Any time a physician and a hospital enter a long-term relationship, whether through a direct employment arrangement or through a services agreement with a physician group, the discussion around physician compensation can quickly grow complicated.  Most healthcare providers are aware of the heavily regulated environment around physician pay, including the need for compliance with the Stark Law and the federal Anti-Kickback Statute. However, in addition to these well-known issues, providers may also see a direct influence from quality-of-care incentive programs on their compensation models. 

The past decade has seen a large number of healthcare programs focused on improving clinical quality through various incentive programs aimed at rewarding hospitals and providers for higher quality of care or penalizing them for failure to meet certain quality requirements.  And as hospitals face greater pressure to improve certain measurable quality objectives, they are exploring ways to increase pressure on contracted physicians and physician groups to assist with meeting these objectives.  One method hospitals may use is to leverage physician compensation models to align the performance of physician services with value-based care payor initiatives.  In other words, compensation owed to the physician or physician group may have a portion carved out for “incentive-based compensation,” to pay certain amounts in exchange for the physician or physician group’s efforts towards meeting certain process measures, quality measures, patient satisfaction, or clinical outcomes (“quality metrics”).  

In many cases, the inclusion of an incentive-based portion in physician compensation is not a negotiable item.  However, this does not mean that this portion of compensation is not open to discussion.  We have outlined below five points to consider when negotiating incentive-based compensation in physician agreements.

• Be sure you understand the terms and goals. 

Even when the terms of an agreement are 100% non-negotiable, it is imperative that both parties understand exactly how the compensation will work, and even more so, the goals to be reached by structuring compensation as laid out in the agreement.  One of the best ways to ensure that both parties are getting the most out of the agreement is to be sure they are each performing in a way that can be measured and rewarded by the terms of the agreement. 

• Consider the specified quality metrics.

Does the agreement specify exactly which quality metrics the parties will aim to meet? If not, be sure to discuss which metrics may be most applicable to the physician or physician group and build those into the agreement.  The physician or physician group should also consider the quality metric selected and whether the goal can practically be met during the term of the agreement, and also consider requesting input on the selection of future quality metrics if the agreement is renewed.

• Consider how best to measure performance.

For the quality metrics covered by the agreement, does the arrangement specify how the parties will determine if the physician or physician group achieved the goal? Is the quality measure something that is readily measurable, and what is the best way to show the physician group’s efforts towards the goal? Once both parties understand and agree on how performance is to be measured, the physician or physician group may then properly build into their practice certain steps to help document efforts towards the goal. 

• Consider timing of payments.

The frequency of payments can have a large impact on performance.  For example, depending on the goal to be met, if a physician or physician group receives payment on a monthly or quarterly basis, this can help the physician or physician group modify activities, if needed, to better meet the goal. Alternatively, for some quality metrics, the impact of a physician group’s activities may be better measured over a longer period and thus an annual payment may make better sense.  

• Keeping track of performance.

Does the agreement include a mechanism for the physician or physician group to keep track of their performance during the term?  If so, how easy is it for the physician to get the requested feedback, and how quickly does the hospital have to respond in providing the information? One of the best ways for both parties to ensure that they are jointly working towards meeting the quality metric goals is to be sure the physicians are aware of how their current activities are building towards the goals (or not), so they can evaluate any changes needed as the term progresses.

The attorneys at Chilivis Grubman have extensive experience with drafting and negotiating physician agreements, both in the context of employment agreements and services agreements.  If you need assistance with such a matter, please contact us today.