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Starting in February 1995, investigators at the University of Washington School of Public Health and Community Medicine, Seattle, conducted the Physician Compensation Research Project.
The project examined how the different methods used by managed care organizations (MCOs) to compensate primary care physicians affected the utilization and cost of health care services, as well as physician productivity.
This project was part of the Robert Wood Johnson Foundation (RWJF) national program Changes in Health Care Financing and Organization (HCFO) (for more information see Grant Results).
Phases II and III
RWJF provided three grants totaling $1,153,388 to support the research, which was carried out in three phases starting in February 1995 and running through September 2000.
Throughout the 1990s, managed care organizations increased their market presence and changed the way physician practices and individual physicians were compensated. Their guiding principle was this: if physician practices shared some of the financial risk and rewards of caring for patients, they might exercise more restraint in their use of resources.
After decades of fee-for-service pay which basically meant that the more services physicians provided, the more they were paid physicians found themselves in a new world of capitated payments. Under capitation, physicians are paid a set amount every month to care for health plan members who have selected them as a primary care provider, regardless of how much care the patient receives.
However, managed care organizations implemented these changes without knowing how they effect health care utilization, costs or productivity. Moreover, existing studies on physician compensation and productivity were nearly two decades old. This study was intended to fill the resulting gaps.
Medical group practices, where so many physicians are choosing to practice and so many different compensation methods exist, offer an ideal environment in which to examine the effects of these methods. The changing managed care marketplace in the state of Washington, and the concomitant changes in physician compensation, offered the research team the opportunity to examine the effects of a range of approaches.
The investigators targeted primary care physicians for analysis because of the key role they play in managing and directing the overall care of their patient population.
Together, these three grants supported the three phases of the Physician Compensation Research Project, which examined the impact of compensation on the clinical efficiency (e.g., health services utilization and costs), satisfaction and productivity of physicians.
A National Advisory Committee provided guidance for the project work (see the Appendix for membership list). The research team subcontracted data collection, cleaning and editing to Healthcare Business Services International (HBSI), a Seattle-based firm that provides comparative clinical, financial and operational performance information to hospitals and health care systems.
In-kind contributions were provided by HBSI and the academic institutions with which the investigators were affiliated.
In Phase 1, which ran from February 1, 1995 through March 31, 1997, the researchers looked specifically at how physician compensation affects health care service utilization, costs, and physician productivity. They analyzed 1994 enrollment and utilization data for more than 200,000 adults enrolled in four different managed care organizations. From 62 group practices (practices of three or more physicians) in western Washington State, the researchers obtained information on compensation arrangements for 865 physicians.
At the time of the study, all of the primary care physicians were paid a salary, fee-for-services, or a mixture of the two. The researchers also conducted 72 interviews with physicians and administrators in group practices and managed care organizations who provided detailed information on how health plans pay group practices, how individual physicians are compensated, and how these compensation mechanisms are likely to change.
They also conducted a mail survey to assess the effects of compensation methods on solo practitioners and physicians in two-person groups (achieving a response rate of 42 percent 99 out of 271 physicians).
Washington State has a history of encouraging clinical efficiency even without financial incentives. Thus, it is not clear if the results of this study are generalizable since compensation mechanisms may be more likely to affect behavior in other locations.
The objective of Phase 2, which extended from September 1997 to November 1999, was to help health care executives, researchers and payers better understand how financial incentives affect physician productivity, and to identify practices that encourage productivity while discouraging overuse or underuse of health care services.
The investigators used data from surveys of practice costs and physician compensation conducted in 1995 and 1997 by the Medical Group Management Association, a membership organization of medical group practices and the physicians who practice within them. Approximately 600 group practices and 8,000 physicians responded to each survey.
The investigators considered factors other than compensation in their models, including: medical group practice size, form of group ownership, the presence of mechanisms to monitor physician productivity, the physician specialty mix of the group, and individual physician characteristics (e.g., age and gender).
The investigators also conducted interviews with physicians and key administrators in 46 medical groups in Washington, Oregon, California and Wisconsin to more closely examine physician behavior resulting from compensation and risk-bearing arrangements.
