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Pros and cons of physician payment models

Dermatology TimesJune 2018 (Vol. 39, No. 06)
Volume 39
Issue 6

Specialties are being affected by policy reforms that impact physician payment. In this article, we breakdown the payment models and highlight the pros and cons of each model.

headshot of Vinod Nambudiri, M.D.

Vinod Nambudiri, M.D.

Existing physician reimbursement models are a springboard for creating improved models that better align the practice management goals of dermatologists with patient care.

“Every specialty within medicine is being affected by policy reforms impacting physician payment, including dermatology,” says Vinod Nambudiri, M.D., MBA, from the Department of Dermatology at Brigham and Women's Hospital in Boston. “New models of reimbursement are increasingly emphasizing value alongside volume, highlighting the need for dermatologists to take an active role in recognizing and promoting high-value care for our patients.”

Dr. Nambudiri is co-author of an article on physician payments models in dermatology published in January in the Journal of the American Academy of Dermatology.

“Metrics such as improvement in clinical outcomes and patient satisfaction, which reflect the quality of care provided, are also taking hold within dermatology. This provides the chance for dermatologists to help define the specific factors which matter to our patients and align our practice, payments and performance toward enhanced patient outcomes.”

The article summarizes the pros and cons of several payment models, ranging from fee-for-service to a merit-based incentives payment system.

“Bundled payments provide reimbursements based on specific diseases or episodes of care and put the onus on dermatologists to effectively manage the costs of care,” Dr. Nambudiri says.

In contrast, tools from the business world, such as the technique of time-driven activity-based costing (TDABC), may help dermatologists to define the direct costs of providing individual clinical services such as biopsies or patient visits, and inform models of cost-effective dermatology practice, according to Dr. Nambudiri.

“One of the best ways for dermatologists to prepare for a changing payment landscape is to educate themselves on current models of physician reimbursement in order to contribute to shaping emerging payment reform,” Dr. Nambudiri says.

The authors hope that dermatologists will study current models of reimbursement as a guide for creating comprehensive and appropriate reimbursement models for the complex care delivered to patients.

A summary of physician payment models


By far the most common reimbursement model in dermatology, over 90 percent of physicians utilize volume-based reimbursement models. Service rates generally differ by region. The rates are based on the work performed, expense to the practice and malpractice insurance. Physicians with more training, perform more complex services, have more practice expenses and see more patients, have high rates. This framework relies on patient volume and may not promote cost-saving treatment options.

Flat rate reimbursement
Mostly for direct-to-patient teledermatology and cosmetic procedures, but dependent on volume. No differentiation between physician and nonphysician rendered services; however, there is flexibility in charges and patients have price transparency.

Fixed reimbursement
Uncommon in dermatology. Although salary primarily based on comparable fee-for-service compensation, there is increased pressure to maximize work load.

Merit-based incentives payment system
Value-based reimbursement modifiers that take into account quality, advancing care, practice improvement and cost-savings.May incorporate clinical outcomes, cost-effective care and patient satisfaction as well. Validity of this model is questionable, though, without first developing best-practice databases and widespread consensus as to high-quality dermatologic care.

Bundled payments

Fixed payment for a patient’s episode of care or disease state. Similar to capitated reimbursements, however risk is limited to the disease or diagnosis being treated. Risk calculations and service attributions remain complex. Clinical management may be more complex in dermatology.

Time-driven activity-based costing (TDABC)
Calculates direct costs of medical services, but not for indirect costs. Model has been used to develop bundle payment models that cover direct costs for patient care.



Ogbechie-Godec OA, Mostaghimi A, Nambudiri VE. Skin in the Game: Existing and Upcoming Physician Payment Models in Dermatology.”J Am Acad Dermatol.2018 Jan 30.DOI:10.1016/j.jaad.

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