Transformative shifts in healthcare delivery and provider compensation are reshaping the landscape of modern healthcare. This change is driven by the emergence of nontraditional healthcare models such as telehealth and retail clinics.
These disruptors have gained significant traction, especially in recent years, as patients increasingly seek convenient and accessible avenues for receiving medical care. Physicians are experiencing unprecedented levels of burnout stemming from healthcare-related crises, including the COVID-19 pandemic and recent changes to the Medicare Physician Fee Schedules. These factors acted as catalysts, accelerating the adoption of alternative healthcare models as both providers and patients sought stability in alternative care settings.
Nontraditional Providers: Complementing Traditional Healthcare
Nontraditional provider organizations have emerged as important complements to traditional hospitals, offering healthcare services in a variety of settings that prioritize convenience, accessibility, and patient engagement.
Unlike hospitals and more traditional care settings, which provide a wide range of medical services in a centralized, facility-based environment, nontraditional providers operate in more flexible and specialized settings. These include urgent care centers, retail clinics, telehealth platforms, private equity-backed organizations, home healthcare services, and additional hybrid models.
By focusing on specific patient needs such as minor acute care, chronic disease management, and preventive services, these organizations enhance the overall healthcare landscape.
Embracing Value-Based Care
While most traditional organizations are heavily focused on practice economics and volume-based performance, nontraditional organizations are increasingly working toward uniting payer-determined incentives and paving the way for value-based care.
Nontraditional providers often employ innovative care delivery models and alternative payment structures, such as subscription-based services and value-based care. This approach not only reduces overhead costs but also makes healthcare more affordable and accessible for patients.
As a result, nontraditional provider organizations play a crucial role in filling the gaps left by traditional hospitals, ensuring that patients receive timely, personalized, and efficient care across various contexts and locations.
Opportunities in Compensation Models
In the realm of nontraditional healthcare organizations, there exists a notable opportunity for compensation models that balance both productivity and nonproductivity elements, including risk-based compensation within a value-based structure among providers.
As we think about the benefit of determining an appropriate compensation model among varying degrees of risk and performance within these nontraditional organizations, there is tremendous opportunity to leverage innovative structures and incentives.
The Shift From Volume to Value
Healthcare has seen an uneven shift from volume to value since the passage of the Affordable Care Act in 2010, with Alternative Payment Models (APMs) and other value-based reimbursement mechanisms gaining traction in recent years, particularly as market factors created volatility in volumes and resulting reimbursement.
As of 2018, APMs made up approximately 29% of total U.S. healthcare payments compared to just 25% in 2015. Recent analyses from the Health Care Payment Learning & Action Network indicate that 40% of organizations had compensation tied to APMs in 2022, and 60% of Medicare beneficiaries were enrolled in Medicare managed care plans (Figure 1) or assigned to an accountable care organization.(1)
Figure 1. Medicare Advantage and traditional Medicare enrollment, past and projected.(2) Source: Kaiser Family Foundation analysis Medicare Chronic Conditions (CCW) Data Warehouse from 5% of beneficiaries, 2010-2016; CCW data from 20% of beneficiaries, 2017-2020; and Medicare Enrollment Dashboard 2021-2023. Enrollment numbers from March of the respective year. Projections for 2023 to 2033 are from the May Congressional Budget Office Medicare Baseline for 2023.
Performance-Based Incentives in Nontraditional Structures
Most organizations tend to factor in traditional volume-based metrics such as collections and work relative value units (wRVUs). However, various nontraditional structures encourage a higher degree of risk, connecting performance-based incentives designed to align with patient-centered care and outcomes.
This shift reflects a broader trend within the healthcare industry towards value-based care, which emphasizes the quality and effectiveness of care delivered rather than the quantity of services provided.
Challenges and Innovations in Nontraditional Models
Shifting the focus from fee-for-service to value is financially challenging for many hospitals and health systems, requiring upfront cost and capital to initiate the incentives, measurement, and alignment of shared risk between physicians and the employed organization.
Many organizations have found themselves caught between differing priorities and a paradigm of how to compensate providers for incentives that are not yet differentiated by reimbursement structures. Thus nontraditional organizations have begun utilizing alternative compensation models in different ways. The rate of adoption of value-based payment models is up 38% from 2018 and continues to trend upward (Figure 2).(1)
Figure 2. Value-based payment adoption.(1)
Risk-Based Compensation: Driving Change
By embracing risk-based compensation models, nontraditional organizations can further incentivize providers to prioritize patient outcomes and financial efficiencies. In these models, providers assume financial accountability for the quality and efficiency of care delivered to their patient populations.
This shift in accountability encourages providers to proactively manage patient health, focus on preventive care measures, and coordinate care across the continuum. By assuming risk, providers are motivated to invest in strategies that improve patient health outcomes while simultaneously reducing unnecessary utilization of healthcare services.
This aligns with the broader goals of value-based care, which seeks to deliver high-quality care at lower costs. Risk-based compensation presents an opportunity for nontraditional organizations to drive meaningful change in healthcare delivery, ultimately benefiting both patients and providers alike.
