Practice Notes

A physician compensation plan that meets today's needs—and tomorrow's


Many medical group leaders have reached a point where they need to redesign physician compensation to accommodate new value-based reimbursement models. But they’re unsure of how and when to move forward, because most medical groups still receive a large percentage of their reimbursement from fee-for-service contracts.

What medical groups really need is a transitional physician compensation plan that meets the needs of today, and can evolve to a future state as reimbursement continues to shift. While we certainly don’t recommend redesigning compensation year-over-year, we have found that constructing a new physician compensation “chassis” provides structure, yet allows compensation to evolve over time—without material disruption.

Two flexible components for a successful framework

Undergoing a compensation redesign for the entire practice is challenging. So before even thinking about building a new chassis, I like to convene a group of physician leaders from varying representative specialties to discuss things like who should lead the effort and when transitions should occur. It’s also important for medical group leadership to define a vision for the new compensation structure based on current reimbursements, care delivery strategies, pacing, and other underlying compensation principles.

Once these activities are complete, work on the chassis can begin.

There are two components that give the chassis the right flexibility to succeed now and under new reimbursement models. The first is how productivity is defined—whether it will be by worked relative value units (wRVUs), panel size, a mixture of both, or something else altogether. When determining this, leaders also need to identify the level at which productivity should be measured—individual, cost center, or group—and by what metrics.

The second component is how base compensation and incentives are split. Typically, incentives stay under 30%, but with new compensation models it’s better to start out lower and increase over time.

What to expect as it evolves

As value-based care becomes increasingly prevalent, leaders will need to adjust the two components to meet the needs of the practice. And with this, expect two major evolutions to occur.

First, focus will shift from individual to team-based achievements, and base productivity will slowly become more and more collective. For example, key metrics like patient access, or coding, may be measured on the physician level the first year, then by the office the next year, then by the specialty, and finally, by total group achievement. This transition will empower physicians as leaders in their respective service lines, and hold them accountable for driving consistency and coordination across the group.

Second, remember that this structure is meant to support fee-for-service, value-based care, and most importantly, the journey between the two. So the definition of “productivity” will undoubtedly change over time. For example, on the specialty side, base compensation will likely continue to be measured by wRVUs—but as the market shifts to focus more on outcomes like clinical quality, cost, and patient satisfaction, compensation will likely become slowly dependent on these metrics.

Moreover, a transition to risk-adjusted panel sizes may occur as the focus shifts from pure volume to population health management. For some organizations, the right technology may already be in place to manage health and accurately capture patient attribution and acuity on day one—but for others, they may need to take the time to first learn what risk-adjusted means to them, then find and deploy the appropriate technology. In the latter case, transition time is important to give doctors the opportunity to be able to properly capture acuity levels, and possibly receive training on risk-capture.

Preparing for the road ahead

As the health care landscape calls for organizations to focus more on providing cost effective, quality care at the most convenient point of care for the patient, it is important to keep in mind that incentives and compensation, while important, should not be the sole drivers of behavioral change for physicians. Instead, these should be used to reward performance and support adherence to the changing care delivery model.

But regardless of how, and in what timeframe, changes to compensation occur, the effort should be physician-led, with a core committee that represents all specialties to provide input and communicate concerns bilaterally. Administration should also be represented to ensure both strategic alignment, and that a sufficient infrastructure exists to manage the changes.

With all this said, remember that the best time to think about, and undertake, compensation redesign is not when there’s urgency—it’s when the practice realizes they need to prepare now to get ahead of future strategic changes in reimbursement, care delivery model changes, or other transitions in value-based care.

A step-by-step equation for physician compensation

Download the infographic and explore the multipart equation that must be solved step by step to find your organization's right solution. Learn the three key steps—and the questions related to each—before deciding on your compensation answer.

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