Important Guidelines for Selecting Quality Metrics In Physician Arrangements

November 5, 2021

Written by Kyle Spears and Jen Johnson, CFA


As the value-based care reimbursement environment grows, there is an increasing interest in linking additional physician compensation to the achievement of quality outcomes as measured by certain quality metrics. These quality metrics are now commonly found in employment agreements, independent contractor agreements, service line co-management agreements, and other models that aim to align physician performance with quality indicators. Recent regulatory guidance supporting payments for quality metrics that are tied to measurable outcomes and credible medical evidence has further sparked interest in these sorts of arrangements. That said, many health care leaders may find it difficult to determine which quality metrics should be included in their arrangements. Although specific quality metric considerations vary by specialty, there are several fundamental ground rules to apply when considering the overall compliance and value of quality metrics.

Nature of the Metric

General Rule: Quality metrics should be tied to clinical outcomes while time-based activities should be tied to an hourly rate.

Time-based metrics come in many forms, such as implementation-based goals, meeting attendance regarding quality metric development, or program development. Although these tasks help get a quality program up and running, they should not be linked to quality metric payments due to the risk that these types of goals may already be paid for under an hourly rate. Additionally, quality metrics should not overlap with protocols/procedures that are already required per medical staff bylaws, as this could indicate a payment for a service that has already been accounted for in another agreement.

Physician Involvement

General Rule: Physicians should be primarily responsible for impacting each quality metric’s underlying performance.

Any metric in which a physician does not drive the outcome should not be included in your quality metric set. Some examples of metrics to avoid include billing/coding measures, metrics that measure outcomes generally addressed by other personnel such as nurses (ex: number of patient falls) and administrative staff (ex: pre-op documentation / logistics), or metrics related to service line or hospital financial performance (ex: improving margins). Additional considerations should also be made for arrangements that include multiple service lines or campuses to ensure each participating physician materially impacts what is being measured.

Difficulty of Achievement

General Rule: Payment should be tied to significant improvement in historical performance and/or nationally benchmarked data.

Each quality metric’s payment should be linked to an improvement in historical performance and/or be difficult to achieve compared to nationally benchmarked data (ex: performance at the 90th percentile of national performance data). Paying for maintaining historical performance should be avoided unless historical performance is already at a superior level and the parties agree the underlying quality metric is important.

Similarly, avoid linking a large payout to a small, incremental increase in historical performance. In cases when historical performance is not available, such as new quality programs, national data should be utilized as a benchmark for appropriate performance rather than coming up with an arbitrary number.


For each potential metric you should ask yourself the following questions:

  • Is this measuring a credible clinical outcome
  • Does this require significant physician involvement?
  • Is the performance for maximum payout difficult to achieve compared to past performance and nationally benchmarked data?

If the answer to any of these questions is “no”, then that metric should be reconsidered in order to maintain compliance with what is being paid for in the market.

Further, there are additional fair market value considerations if  the compensation for quality outcomes is being stacked on top of an existing employment model for a physician. Specifically, that underlying compensation model should be fully understood before determining if stacking is appropriate. More information can be found on this topic in VMG Health’s piece, “Stacked Compensation Arrangements: What to Consider.”

Whether you are building a new arrangement from scratch or revisiting an existing one, VMG has extensive experience valuing fair market value payments for the achievement of quality metrics across every specialty in addition to offering consulting services that help clients align their metrics and quality programs with the market and service line needs.

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