GOOD NEWS: How Hill Physicians Medical Group Partners With Physicians (Part II)

(This continues our blog series on our recent papers on health care quality published by the Commonwealth Fund.)

Hill Physicians Medical Group is an independent practice association in northern California; Len Nichols and I have profiled their work partnering with physicians and improving quality in a just-released case study published by The Commonwealth Fund.

Yesterday, I introduced Hill and the IPA concept, and I talked about how Hill's health educators were able to make quality "stick."  Today I'll discuss their compensation strategy. 

Hill pays its doctors using an unusual hybrid compensation formula, comprised of fee-for-service (FFS) and its own pay-for-performance reimbursement. Hill receives fixed payments per beneficiary from its health plan partners, and then pays its contracted physicians on a FFS basis. Hill does not pay 100 percent of prevailing FFS rates. Instead, it pays approximately 85 percent. The withheld funds, along with any excess discretionary funds, are deposited into a population management fund, which is dispersed by Hill based on physician performance. That fund is supplemented by the Integrated Healthcare Association (IHA) statewide pay-for-performance (P4P) initiative, but the dollars come mostly from amounts budgeted by Hill Physicians.

Physicians receive population management payments according to a three-part formula, which is recalibrated annually. Currently the formula is: utilization performance, 45 percent; clinical performance, 30 percent (including cancer screenings, diabetes management, childhood immunizations, and management of low back pain); and participation performance: 25 percent (measures their level of involvement with Hill and willingness to implement Hill initiatives).

Eighty-five percent of physicians receive population management fund payments. The remaining physicians either do not meet outcome measures, or they do not have a sufficient number of Hill patients to qualify. For those who do participate, Hill has distributed up to $200,000 per quarter per practice. The amount depends on physician performance, practice size, and the amount of money available in the population management fund each quarter. The average amount is about $20,000 per quarter per practice—$80,000 a year.

While financial incentives alone are not enough to ensure physician behavioral change, small amounts of money are even less likely to motivate improved practice patterns. Hill's population management model provides a significantly greater incentive. The numbers tell the story: in 2006, Hill distributed $32 million in performance compensation to its physicians, yet only $4.4 million of this amount originated from the state's integrated healthcare initiative. Hill found a way to do better.

The most important section of the case study is "Exportable Lessons."  I'll summarize three. 

Earn doctor trust. Hill found that solving minor problems, paying physicians promptly, and proving its competence at working with the practices engendered confidence and improved communication. Once this trust is built, physicians are more welcoming to organizational initiatives that use physician performance data to highlight areas that need improvement.

Introduce both financial and cultural changes. Money is not the biggest hurdle for most physicians; the problem if often willingness to change. By both earning doctor trust and offering to lessen upfront costs associated with health IT, for example, individuals and practices step forward to change.

Physicians can be managed (usually). By allowing autonomy, but working collaboratively to focus goals and improve care processes and outcomes, Hill has been able to introduce a number of quality improvement tools. Physicians respond to smart management, that is, information, collaborative coaching, and incentives. A well-run organization like Hill Physicians has the ability to streamline administrative processes, enabling physicians to spend more time practicing medicine.

The success of Hill demonstrates that communication, coordination, and feedback are vital to sustainable quality improvement. Their hard work and open-minded approach to care should serve as an inspiration to all those interested in building a health care system that delivers higher value.

Monday I'll be back with a post introducing our case study of the Baylor Health Care System.