Among the findings reported to RWJF:
In Phase 3, which extended from February 2000 to September 2000, the investigators added another year of data to their analysis, drawing on the 1998 survey of practice costs and physician compensation conducted by the Medical Group Management Association. The survey included 383 medical groups and 6,129 physicians, although methodological factors limited the extent to which complete data could be collected from all respondents. The researchers also added another dimension to their work on compensation and physician productivity: how changes in local health care markets affected risk-bearing by medical groups, group productivity and physician compensation mechanisms.
Among the findings reported in the peer-reviewed journal Health Services Research:
In a report to RWJF, the investigators noted the following findings from their analysis of market effects on productivity and risk-bearing arrangements, based on 1997 data:
The medical groups that choose to join the Medical Group Management Association may not be representative of all medical groups in the United States. The investigators recommend replicating this study using data drawn from the wider universe of medical groups.
Researchers published several articles in peer-reviewed journals, including the Journal of the American Medical Association, the American Journal of Managed Care, and Health Services Research (see the Bibliography). As part of the project, the investigators developed a Web site. The site features many project documents, including survey and interview forms, an extensive Bibliography with original abstracts, and links to other sites. The study findings were presented to the Annual Congress of the American College of Health Care Executives; at a seminar series hosted jointly by the college and the Medical Group Management Association; and at invitational conferences held in western Washington State.
In October 2002, with $50,000 from RWJF (ID# 043856) and additional funding from the federal Agency for Healthcare Research and Quality and the California Healthcare Foundation, the investigators convened an invitational conference, "The Conference on Enhancing Health Care Efficiency and Clinical Effectiveness." See Grant Results for additional information.
Policymakers, researchers and representatives of research funding organizations gathered to discuss the financial and management arrangements in managed care organizations, particularly those related to physician financial incentives, clinical guidelines and utilization management). Participants noted that regional and state-based studies were producing conflicting results about the impact of physician compensation on costs and utilization.
In January 2003, the research team received a 15-month, $165,000 grant from the Health Research and Educational Trust's Center for Health Management Research to study the effect of physician compensation on health care quality. The investigators interviewed healthcare administrators and medical directors in order to discover common viewpoints regarding pay-for-quality programs, in which providers are given financial incentives for administering higher-quality care.
In an August 2006 article in the Journal on Quality and Patient Safety, researchers discussed the findings. Among them:
In October 2007, with $328,829 from RWJF (ID# 063214), the project team began a study to assess the effects of quality-based financial incentives on physicians' clinical quality, patient satisfaction and efficiency. Research is expected to be completed by March 2009.
The Physician Compensation Research Project
University of Washington School of Public Health and Community Medicine (Seattle, WA)
Douglas A. Conrad, Ph.D.
Physician Compensation Research Project National Advisory Committee
Terry Rogers, M.D.
Sr. Vice President
Regence Blue Shield
Cheryl Scott, M.H.A.
Group Health Cooperative
PacifiCare of Washington
(Current as of date of this report; as provided by grantee organization; not verified by RWJF; items not available from RWJF.)
Conrad D, Bonney R, Sachs M and Smith R. "Taking the Step Toward Capitation in Managed Care Contracts." Managed Care Contracting: Concepts and Applications for the Heath Care Executive. Chicago: Health Administration Press, May 1996.
Sales A, Tufano J, Liang S and Conrad D. "Profiling as a Basis for Physician Compensation." Physician Profiling: A Sourcebook for Health Care Administrators. Hoboken, NJ: Jossey-Bass, 1998.
Conrad DA. "RiskBearing Arrangements and Capital Financing Strategies for Integrated Health Systems." Quarterly Review of Economics and Finance, 39(4): 445464, 1999.
Conrad DA. "Ambulatory Care Efficiency: A Conceptual Essay and Empirical Assessment." Journal of Ambulatory Care Management, 25(2): 111, 2002.
Conrad DA, Maynard C, Cheadle A, Ramsey S, Marcus-Smith M, Kirz H, Madden CA, Martin D, Perrin EB, Wickizer T, Zierler B, Ross A, Noren J and Liang SY. "Primary Care Physician Compensation Method in Medical Groups: Does It Influence the Use and Cost of Health Services for Enrollees of Managed Care Organizations?" Journal of the American Medical Association, 279(11): 853858, 1998. Abstract available online.
