It matters how your practice is paid. A primer for young doctors.

It might be tough for many U.S. medical schools and residency programs to find space in their congested curricula to cover how doctors get paid, but knowledge of it is central to the transition to practice. Lots of physicians today enter the workforce unclear on how health care is paid for, how payments influence the decisions they make and even how their practice’s payment types can affect their career goals. 

An AMA STEPS Forward^® toolkit, “What to Look for in Your First or Next Practice,” explores the pros, cons and other details of practices by payment type. It is a free online module and is designated by the AMA for a maximum of 0.5 AMA PRA Category 1 Credit™.

Long the cornerstone of the U.S. health care system, fee-for-service doles out payments based on the number of appointments or procedures a physician provides.

Pros: It gives physicians control over their salaries and their scheduling too. It also allows for variations in work effort and style.

Cons: It incentivizes volume over quality and fails to reward decisions not to treat.

“Fee-for-service sounds really good,” said Brandi Ring, MD, associate medical director of ob-gyn at the Center for Children and Women Southwest, in Houston, a health plan capacitated multi-specialty center. Her first job out of residency was a salaried position in a small fee-for-service private practice.

“What you don't realize is that it’s hard to know what a high-reimbursement procedure is,” Dr. Ring said. “That’s determined by a complex equation involving how much you charge for a visit, how much the insurance company pays you for doing it, and your overhead, such as rent and salaries. The devil is in those details.”

Dive deeper:

• Young doctors should know pros, cons of these 4 practice settings
• 8 steps physicians can take when deciding where to practice
• New contract arrangements, new stress for private practices
• To know whether the job pays enough, assess your goals and values

Practices receive a set amount of money per patient per month, no matter how many visits those patients make. This is also known as value-based care.

Pros: It may allow for smaller panels and more time with patients.

Cons: Physicians may feel pressure to limit costly medications, diagnostics and referrals. In addition, they might not be in control of the outcomes used to calculate bonuses, and flawed risk adjustment methods may cause stinting on care for high-need patients.

“There has to be someone in charge of controlling the budget,” Dr. Ring said. “Capitation has to cover the salaries of physicians, who bring in revenue, but it also has to cover the salaries of folks who don’t bill for their time, such as social workers, nutritionists and care coordinators.”

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This is a blend of fee-for-service and capitation.

Pros: It provides multiple income streams and may give flexibility in practice.

Cons: Juggling two models can reduce the financial benefit from both.

"The only way hybrid models really work is by having a large enough workforce to calculate the metrics you get paid on,” Dr. Ring said. “In my five-physician private practice, to measure how many of our pregnancy patients had more than 10 visits, we would have had to pull every single chart.”

Payment is fixed according to a set of diagnoses and services provided in a specified length of time.

Pros: It tamps down overuse of services and gives physicians the flexibility to decide what care should be delivered, instead of being funneled by fee codes.

Cons: Practices feel pressure to limit costs but also increase volume.

This model enables practices to “achieve higher revenue by avoiding complications, negotiating discounts and choosing lower cost settings for post-acute care,” the toolkit says.

Also known as concierge practice, in this case the physician collects annual fees from patients for all of their primary care needs. Insurance is not involved.

Pros: It may allow for more time with patients and inflict less administrative burden.

Cons: Practices are limited to primary care. They also have to build large panels, be available 24/7 and persuade patients to pay a subscription fee.

“Concierge practices often do house calls,” Dr. Ring said. “It’s kind of like going back in time.”

Practices receive payments for meeting performance, quality, outcomes, cost or patient satisfaction metrics set by the payer. 

Pros: Increased revenue for high-performing practices.

Cons: Reporting metrics can be cumbersome and might require additional infrastructure.

Theoretically, it rewards clinical practice that “moves towards the Triple Aim, improving patient experience of care, improving the health of the population and reducing cost,” the toolkit says.

Due to their rising popularity, real-time audio-video visits now often carry copays. In addition, there is a growing number of online-only practices, many of which focus on a single service and bill patients directly.

Pros: Scheduling is less time limited—appointments can be after-hours, on weekends and on holidays. It’s also simpler from a billing perspective, as patients may pay flat rates for individual visits.

Cons: Inequitable patient access. Also, the narrow scope of services leaves gaps in care. 

“It doesn’t have the same geographic limitations of a brick-and-mortar practice—depending on states’ regulations, you may be able to see patients out of state, Dr. Ring said. “Plus, it is often single scope. For example, we’re seeing entire practices that only do contraception, so their education upkeep requirements can be very limited.”

On the other hand, “There are health issues that you won’t be able to cover. It wouldn’t be unusual for, say, a patient in a contraception appointment to want to discuss abnormal bleeding, but the practice isn’t set up for that,” she noted. “Also, there are many people who can’t afford to pay out of pocket for a visit, so there is uneven access to services.”

“Over the last several years, we’ve seen an exponential increase in the time needed to manage the patient inbox, as well as growth in the complexity of questions asked there,” Dr. Ring said. “Many physicians are now negotiating protected administrative time—say, four hours per week—specifically for in-basket management.”

Insurance companies and health systems are therefore trying to recoup costs associated with that time. 

“So we're seeing pass-ons to patients. In fact, in some places it now costs a patient $5 to email a question to their physician because there's no billing code for it,” she said. “The health care system didn’t have a plan for managing the in-basket, so we’re seeing a lot of different models popping up to try to make it profitable time. It’s affecting all the payment types.”