Don’t forget key steps in your incentive plans

Preventive rewards can prove effective

Aligning the incentives between a physicians group and a hospital is one of the cornerstones of a successful capitated managed care delivery system. Providing the right kinds of financial incentives is often a good first step in getting physicians headed in the right direction. The following are some tips to make that process more successful:

Partner with physicians.

Too often, physician bonus plans are calculated solely with an eye to the bottom line. This is a mistake, says Tom Andrews, director of managed care and medical management services for DeKalb Medical Center in Decatur, GA. "The old adage that the physician’s pen is the most expensive piece of equipment in the hospital really is true," Andrews says. "They are the ones steering the ship. You have to involve them in these kinds of decisions."

Structuring capitated physician bonus plans in a vacuum is one of the biggest mistakes Reed Tinsley sees being made by health systems new to capitation. "If you don’t involve them on how the bonus plan is set up, you’re going to generate a lot of physician unrest at a time when it is critical to develop a partnership mentality between physicians and the hospital," says Tinsley, CPA, partner and health care consultant with O’Neal McGuiness & Tinsley in Houston. "Physicians are the ones driving the revenue, and believe me, a physician’s productivity is going to go way down if he or she is unhappy with their compensation formula."

Reward preventive care.

The goal in a capitated environment is to keep people healthy. How well a physician does this can also be a factor in a bonus compensation calculation, Tinsley says. This can be based on factors such as immunization rates and the percentage of new patients who get health screenings. Another way to utilize preventive care is to reward physicians who lead community health programs, such as having education sessions on smoking cessation, weight control, and when to use the emergency department instead of the doctor’s office, Tinsley adds.

Plan for outliers.

Inevitably, some physicians are going to see sicker patients than others, skewing their utilization results and their bonus possibilities. "You need to take this into account," says Doug Chaet, president and chief executive officer of the Lenox Hill Physician-Hospital Organization in New York City. "You need to identify these physicians by specialty and then be able to back out these severe cases."

One example is a primary care physician with a subspecialty in infectious diseases, which is more likely to attract AIDS patients. Other examples include primary care physicians sub-specializing in endocrinology, which attracts diabetics; primary care physicians who also are cardiologists, thereby attracting patients with heart disease and hypertension.

To keep the playing field level among your physicians, the health system should devise a financial mechanism so that these physicians have the same chance at generating a bonus as their peers.

Make sure incentive is great enough.

The goal of giving bonuses to your physicians in a capitated environment is to align their incentives with the goals of the health system. To do this successfully, the size of the bonus must be significant enough to encourage your physicians to want to change. "A mistake I commonly see organizations make is that they don’t put enough incentive out there to really modify behavior," Chaet says.

So what’s a good amount to dangle as a carrot?

"I make sure at least 15% [of the physician’s PMPM] is attainable through bonuses for a primary care physician," he says. "If that were only 5%, I doubt that it would be enough to get physicians to change the way they do things."

At Lenox Hill PHO, that 15% amounts to a bonus of about $3 PMPM. "If a physician has 500 capitated patients, that’s almost $20,000 in bonus potential a year," Chaet says. "If the bonus potential were only $5,000, I don’t think that would be enough."

Keep bonus plan simple.

Bonus compensation plans function best when they are simple, says Richard Carpe, CPA, senior director at Health Care Financial Advisors in Newport Beach, CA. "At the most, you want to calculate bonus compensation on four or five factors," Carpe says. "When you get much more than that, the process gets too complex and cumbersome."

Simplicity also addresses many physicians’ concerns that the data their bonus is based on may not be correct. "Physicians often think the data is wrong," Carpe adds. "Limited amounts of timely, accurate data are far better than complex data that takes a long time to generate and may in fact be wrong."

Carpe also recommends occasionally reviewing the factors on which bonuses are based. This is to make sure they are in accordance with the goals of the health system. "Remember, you use bonus compensation to change physician behavior," he says. "You may want to change the elements the bonus compensation is based on over time depending on any changes in the priorities of the health system," Carpe says.