Conrad DA, Noren J, Marcus-Smith M, Ramsey H, Kirz H, Wickizer T, Perrin E and Ross A. "Physician Compensation Models in Medical Group Practice." Journal of Ambulatory Care Management, 19(4): 1827, 1996. Abstract available online.
Conrad DA, Sales A, Liang SY, Chaudhuri A, Maynard C, Pieper L, Weinstein L, Gans D and Piland N. "The Impact of Financial Incentives on Physician Productivity in Medical Groups." Health Services Research, 37(4): 885906, 2002. Abstract available online.
Conrad DA, Saver BG, Court B and Heath S. "Paying Physicians for Quality: Evidence and Themes from the Field." Journal on Quality and Patient Safety, 32(8): 443451, 2006.
Maynard C, Ramsey S, Wickizer T and Conrad DA. "Health Care Charges and Use in Commercially-Insured Children Enrolled in Managed Care Health Plans in Washington State." Maternal and Child Health Journal, 4(1): 2938, 2000. Abstract available online.
Tufano JT, Conrad DA and Liang SY. "Addressing Physician Compensation and Practice Productivity." Journal of Ambulatory Care Management, 22(3): 4757, 1999. Abstract available online.
Tufano J, Conrad DA, Sales A, Maynard C, Noren J, Kezirian E, Schellhase KG and Liang SY. "Effects of Compensation Method on Physician Behaviors." American Journal of Managed Care, 7(4): 363373, 2001. Abstract available online.
Young GJ and Conrad DA. "Practical Issues in the Design and Implementation of Pay-for-Quality Programs." Journal of Healthcare Management, 52(1): 1018; discussion 1819, 2007.
Zierler BK, Marcus-Smith MS, Cheadle A, Conrad DA, Kirz HL, Madden C, Noren J, Perrin EB, Ramsey SC and Ross A. "Effect of Compensation Method on the Behavior of Primary Care Physicians in Managed Care Organizations: Evidence from Interviews with Physicians and Medical Leaders in Washington State." American Journal of Managed Care, 4(2): 209220, 1998. Abstract available online.
Conrad D. Project Updates. Seattle: University of Washington, August 1996.
Conrad D, Marcus-Smith M and Zierler B. The Physician Compensation Research Project: Executive Summary of Results. Seattle: University of Washington, March 1997.
Marcus-Smith M. Survey Experience with Medical Group Practices. Seattle: University of Washington, 1997.
Invitational Conferences held in February 1997 in Seattle, Bellingham, and Mount Vernon, WA. Attended by 200 people.
Douglas Conrad, "Physician Compensation: Myths and Methodologies," at the American College of Health Care Executives/Medical Group Management Association Health Services Seminar Series, May 1996, Seattle.
Douglas Conrad, "Shaping an Efficient and Sustainable Physician Compensation System," at the "Congress of the American College of Health Care Executives, March 3, 1997, Chicago.
Douglas A. Conrad, "The Determinants of Physician Productivity in Medical Groups," at the Academy of Health Services Research and Policy Annual Meeting, June 26, 2000, Los Angeles.
Douglas A. Conrad, Anne Sales, Anoshua Chaudhuri, Linag SuYing and Charles Maynard, "The Impact of Financial Incentives on Physician Productivity in Medical Groups," at the Center for Cost and Outcomes Research, July 15, 2000, Seattle.
SuYing Liang, "Medical Group Practice Structures and Physician Productivity," at the Academy of Health Services and Research Annual Meeting, June 26, 2000, Los Angeles.
Anne Sales, Douglas Conrad, and James Tufano, "Who Responds? Predictors of Medical Group Practice Response to Surveys by a National Membership Organization," at the Academy of Health Services Research Annual Meeting, June 26, 2000, Los Angeles.
http://sphcm.washington.edu features many project documents, including survey and interview forms, an extensive Bibliography with original abstracts, and links to other sites. Seattle: University of Washington. March 1997. Average estimate of 50 viewers per month.
The Physician Compensation Research Project (Slides). Seattle: University of Washington, 1997.
An Innovation in Disseminating Research: The Physician Compensation Research Project Website (Slides). Seattle: University of Washington, 1997.
Report prepared by: Karin Gillespie
Reviewed by: Karyn Feiden
Reviewed by: Molly McKaughan
Program Officer: David Colby
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