Aligning incentives for success in VBC

So you’ve made the leap to value-based care (taking on financial risk for health outcomes of a population), but your physicians don’t seem to be doing anything differently. Could it be that your incentives aren’t adequately aligned? Maybe it's time to make a few changes.

Why change your physician compensation? "Education" alone doesn’t work (read my prior post). Incentives, especially financial incentives, need to be aligned, adequate, transparent and timely in order to support the needed changes required for success. A 10% bonus at the end of the year as a reward for “shared savings” while still relying on productivity-based comp isn’t going to do it. You'll need a handful of distinct key metrics along with frequent progress updates provided in a highly actionable format. The number of goals is important as too few will distract attention away from other important activities and too many can be overwhelming. In addition, the potential dollars need to feel attainable and at a minimum 20% of total compensation, if not preferably more.

Here are some things to consider when incentivizing these goals:

When setting goals, one thing to keep in mind is the “threshold effect.” People will focus on a specific target and though their effort may increase as they approach it, once achieved, their drive may fade. At the other extreme are those that believe the target is too hard to achieve so they don’t try. It is important to reward both the improvement as well as achievement to capture and encourage all levels of prior performance.

Physicians don’t like to treat their patients differently based on the payment model (or insurance). Having to deal with different processes and policies for each patient contributes to burn out. Has the organization committed to providing value-based care the standard approach with FFS/productivity the outlier? That means standardizing processes and metrics for the whole population and not just a subset. This shift is for the entire team/organization. Constant vigilance is draining, so having one main flow for all patients will help decrease burn out.?

This leads right into the next potential barrier, inertia. Changing habits is hard, so you may need to update the defaults in your EMR to facilitate utilization of generic or preferred medications or referrals to selected, high-performing, in-network specialists. Obviously, these things shouldn’t be done without including the physicians in the process, but if the equally efficacious but more cost-effective medication or higher performing specialist option is the easy one, it’ll be selected more regularly.

Humans have a natural tendency towards loss aversion. They’ll be more motivated to retain a provisionally awarded bonus than one that is to-be-determined in the future. Two potential approaches I've seen for incorporating this concept are 1) provide the maximum incentive amount achievable before the start of the measurement period and what needs to be done to get it and 2) when providing each incentive, remind them (in writing) of how much money they “left on the table.”

Relative social ranking is a commonly used mechanism for encouraging physicians to perform. Doctors are naturally vey competitive, so if their performance is going to be presented in comparison to their peers either publicly (everyone’s performance is provided unblinded) or privately (each doctor can see their own results compared to others but names are not included), they’ll tend to work a little harder on improvement. The risk here is using this as a type of punishment (calling out under-performers publicly). However, comparison provides the opportunity for positive reinforcement by recognizing outstanding performance which can be much more powerful and long-lasting. That positive reinforcement may encourage your high performers to continue their efforts even after hitting their targets. Comparison approaches can also be used for team-based metrics and may encourage more collaboration instead of just competition.

One last thing to consider is mental accounting, a concept coined by economist Richard Thaler. Humans think about money differently depending on where it comes from or what it is used for. If a bonus/reward is simply buried in a regular electronically deposited paycheck it will have far less of an impact than if it were handed over as a distinct paper check. If you combine this action with public recognition, you can get a very powerful incentive.

What experiences have you had with physician incentives? Is there anything that worked particularly well for your organization? Was there a program that backfired? Which of the above did you find most helpful or surprising?