Health systems frequently lament the lack of reliable benchmarks for value-based compensation. The information in the typical benchmarks is not predominantly risk-based, as is common for episodes, bundles, and populations (e.g., ACO, shared savings, prospective capitation).
This absence of relevant benchmarks is a barrier to broader adoption of these models because of concerns surrounding compliance with fair market value (FMV) requirements. The challenge for health systems and valuators alike has been to understand and appropriately quantify and measure compensation to the physicians who serve value-based populations.
The prevailing compensation models in use that distribute dollars for care management of a population are capitation draws, utilization tracking, and shared savings distributions. However, when organizations that implement such models seek to ensure FMV compliance, their options for demonstrating FMV are limited. When traditional fee-for-service (FFS) benchmarks fail the test of relevance, organizations might look to quantify the incremental economic value created from effective care management. Such analyses are challenged by limited data and heavy reliance on loosely informed assumptions. Clearly, there is a need to move away from traditional market benchmarks, but until recently, there really hasn’t been a good alternative.
An FMV Methodology for Value-Based Compensation
For years, healthcare valuation experts have written about how value-based compensation warrants a different FMV methodology than traditional FFS-type compensation. Our work with medical groups that pay under value-based models, along with analysis of our Risk-Based Contracting and Physician Compensation Survey —the only one of its kind nationally—provide insights into how physicians are being paid for value-based work.
The type of work required, and the economic result brought by physicians under value-based models, is inherently different than that of FFS models.
- Physicians under an FFS model are typically only incentivized to drive economic value through seeing more patients and producing more WRVUs.
- A value-based model provides many more pathways to economic success, such as focusing on wellness, enhanced preventive care, disease management, site-of-service management, and generic medication subscriptions.
Because of these differences, value-based compensation should be compared to compensation paid to other physicians under a similar model.
ECG relies on three market benchmark methods to develop value-based FMV opinions:
- Coverage methodology, focused on time allocated to the patients, to incentivize access for the population
- Patient load methodology, focused on a PMPM compensation level, to reward care of the population
- Risk performance methodology, focused on a percentage of the available risk pool, to reward management of the population
In addition to the type of population being managed, there are a number of criteria to consider when developing an FMV opinion for a value-based model:
- Type of risk (e.g., global, partial, episodic)
- Profitability of the risk pool for the group
- Size of the value-based portion of a physician’s compensation structure and maturity of the group in managing this type of population
Each of these factors informs the opinion development.
ECG has worked with many clients to address their value-based model questions. You can read some of our other insights here.
Published September 11, 2020