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The Right Market, The Right Time: Success Factors for Value-based Care Models

The Right Market The Right Time Success Factors For Value Based Care Models Web

For decades, healthcare organizations across America have thought about introducing value-based care elements, such as capitation and shared savings payments, into physician compensation plans. While the notion of value-based care is pervasive throughout the industry, attempts at change are often marginal at best. The result is the appendage of quality bonuses or behavior incentives to existing compensation models that rely heavily on unit production (e.g., WRVUs). A confounding and often conflicting issue is the decades-long emphasis by health system leadership on specialty services that can drive revenue-generating activity (e.g., procedures, ancillary services). The primary issue is that efforts to introduce value-based elements have not been focused on true risk-based concepts such as:

  • Managing the population or a panel of patients.
  • Directing care to appropriate specialists and sites of service.
  • Utilizing the appropriate amount of care and services.
  • Rewarding physicians for practicing good medicine and managing a larger population


    There are several reasons why it is a critical time for health systems to embrace value-based concepts and align with employed and network physicians through value-based compensation.

    • The federal government is putting its entire apparatus behind a value-based future through Medicare Advantage, primary care physician (PCP) direct contracting, bundled payments, and other innovative models. (The October 2019 proposed rules revising the physician self-referral and antikickback regulations continue to allow for flexibility under value-based arrangements.)
    • The national physician shortage, particularly concerning PCPs, will require the deployment of creative and multifaceted care teams, which are best suited to support value-based care concepts. One report, among many, suggests that by 2025, the shortage of PCPs will reach over 50,000.
    • Patients are seeking relief from growing healthcare costs, such as increasing premiums and deductibles and out-of-pocket costs.
    • Including value-based elements in compensation plans can make negotiating with health plans easier by demonstrating physician alignment with these concepts.


    Over the past 20 years, we’ve found that health systems do not concentrate on the appropriate compensation elements to support a value-based care model. In addition, many organizations are constrained by compliance limitations when considering value-based models because they don’t believe the models are compliant with fair market value (FMV). CMS is attempting to alleviate some of these concerns by proposing a value-based entity exception to Stark law. By working with innovative, forward-thinking clients, we’ve identified the critical attributes of a value-based compensation model. To move to a value-based compensation model, organizations must:

    • Introduce a risk-taking entity, either through a health plan or significant risk-based reimbursement model with payers. This will allow the organization to take financial advantage of the value-based efforts of the physician group.
    • Focus on primary care–centered teams to manage patient populations. These teams are best suited to provide value and create a financial benefit for the organization.
    • Place significant dollars at risk for physicians, which will result in major increases in compensation over current levels. Making additional dollars available for physicians places a higher value on their efforts and incentivizes them to coordinate patient care.


    To truly make an impact, the introduction of the above concepts cannot be incremental, even for groups with little history of value-based compensation. Significant portions of compensation, as much as 40%, need to be dedicated to these concepts to drive the appropriate behavior. Health systems that shift into a value-based model will be rewarded by the market and foster a collaborative environment and improve provider engagement. In future posts, we will be discussing strategies and tactics that apply in your market and implications for the FMV process.