How Are Doctors Paid? Learn the Incentives in Physician Compensation

This video provides an in-depth exploration of physician compensation models, specifically highlighting the pervasive dominance of volume-based incentives over value-based care within hospital-owned physician practices in the United States. Dr. Eric Bricker, of AHealthcareZ, presents findings from a recent RAND and Harvard University study published in the Journal of the American Medical Association (JAMA), which critically examines how doctors are paid and the implications for healthcare innovation and patient care. The core argument is that despite widespread rhetoric and efforts by government and insurance payers to implement value-based reimbursement models for hospitals, these incentives often fail to trickle down to the individual physician level, creating a significant disconnect.

The presentation details the study's findings, which analyzed 31 physician practices owned by 22 different hospital systems. The research revealed that a vast majority of primary care physicians (84%) and specialists (93%) were compensated primarily based on the volume of patients seen and services rendered, measured by Relative Value Units (RVUs). In stark contrast, only a meager 9% of primary care physician compensation and 5.3% of specialist compensation was tied to quality and cost-effectiveness metrics. This demonstrates that while hospitals may receive value-based payments from external payers, their internal compensation structures for employed physicians remain heavily skewed towards maximizing volume and, consequently, health system revenue, rather than promoting patient outcomes or cost efficiency.

Dr. Bricker emphasizes that this "window dressing" approach to value-based care at the payer-hospital level has profound implications for the doctor-patient relationship. He argues that as long as physicians are incentivized for "doing stuff" (fee-for-service) rather than for achieving positive outcomes or being cost-effective, their clinical decisions will inherently be influenced by volume targets. This systemic issue, as articulated by an anonymous leader from a hospital-owned physician practice quoted in "The Gist" newsletter, actively limits the ability to innovate and consistently pressures practices to maximize specialist referrals, often at the expense of other patient-centric goals. The video concludes by advocating for the importance of independent physician practices as a potential counter-model, suggesting that independence might foster environments more conducive to value-based care, though not guaranteeing it.

Key Takeaways:

• Dominance of Volume-Based Pay: A recent RAND and Harvard study found that 84% of primary care physicians and 93% of specialists in hospital-owned practices are paid based on patient volume and services (fee-for-service), not on quality or cost-effectiveness. This means doctors are incentivized for "doing stuff" rather than achieving specific patient outcomes.
• Minimal Value-Based Compensation: Only 9% of primary care physician compensation and a mere 5.3% of specialist compensation was linked to value-based metrics (quality and cost-effectiveness), indicating a significant gap between stated goals and actual physician incentives.
• "Window Dressing" of Value-Based Care: Despite federal government and insurance carriers pushing "payment innovation" and value-based reimbursement models to hospitals, these incentives often do not translate to how hospitals compensate their employed physicians. The internal compensation structure remains volume-based, effectively blocking the intended shift towards value at the point of care.
• Maximizing Health System Revenue: Physician compensation within hospital systems is largely dominated by volume-based incentives explicitly designed to maximize health system revenue, as concluded by the JAMA study. This financial imperative often overrides broader goals of quality and cost-effectiveness.
• Disconnect in Incentives: There is a critical disconnect between how payers reimburse hospitals (increasingly value-based) and how hospitals, in turn, pay their doctors (still predominantly volume-based). This creates a system where the doctor-patient relationship remains largely within a fee-for-service environment, despite external pressures for change.
• Impact on Innovation and Referrals: The volume-based incentive structure limits innovation within physician practices and creates pressure to maximize specialist referrals over other goals, potentially impacting patient care pathways and overall healthcare costs.
• Importance of Observing Actions, Not Just Words: The video emphasizes Andrew Carnegie's quote: "Don't listen to what people say, but watch what they do." In healthcare, this means observing how physicians are actually paid, not just listening to rhetoric about value-based care initiatives.
• Role of Independent Practices: Approximately 50% of doctors in America still work in independent physician practices. The speaker suggests that independent practices, by not being tied to hospital systems' revenue maximization goals, may offer a more conducive environment for implementing true value-based care, though this is not a guarantee.
• RVUs as a Key Metric: Relative Value Units (RVUs) are the primary metric used within hospital systems to measure the volume of services provided by physicians, directly linking compensation to the quantity of work performed.
• Implications for Patient Care Decisions: The prevailing fee-for-service model means that doctors are incentivized to perform more services, which can influence diagnostic and treatment decisions, potentially leading to over-utilization rather than focusing on the most cost-effective or highest-quality care.

Tools/Resources Mentioned:

• Journal of the American Medical Association (JAMA): A preeminent medical journal that published the RAND/Harvard study discussed in the video.
• RAND Corporation: A very famous research and development think tank that co-authored the study.
• Harvard University: Co-authored the study on physician compensation.
• The Gist Newsletter: A fantastic newsletter mentioned by Dr. Bricker, which provided an anonymous quote from a physician practice leader.

Key Concepts:

• Value-Based Care/Reimbursement: A healthcare payment model that rewards providers for the quality of care they deliver, rather than the quantity of services. It aims to improve patient outcomes and reduce costs.
• Fee-for-Service (FFS): A traditional payment model where healthcare providers are paid for each service they perform (e.g., office visit, test, procedure). This model incentivizes volume.
• Relative Value Units (RVUs): A measure of the value of a physician's work, used in the fee-for-service system. RVUs consider the physician's work, practice expense, and malpractice expense, and are used to determine physician compensation.
• Payment Innovation/Alternative Payment Models (APMs): Initiatives by government and insurance carriers to move away from traditional fee-for-service models towards value-based care.
• Hospital System-Owned Practices: Physician practices that are directly employed by or affiliated with hospital systems, representing about 50% of doctors in the U.S.

Examples/Case Studies:

• RAND and Harvard University Study (Published in JAMA, January 28, 2022): The central example, this cross-sectional study examined 31 physician practices owned by 22 different hospital systems to analyze physician compensation structures. Its key finding was the overwhelming dominance of volume-based incentives for both primary care physicians and specialists.
• Anonymous Quote from a Physician Practice Leader (from The Gist newsletter): A real-world perspective from a leader within a hospital-owned physician group, acknowledging that the pressure to maximize specialist referrals is always present and "undoubtedly limits our ability to innovate." This quote corroborates the study's findings about the internal focus on revenue maximization.