How Physician Compensation in the United States Works

Ryan D. Mire, MD; Rishi Desai, MD, MPH


October 18, 2017

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The way that physicians get paid in the United States has changed quite a bit over the years. For example, a long time ago, doctors got paid directly by patients, which was no different from how you might pay a mechanic today. It was a fee-for-service system, which meant that the more a doctor did for you, the more you paid. But unlike a car, folks can't walk away from bad health, and that's where the private insurance company stepped in. And for those without private insurance, there were government-funded insurance options, like Medicare, which covers the elderly, and the Children's Health Insurance Program, or CHIP, which covers children.

Doctors who took care of patients with Medicare or CHIP got paid a set amount according to a fee schedule. For example, taking out a child's tonsils might have earned a doctor $200, but actually collecting that money meant navigating a few different systems and filling out forms. Doctors had to use the physician quality reporting system, known as PQRS, to document how they cared for a patient, and then they had to use the value-based modifier system to show that the quality of care was aligned with the cost of care. Finally, doctors had to make sure that they were appropriately documenting everything into the electronic health records, or EHRs, according to the meaningful use system. Having three completely different systems made it hard for a doctor to get paid because each system had its own reporting system, and not only that, there was a combined 9% penalty among all three programs for "low-performing" doctors, who are those who didn't meet program standards. It would be like working hard for 2 weeks and then having to fill out three completely different forms about what you did and why you did it, so that three different groups could pay you a small part of your overall paycheck, and then getting paid less for not completing the forms the right way. Needless to say, doctors were annoyed.

In 2015, the US Congress passed legislation called the Medicare Access and CHIP Reauthorization Act, called MACRA for short. MACRA set new expectations for a doctor's performance as they care for Medicare or CHIP patients, through the Quality Payment Program, or QPP, which was a new program established to pay doctors. The program starts to track how a doctor performs in 2017, and that will affect how doctors get paid in 2019. QPP set up a system of sticks and carrots. Doctors who get a high quality score are eligible to get bonuses that increase from 4% in 2019 all the way to 9% in 2022, and doctors with a low quality score get penalties of the same size. Now, in addition to how much doctors get paid, there's also the issue of what they get paid to do. The current system is generally thought of as a pay-for-volume system where you get paid for doing something. Start an intravenous line—$120, prescribe antibiotics—$45, and so on. But with QPP, in addition to getting paid for volume, doctors also get paid for value, and there are two programs that do that.

The first one is the Merit-based Incentive Payment System, or MIPS. Doctors have to meet two criteria to qualify for MIPS. The first is for a doctor to have more than 100 Medicare part B patients, and the second is that they have to have more than $30,000 in Medicare part B charges.

In MIPS, doctors have an overall physician quality score that determines whether they receive a bonus or have to pay a penalty. The physician quality score is basically like getting a grade, and it compares individual physicians with one another as well as national standards for how they should be performing. The physician quality score is based on a few different things. Sixty percent of the score is based on reporting both quality measures and outcome measures, which vary by specialty. A quality measure would be something like: What proportion of your patients with diabetes had their annual foot exam to check for ulcers? An outcome measure would be something like: What proportion of patients had overall improvement in their blood pressures? In total, there are 271 of these quality and outcome measures, and a doctor needs to report a minimum of six, with at least one being an outcome measure.

Now, 25% of the score is based on use of advancing care information measures through the use of EHRs. Advancing care information measures are things like making sure that a doctor reviews all of the patient's medications during each visit and that the patient is given a patient summary at the end of the appointment—like getting notes at the end of a meeting. The number of advancing care information measures depends on the specifics of the EHR that's being used and what it's capable of doing. A doctor needs to report a minimum of four to five of these measures, once again, based on the specific EHR being used. Generally speaking, the US government wants every doctor to practice advancing care information measures and to store patient data in an EHR by December 31, 2018. The goal is to make it easier to share patient data between patients and doctors as well as among doctors. So once almost everyone has switched over to using EHRs, this category will become less important to the overall score.

And, finally, 15% of the score is based on completing clinical practice quality improvement projects. There are a total of 92 of these quality improvement projects—and some are medium weighted and some are heavy weighted based on how involved they are. A doctor needs to do the equivalent of four medium-weighted quality improvement projects each year. A medium-weighted project could be something like setting up a tobacco screening and intervention program in your clinic to help patients kick the habit. A heavy-weighted project could be something like improving how patients on anticoagulation medications are taken care of. The idea is for a doctor to help lead an effort to improve his or her own clinic and community.

Finally, there's a fourth category about resource use, which refers to how much time and money a doctor spends while taking care of patients. This category doesn't affect the score at the moment but will in the years ahead. So to sum this up with an example, let's say that there's a family medicine doctor who submits eight quality measures, which is two more than the minimum, six advancing care information measures reflecting the EHR she uses, and let's say she does four medium-weighted quality improvement projects. Her overall performance might generate a MIPS score of 93, and that would be compared with thousands of other family medicine doctors to figure out if she deserves a bit of a bonus above the fee schedule or if she should pay a slight penalty.

Now, to avoid getting penalized in the first year, doctors have to enroll in MIPS by December 31, 2017, and they have to report their performance on one quality measure or demonstrate that they are using five advancing care information measures or doing one medium-weighted improvement project. To help ease the transition, some groups were given even more flexibility in terms of what they had to report. These include doctors who are part of small doctors' groups or doctors who work alone, as well as those working in underserved areas.

The second way for a doctor to get paid through QPP is by being part of an advanced alternative payment model, or advanced APM, which is where doctors take on some financial risk, and it's tied to the quality of their care. There are different programs that might use an advanced APM, so let's use the example of an accountable care organization or ACO. In this example, for high-quality care, doctors get paid more by the ACO; and for low-quality care, they get penalized. To qualify, doctors have to have at least 25% of their Medicare payments coming from an advanced APM and have 20% of their Medicare patients coming from an advanced APM, and those cutoffs increase each year. So if a doctor is in an advanced APM, their ACO will already expect them to document the same sort of things that go into the physician quality score. In a way, the ACO serves as sort of a middle-man, making sure that doctors are abiding by MIPS. And because the doctors in the advanced APM are already being closely monitored, QPP gives them a 5% bonus each year from 2019 to 2024 with no penalties. That's because it's assumed that they'll be penalized by the ACO if they don't do a good job with the quality measures.

Okay, as a quick recap: MACRA went into effect in 2015, and it changed the way that most doctors had to report the care that they provided to patients and how they would get paid for their performance. A lot of doctors started reporting their performance using MIPS, which calculates an overall physician quality score that determines whether individual doctors get bonuses or penalties. Some doctors, though, work in advanced APMs and get a flat 5% bonus each year because their performance is monitored by their ACO.