Reid listed out five reasons beyond the macro existential question of what is value and do we even know how to change human behavior to get it.

1. The payment is not big enough from the payer for the physician organization to go through all the time and trouble and risk frankly of changing the whole comp model.

2. The value-based payment arrangements that do exist at the organizational level often have a fee-for-service chassis with an icing of quality payments or some kind of value payment on top of it. So, maybe there’s actually more alignment than we might think.

3. It’s hard to try to change comp models—it’s a thing. And there is risk in messing it up.

4. Inertia. The ever-present inertia.

5. We know what we want to move from, but what exactly are we moving to? And this “What do we want to move to?” is going to change for PCPs and for every single different specialty and could even vary by patient population.

I then also asked Dr. Reid what could be done by plan sponsors, for example, to pay docs in alignment with the goals of the contract; and she said, write physician comp expectations into the contract. Something to think about.

We dig into all of this today.

Shows that you should, for sure, listen to for additional insights include the one with Dan O’Neill (EP359) as aforementioned. Also the show with Brian Klepper, PhD (AEE16), where we dig into how the RUC is behind some of these FFS rates. Also episode 391 with Scott Conard, MD.

My guest today is Rachel Reid, MD, MS. She is a physician policy researcher at RAND Corporation and a primary care physician at Brigham and Women’s Hospital.

You can learn more about Dr. Reid, her publications, and the work she has done on the RAND Web site.

 Rachel Reid, MD, MS, is a physician policy researcher at the RAND Corporation. Also a practicing primary care physician, her research focuses on measuring cost, quality, and value in healthcare. She has particular interest in the primary care delivery system, physician payment and compensation, and delivery and payment system reform. Dr. Reid has been engaged in the RAND Center of Excellence on Health System Performance, assessing health systems’ compensation and incentives for physicians, leading work related to assessing low-value healthcare delivery, and measuring primary care spending. She is the principal investigator on an NIH-funded grant assessing novel Medicare billing codes for transitional care provided after hospital discharge. Prior to joining RAND, Dr. Reid worked in the Research and Rapid Cycle Evaluation Group at the Centers for Medicare & Medicaid Services’ Innovation Center. Her clinical work has included ambulatory primary care and hospital-based internal medicine. She is an associate physician at Brigham and Women’s Hospital and an instructor in medicine at Harvard Medical School. Dr. Reid received her AB in biochemical sciences from Harvard University and her MD and MS in clinical research from the University of Pittsburgh School of Medicine.

07:13 What did Dr. Reid’s recent study show about how doctors are currently being paid and incentivized?

08:11 Why Dr. Reid decided to do the study in the first place.

09:49 What are the main foundations of what doctors are paid on?

10:31 Why is value-based compensation still just the “icing” on the cake?

13:08 What is the biggest value add for doctors, and does it vary between specialties?

14:32 Why wouldn’t a physician organization change their comp models?

19:55 Are we at a moment of evolution?

20:20 “Tying dollars to measured quality gaps doesn’t necessarily produce results.”

20:42 EP295 with Rebecca Etz, PhD.

22:04 “I don’t think there’s a current gold standard for how to pay doctors.”

25:37 Job one: What are we trying to incent?

31:28 From the payer or insurer perspective, what’s the leverage they have to change doctor compensation?

You can learn more about Dr. Reid, her publications, and the work she has done on the RAND Web site.

Rachel Reid, MD, MS, of @RANDCorporation discusses on our #healthcarepodcast how doctors get paid. #healthcare #podcast

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