Hill Physicians Medical Group outshines California’s pay-for-performance program

Although a recent article in the Wall Street Journal described many companies’ efforts to link employees’ performance to their salaries as “lackluster,” Hill Physicians Medical Group in San Ramon, Calif., has reason to crow. The group, with more than 2,100 physicians, paid those physicians $12 million in bonuses. Included in the distribution was $5.6 million that the group received from the statewide Pay for Performance Initiative. The Hill bonuses are calculated using a series of clinical and service indicators that measure results.

“Hill paid out twice the amount as the state plan because the medical group program is older and more mature,” says Steve McDermott, Hill’s CEO. “We’re much more committed to it. Health care requires a business-oriented approach. Pay-for-performance relies upon results, and as we move closer to a consumer orientation, we should be more results-oriented.”

According to the Journal, 83 percent of companies with some type of pay-for-performance program report that this approach is only somewhat successful or not working at all. The California Pay for Performance Initiative, launched through the Integrated Healthcare Association (a group of health plans) in January 2003, initially met with difficulty. That’s because medical groups expected about a 9 percent increase in capitation rates but, through the program, insurers were only offering 6 percent, with the bonus making up the difference. But after nearly two years of experience, most medical groups support the statewide program.

Hill took pay for performance further, says McDermott: “Health plans should budget a fixed amount for pay for performance independent of capitation negotiations. Purchasers should build it into their negotiations with plans, so when plans ask for a rate increase from purchasers, purchasers can identify a certain portion for pay-for-performance funding. For medical groups, a certain portion of pay-for-performance earnings should be set aside for internal programs,” says McDermott.

McDermott advises other medical groups contemplating compensation schemes to use performance indicators, but to adapt and build the program gradually. “The danger is taking a good idea like this and trying to execute it overnight. It’s a matter of building this gradually to create comfort and trust in the physicians as to the reliability of the data set and the appropriateness of the metrics.”

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