Impact on Physician Shortage and Access to Care
Beyond nontraditional healthcare organizations and the shift towards patient management within compensation models, these nontraditional provider organizations are seeing increased benefits among patients, including mitigating the anticipated physician shortage and providing better access to rural and medically underserved populations.
The overall structure of compensation models is trending toward a higher degree of total compensation connected to value rather than volume. Aspirationally, this could resemble the distribution in Figure 3 over a four-year period. The initiation of the compensation structure in Year 1 blends the status quo of productivity (wRVU or collections) with a significant increase in quality and an initial lever for patient management. Gradually, over the course of the transition period, reliance on productivity is traded for patient management and quality and financial management considerations.
Figure 3. Compensation model structure and component distribution.
Telehealth and Evolving Compensation Models
The rapid rise in telehealth utilization during the COVID-19 pandemic underscored the importance of adapting physician compensation models to accommodate the evolving healthcare delivery landscape. Unlike traditional fee-for-service models, which incentivize volume over value, telehealth platforms have embraced innovative reimbursement structures that prioritize outcomes and patient satisfaction.
These models borrow elements from value-based care and patient management structures, incentivizing physicians to efficiently care for patients and maintain access. Often, these structures include per-visit fees, subscription-based models, performance or outcomes-based incentives, or hybrid approaches that combine elements of different reimbursement models.
Private Equity’s Role in Provider Compensation
In addition to the transformative shifts driven by telehealth and retail healthcare models, private equity organizations are increasingly playing a prominent role in the healthcare landscape by employing physicians. Private equity firms are attracted to the healthcare sector because of its stability, consistent demand, and potential for significant returns on investment.
These firms often acquire physician practices and healthcare facilities, seeking to improve operational efficiency, expand market reach, and enhance profitability. Physicians embedded within private equity organizations often see a similar push toward alternative compensation models over fee-for-service. Physicians and provider organizations are more nimble, enduring this shift from fee-for-service to value seamlessly. Capitated models held financial criteria at risk for outcomes and social determinants of health, rather than volume.
These compensation models give organizations the flexibility to redesign their care models and deploy innovative interventions, promoting quality of care and reducing the overall spend on care.
Balancing Financial Efficiency and Patient Care
Most private equity-backed physician organizations incorporate a slew of performance-based incentives, standardized protocols, financial efficiencies, single vendor selection, and streamlined administrative processes to optimize practice operations and improve financial performance.
While these changes may introduce new challenges and uncertainties for physicians, they also present opportunities for professional growth, access to resources, and potential financial rewards. The increasing involvement of private equity in healthcare also raises concerns about the potential impact on patient care quality, access, and affordability. Critics argue that profit-driven incentives may prioritize financial interests over patient well-being, leading to overtreatment, reduced access to care for underserved populations, and increased healthcare costs.
As private equity continues to expand its presence in the healthcare sector (Figure 4), it is essential to strike a balance between the pursuit of financial returns and the delivery of high-quality, patient-centered care. Regulatory oversight, transparency, and accountability mechanisms are critical to ensuring that private equity investments in healthcare ultimately benefit patients and support the broader goals of improving healthcare outcomes and reducing costs.
Within these models, it begs the question, are providers incentivized to prioritize patient care or financial efficiency, and are they mutually exclusive or inherently linked?
Figure 4. Physician employment trend, 2019-2022.(3)
Future Outlook: Integration and Evolution
As these nontraditional provider organizations continue to evolve and become integrated into mainstream healthcare delivery, there is the potential to play a significant role in mitigating the effects of the provider shortage and improving access to care for patients worldwide.
By leveraging technology and embracing innovative reimbursement models, healthcare organizations can adapt to the changing landscape of healthcare delivery and position themselves for success in the evolving era.
Embracing Nontraditional Compensation Models: A Call to Action
The shift from traditional to nontraditional healthcare models represents a transformative change in the industry, driven by the need for more convenient, accessible, and value-based care. Nontraditional providers, including telehealth platforms and retail clinics, complement traditional healthcare settings by focusing on specific patient needs and employing innovative care delivery and payment models.
Healthcare organizations should consider adopting nontraditional compensation models to align incentives with patient-centered care and outcomes. By embracing risk- and performance-based compensation structures, organizations can motivate providers to deliver high-quality care efficiently while addressing the financial challenges of transitioning from volume to value.
It is essential for healthcare leaders to explore and implement these innovative compensation models to stay competitive and meet the evolving demands of patients. By doing so, they can ensure better patient outcomes, improved access to care, and long-term sustainability in the ever-changing healthcare landscape.
References
Health Care Payment Learning & Action Network. Progress of Alternative Payment Models, 2022/2021/2020/2019/2018 Methodology and Results Report. https://hcp-lan.org/workproducts/apm-methodology-2022.pdf . Accessed July 9, 2024.
Medicare Advantage in 2023: Enrollment Update and Key Trends. Kaiser Family Foundation. https://www.kff.org/medicare/issue-brief/medicare-advantage-in-2023-enrollment-update-and-key-trends/ . Accessed June 28, 2024.
Future of Physician Employment and Physician Practice. Hospitalogy. https://hospitalogy.com/articles/2022-04-28/future-of-physician-employment-and-physician-practice/ . Accessed June 28, 2024.