Quality-Related Physician Compensation Increases Slightly in 2004-05. But Productivity Incentives Still Dominate Compensation

About 1 in 5 Doctors' Pay Tied to Quality, While 7 in 10 Face Productivity Incentives

News Release
Jan. 4, 2007

Alwyn Cassil (202) 264-3484 or acassil@hschange.org

WASHINGTON, DC—While the proportion of physicians in group practice whose compensation is based in part on quality measures increased from 17.6 percent in 2000-01 to 20.2 percent in 2004-05, far more physicians face financial incentives tied to individual productivity, according to a national study released today by the Center for Studying Health System Change (HSC).

Despite the small but statistically significant increase in quality-related physician compensation, financial incentives tied to physicians’ individual productivity continued to be much more common, consistently affecting about 70 percent of physicians in non-solo practice since 1996-97, the study found. Nevertheless, nearly all physicians with quality incentives also face productivity incentives.

"Physician practices’ heavy reliance on productivity-based compensation, which reflects the dominant fee-for-service reimbursement system used by payers, likely increases the cost of care by encouraging the provision of more services to patients," said Paul B. Ginsburg, Ph.D., president of HSC, a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.

Nearly three in four physicians facing productivity-based financial incentives, or 52 percent of all physicians, viewed these incentives as a very important factor determining their compensation, the study found. In contrast, 44 percent of physicians subject to quality-related incentives viewed these incentives as very important to their compensation, or just 9 percent of all physicians.

In recent years, public and private payers have explored using financial incentives through pay-for-performance programs to encourage physicians and hospitals to improve quality.

"Despite the recent interest in pay for performance, quality-based physician compensation has been around for a long time," said HSC Senior Researcher James Reschovsky, Ph.D., coauthor of the study with HSC Senior Fellow Jack Hadley, Ph.D. "However, incentives tied to productivity clearly continue to play a much more important role than quality measures."

Based on HSC’s nationally representative Community Tracking Study Physician Survey, the study’s findings are detailed in a new HSC Issue Brief—Physician Financial Incentives: Use of Quality Incentives Inches Up, But Productivity Still Dominates—available here. The 1996-97, 1998-99 and 2000-01 surveys contain information on about 12,000 physicians, and the 2004-05 survey includes responses from more than 6,600 physicians. Response rates for the surveys range from 52 percent to 65 percent. Full owners of solo practices were not asked about financial incentives and are not included in this analysis because their compensation is based principally on their own productivity.

The percentage of physicians with quality-based compensation incentives in 2004-05 was not significantly different from that in 1996-97, according to the study. The recent increase in quality-based compensation largely reversed a significant decline between 1998-99 and 2000-01, which most likely was associated with the sharp drop in capitation—fixed per patient, per month payments—during this period.

The percentage of physicians in practices with capitated contracts with health plans dropped from 62 percent to 50 percent between 1998-99 and 2000-01. The use of capitated contracts has remained steady since 2000-01, so increased capitation cannot explain the recent rise in the use of quality measures.

Other key study findings include:

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The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by The Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.