American College of Physicians: Internal Medicine — Doctors for Adults ®

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Distributing pay for performance

From the April ACP Internist, copyright 2012 by the American College of Physicians

The consensus is that performance-based compensation is the most effective way to motivate physicians to perform at the highest level possible: the highest quality, the highest productivity, and even the highest efficiency.

Most people associate pay-for-performance (P4P) programs with chronic disease management, but pay for performance has been around as long as there has been production-based compensation. This type of P4P is most commonly based on charges, income, or relative value units (RVUs), but other components may also reward citizenship, leadership, patient satisfaction and quality.

Recognizing and rewarding physicians based on P4P quality measures can increase the focus on performance criteria and optimize revenue in the practice. So once the practice receives the P4P incentive bonuses, what is the best way to distribute them? There are typically three methods used.

Direct approach. The practice “passes through” the P4P bonus directly to the physicians who earned it. The practice may retain a percentage to cover the efforts of staff, but the idea is to reward the physician for his or her work.

The advantage of this method is that the physicians benefit proportionately based on their efforts compared to those of their colleagues. The disadvantage of this approach is that it may be inconsistent with the overall physician compensation plan by promoting a more “individualistic” rather than team effort.

Indirect approach. Medical practices can pay out P4P dollars in a few different ways. One way is to treat them like any other income and pay them out according to the compensation plan formula. Another way is to create a separate “pool” for all P4P dollars to be “earned” by the physicians according to a separate formula. For instance, the pool could be divided equally among all participating physicians or based proportionately on charges or collections.

Yet another way is to use the P4P dollars for a designated purpose, such as for new services, journal subscriptions, or other discretionary programs that might otherwise not be in the budget. The idea behind the indirect approach is that it takes teamwork to produce high-quality, low-cost care.

Integrative or hybrid approach. Some practices may have a larger program to reward quality, based not just on P4P but on other incentive and/or quality programs as well. This strategy recognizes physicians for high-quality and low-cost outcomes for all patients, not just those in specific programs, and includes other measures set forth by both Medicare and private payers.

In these practices, all incentive monies go into one pot and physicians are rewarded according to a formula based on practice goals. For example, rewards may include patient satisfaction, citizenship, administrative or promotional activities, or other measures determined by the practice and measured over time.

For more information about physician compensation formulas, read ACP's guide, “Income Distribution and Partner Buy-Ins.” For more information on pay-for-performance programs, go online.

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