Practice Economics

Hospitalist Pay Shifts from Volume to Value with Global Payment System


Dr. Whitcomb

The move to paying hospitals and physicians based on value instead of volume is well underway. As programs ultimately designed to offer a global payment for a population (ACOs) or an episode of care (bundled payment) expand, we are left with this paradox: How do we reward physicians for working harder and seeing more patients under a global payment system that encourages physicians and hospitals to do less?

It appears that the existing fee-for-service payment system will need to form the scaffolding of any new, value-based system. Physicians must document the services they provide, leaving a “footprint” that can be recognized and rewarded. Without a record of the volume of services, physicians will have no incentive to see more patients during times of increased demand. This is what we often experience with straight-salary arrangements—physicians question why they should work harder for no additional compensation.

Through the ACO lens, Bruce Landon, professor of health care policy at Harvard Medical School, states the challenge in a different way: “The fundamental questions become how ACOs will divide their global budgets and how their physicians and service providers will be reimbursed. Thus, this system for determining who has earned what portion of payments—keeping score—is likely to be crucially important to the success of these new models of care.”1

In another article addressing value-based payment for physicians, Eric Stecker, MD, MPH, and Steve Schroeder, MD, argue that, due to their longevity and resilience, relative value units (RVUs), instead of physician-level capitation, straight salary, or salary with pay for performance incentives, should be the preferred mechanism to reimburse physicians based on value.2

Dr. Whitcomb

Table 1. Potential value-based elements to be added to RVUs for hospitalists

I’d like to further develop the idea of an RVU-centric approach to value-based physician reimbursement, specifically discussing the case of hospitalists.

In Table 1, I provide examples of “value-based elements” to be added to an RVU reimbursement system. I chose measures related to three hospital-based quality programs: readmission reduction, hospital-acquired conditions, and value-based purchasing; however, one could choose hospitalist-relevant quality measures from other programs, such as ACOs, meaningful use, outpatient quality reporting (for observation patients), bundled payments, or a broad range of other domains. I selected only process measures, because outcome measures such as mortality or readmission rates suffer from sample size that is too small and risk adjustment too inadequate to be applied to individual physician payment.

Drs. Stecker and Schroeder offer an observation that is especially important to hospitalists: “Although RVUs are traditionally used for episodes of care provided by individual clinicians for individual patients, activities linked to RVUs could be more broadly defined to include team-based and supervisory clinical activities as well.”2 In the table, I include “multidisciplinary discharge planning rounds” as a potential measure. One can envision other team-based or supervisory activities involving hospitalists collaborating with nurses, pharmacists, or case managers working on a catheter-UTI bundle, high-risk medication counseling, or readmission risk assessment—with each activity linked to RVUs.

Once established, a value-based RVU system could replace the complex and variable physician compensation landscape that exists today. As has always been the case, an RVU system could form the basis of a production incentive.

The implementation of an RVU system incorporating quality measures would be aided by documentation templates in the electronic medical record, similar to templates emerging for care bundles like central line blood stream infection. Value-based RVUs would have challenges, such as the need to change the measures over time and the system gaming inherent in any incentive design. Details of implementing the program would need to be worked out, such as attributing measures to individual physicians/providers or limiting to one the number of times certain measures are fulfilled per hospitalization.

Once established, a value-based RVU system could replace the complex and variable physician compensation landscape that exists today. As has always been the case, an RVU system could form the basis of a production incentive. Such a system could be implemented on existing billing software systems, would not require additional resources to administer, and is likely to find acceptance among hospitalists, because it is something most are already accustomed to.

Current efforts to pay physicians based on value are facing substantial headwinds. The Value-Based Payment Modifier has been criticized for being too complex, while the Physician Quality Reporting System, in place since 2007, has been plagued by a “dismal” adoption rate by physicians and has been noted to “reflect a vanishingly small part of professional activities in most clinical specialties.”3 The time may be right to rethink physician value-based payment and integrate it into the existing, time-honored RVU payment system.

Dr. Whitcomb is Chief Medical Officer of Remedy Partners. He is co-founder and past president of SHM. Email him at


  1. Landon BE. Keeping score under a global payment system. N Engl J Med. 2012;366(5):393-395.
  2. Stecker EC, Schroeder SA. Adding value to relative-value units. N Engl J Med. 2013;369(23):2176-2179.
  3. Berenson RA, Kaye DR. Grading a physician’s value — the misapplication of performance measurement. N Engl J Med. 2013;369(22):2079-2078.

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