Medicare board

Major Changes on Deck for Doctor Compensation from Medicare

28 Jan 2015

As part of their overall activities related to health care reform, the Obama administration proposed major changes for physician compensation from Medicare, further shifting from a fee-for-service model to capitation. The goal behind this shift is to shift fees to paying for higher quality care rather than the quantity of care. By 2018, the goal is that over half of all Medicare payments will be handled this way.

With Medicare being the largest payor of health care services in the US, these changes will likely have major ripples as other payors will likely be forced to conform to this standard of payment. This shift will likely continue the rise of the use of accountable care organizations (ACO), which quickly rose in popularity with the passage of the Affordable Care Act in 2010. An ACO operates by receiving a lump sum payment for the treatment of patients, and the ACO will share in any savings that result in the converged managed care.

An estimated 20% of Medicare payments and between 20-30% of private contracts have operated under this value based system and with this change, along with other private market forces, it is anticipated that this model will increase to up to 75% of all payments by 2020.

The value based propositions that Medicare and private payors have been moving towards is designed to cut waste and provide better value to consumers, but at what cost to physicians? Physicians have been facing declining reimbursement rate for the past few years under fee-for-service arrangements, and this shift towards capitation and ACO models figures to further complicate this issues. With payments being issued directly to ACOs for lump sum care, there runs the potential that they can now set the market even further below current reimbursements.

Physicians often choose to practice medicine as part of serving the greater good and helping their fellow man, however, they also should be fairly compensated for the high skill required. Medicine is a service business, and like any other business, will need to be profitable in order to succeed and continue to grow. The shift to this model will be another road bump that can severely hamper private practice for physicians.

Generally speaking, when a physician joins an ACO, there will are 5 common ways that they can be compensated:

  1. Straight Salary from the ACO.
  2. An equal share of the “savings” (profit) of the ACO group.
  3. Productivity based compensation, based on RVU scale units or other metrics.
  4. Incentive-based compensation, in which income is tied to the achievement of the ACO goals.
  5. Capitation

All physicians will need to consider how these upcoming changes in physician compensation will affect them and their practice, when and what ACO or other organization to align with, and how they will be compensated going forward. They will need to consider what kind of changes this will have on their practice and what changes need to be made in both their short term and long term planning.