Physician compensation plans

Few topics keep administrators up at night as much as changing physician compensation plans.

As the healthcare market shifts away from fee-for-service reimbursement models and toward accountable care structures that emphasize quality and value over volume, administrators find themselves faced with that very dilemma.

Practices struggling with their compensation plans often struggle with recruitment and retention.   Medical groups should examine their compensation plan to see if they’re operating under a sustainable model, whether compensation is inadequate to draw the right talent or too excessive for the practice to survive. “If they’re paying out more than they’re bringing in, they’re not going to be around for long. This is true whether the group is a private practice or an employed group owned by a health system,” describes Nick Fabrizio, PhD, FACMPE, FACHE, principal consultant, MGMA Health Care Consulting Group.

So how much money should administrators offer a new or veteran physician in order to attract and keep the best talent? A favorite phrase in compensation plan design is “it depends.” 

This isn’t to be evasive — take two primary care physicians employed with a hospital system who are both making the MGMA mean of $220,000. Is their compensation appropriate? 

The answer is “it depends” is based on each physician’s patient volume, quality outcomes, pa-tient satisfaction and other myriad factors. These variables make compensation plan design complex, but also exciting.

It needn’t be such a painful exercise, especially if administrators know they can call on the expertise of someone who has managed and facilitated a compensation plan restructuring in the past. In addition, bringing in an outside, objective third party can take some of the pressure off of administrators — and all of the blame.

Fabrizio explains, “In every compensation plan we’ve done, there are some physicians who make less money and others who make more. The problem is, even when one person does worse, they’re not happy about it, so you have to manage that process.”

The two biggest stumbling blocks Fabrizio has come across are improper incentives and skewed metrics.“[Comp plans] either don’t incentivize the right metrics — like patient access, panel size and appointment availability, and/or it’s compensating at a skewed level: production in relation to compensation.”

Physician value, Fabrizio insists, comes in both access and in actual work. “The quality incentives that many plans are beginning to employ are starting small — 5%, 10%, 15% incentive bo-nuses — but will gradually increase as value-based reimbursement takes shape.” He explains, “Compensation plans have to consider future reimbursement terms to align incentives. The key to an effective compensation plan is to build in a process whereby you can make revisions, potentially yearly, without wasting a lot of time re-educating while appropriately gathering input from the physicians.”  

To that end, Fabrizio begins the compensation plan review process from two angles: examining the practice both quantitatively and qualitatively.

He starts by interviewing the physicians and leadership team. He shows them the strengths and weaknesses of their current compensation plan, and then he collects data to benchmark produc-tion and compensation according to MGMA and other data. Fabrizio then shares that data with the practice so “we can discuss trends, how the physicians and other providers are performing and illustrate what their data looks like.” For larger practices, Fabrizio likes to establish a com-pensation committee of 8-to-10 individuals made up of both physician and non-physician lead-ers.

The next step involves modeling, to illustrate the changes based on various scenarios and show administrators what the physician’s compensation will look like in comparison to current levels.  It’s important to show the leadership team and compensation committee who will do better and who may do worse.

“Very few people realize that the most important part of the process — and the most difficult — is the implementation plan, because that’s when administrators or hospital leaders have to decide how they will implement the new compensation architecture both to the physicians and other providers.” Fabrizio adds, “Are you going to do a phase-in period? When can the group make the changes? It all depends on the financial situation of the practice. Some have to do it sooner than others. Others can model what the new plan will look like for six months to a year and then allow people to change their practice patterns to adapt to the compensation plan.”

It’s critical that administrators and other leaders don’t delay when they think their compensation plan could be adjusted to better benefit the practice. “The average time it takes to change a compensation plan is six-to-nine months,” Fabrizio explains.

“Time is needed to get input from the physicians, find out what works and does not work in the current compensation plan, share accurate data with the physicians and model alternative plan designs,” notes Fabrizio. “Each plan will have people who do better and some that do worse and a considerable amount of time will be spent on transitioning to the revised plan.”

For every month that an administrator fails to adjust a faulty compensation plan, other high-quality and productive physicians might be missing out on incentives. In addition, physicians who are currently “working” the system could be collecting thousands of dollars in incentives that could be better spent elsewhere in the organization.