Health System Physician Compensation Arrangements and Financial Incentives for Performance

Background: The health care environment is characterized by widespread experimentation with incentives; however, there is poor understanding about how to design and use incentives to improve system performance. Prior research has been handicapped by the lack of systematic collection of incentive design features and implementation contexts that influence the structure of incentive systems. In this paper, we characterize and examine variation in physician compensation arrangements and the type and mix of financial and non-financial incentives (i.e., behavioral nudges) used by health systems to influence frontline physician behavior.

Data/Methods: Purposive sample of 25 health system/physician organization (POs) dyads in 4 states (CA, WI, MN and WA) that varied on health system attributes, size and performance. For each physician organization (n=30), we fielded a survey, analyzed compensation documents, and conducted semi-structured interviews with senior PO leaders in 2017-2018 to collect information on the type and mix of physician incentives were using, use of behavioral nudges, and contextual factors. We provide descriptive summaries of primary care (PCP) and specialist physician compensation arrangements and the type of actions being incentivized and the percent of pay tied to performance, and contextual factors associated with different incentive structures.

Results: Across systems, POs varied in the structure of their compensation and incentive arrangements and ongoing evolution in the design of incentive systems. Of the 30 POs, 88% offered performance based incentives to PCPs, while only 53% did for specialists. When offered, incentives averaged 5% of total compensation for PCPs (0.05-12%) and specialists (0.45-27%). PCPs were paid primarily based on productivity (75% of POs), with 75% offering incentives for clinical quality, 43% for citizenship, 38% for patient experience, 38% for access, 32% for HCC risk coding, 28% for resource use. Specialists were paid primarily based on productivity (62%), with fewer paid salary (32%) or capitation (6%); incentives focused mainly on clinical quality, patient experience and citizenship. For PCPs, the proportion of base compensation that productivity represented average 62% (range 10-100%), salary 62% (range 15-89%), and capitation 45% (40-90%). POs employed diverse incentive mechanisms (bonuses, withholds, per service incentives), used compensation plans of varying complexity (single, multiple independent or interdependent components), and varied incentives and compensation plans (by provider and organization type (medical group vs. IPA)). Physicians were incentivized for a small fraction of the total measures that payers hold the PO and system accountable for. Most POs describe their compensation plans in a state of evolution; some reported shifting away from financial incentives to other approaches (e.g., clinical decision support, performance dashboards, quality manager support). While many reported using behavioral nudges, the nudges were limited in scope, structured as suggestions rather than defaults, and focused primarily on providing structured information to support decision making (clinical guidelines or pathways) and purposive ordering of preferred medications in the EHR.

Conclusions: Despite the push for value-based payment, productivity is still the most prominent component of physician compensation. Performance incentives are commonly used, but the percent of total compensation represented is small to non-existent.