There is a running joke among those of us in the physician practice space that a CEO can change physician compensation only twice: when first starting and when leaving. Redesigning physician compensation is typically viewed through the lens of pain and discomfort, so it often takes an amount of institutional capital that either comes with a fresh start or a near-term exit strategy.

Often, new compensation plans appear to have “winners” and “losers” because rarely does everyone get a pay raise. Administrators understand changing physician compensation takes significant time, effort, and wherewithal for difficult conversations. Physicians usually lack access to the information that points to the need for compensation changes, so they go into the process believing the purpose is to cut their pay for profits’ sake.

The financial pressures COVID-19 has placed on the ambulatory services market, though, may present an opportunity for administrators to assess their physician compensation structures—and with physician buy-in. During this time, many health systems have protected some portion of physician compensation during a period of declining volume, which is feasible in the short run, but presents longer run challenges, especially with compensation models tied to external survey data.

‍The Magic Physician Compensation Model Myth‍

Physician compensation model design and implementation are core services we provide at Ancore Health. Easily the first question I get from new clients is, "what type of physician compensation model should we have?” I have been leading physician compensation redesigns for nearly two decades, well before I founded Ancore Health, and I have seen almost any type of compensation model succeed and fail within different environments across the country.

Success is not just about the model. It is about how well the model aligns with the medical group’s culture, including the organization’s mission and vision, financial objectives, operating model, and reporting systems. Therefore, instead of approaching compensation from the viewpoint that a single model will bring financial improvement, we advise provider organizations to start with what problems they believe a new model will alleviate.

‍Getting to the Root of the Problem‍

So, the first question I ask our new clients is, “Why do you want to change your physician compensation model?” Some of the answers I hear include:

1. We have too many compensation plans, and it has created an administrative nightmare. 
2. Our physicians are not busy enough. 
3. We want to incentivize quality.
4. The current compensation model is too expensive (not financially sustainable). 
5. We are struggling to retain and recruit physicians. 

Understanding the real “why” before starting the process of a compensation plan redesign is important because the solution may have little-to-nothing to do with physician compensation.

An interesting example comes from our work outside of traditional health systems/employed medical groups. In newer primary care-only organizations, the operating model sets expectations on the number of patients seen, member experience, and quality outcomes. Their physicians are bought into this model in the context of the bigger vision and mission of the organization, and these criteria do not need to be incentivized with compensation. For these organizations, we often recommend a base salary or per member per month (PMPM) compensation structure.

So, before changing physician compensation, ask why. Then, determine if the “why” is only influenced by compensation or if operational changes could better address it.

‍Compensation Model Success Relies on Accurate Reporting

An often-overlooked culprit to a poorly performing physician compensation model is the reporting available to the physicians. Without accurate and transparent reporting, physicians feel unable to impact their compensation and may not make the changes their compensation model incentivizes.

For example, a common approach to the “transition to value” is creating an incentive pool tied to quality. If physicians are not used to seeing these measures, do not trust the accuracy, or do not give input on the best practice approach to care delivery (which positively affects these measures), it will be doomed from the start.

This is why the second question I ask is, “What do you share with physicians today from a reporting standpoint?” If, for example, administrators want to incentivize quality or cost of care, but physicians are only used to seeing wRVU data, it will require a lot of convincing and uncomfortable conversations to get the physicians on board. One way to avoid this is to start introducing these metrics first during normal management and physician reporting. Then, see how each physician’s behavior changes simply by giving them insight into their own performance without involving compensation changes.‍

Principles to Guide Physician Compensation

When my team at Ancore Health takes on a new physician compensation client, we use seven core principles to guide our work:

1. Reflect economic reality. The physician compensation model should not be hardwired to the survey data.
2. Focus incentives on outcomes. Process metrics are part of your operational standard and management reporting, not compensation.
3. Reinforce your vision. Physician compensation can be a differentiator when recruiting new physicians.
4. Don’t give special deals. This is the quickest way to erode trust.
5. Have one compensation policy. It allows maximum flexibility year to year and is guided by key principles.
6. Be transparent. Compensation reporting should not be a surprise. Physicians should know where they stand from month to month and quarter to quarter.
7. Keep it simple. Physicians should clearly understand their compensation metrics and how to meet and exceed targets.

To speak to Ancore Health about your physician compensation needs, contact us at:

(615) 873-0571

contactus@ancorehealth.com