Transforming Independent Physician Compensation

Transitioning from Individual Collections to a Centrally Determined, Strategically Aligned Compensation Framework

Topics: Practice Management, Physician Issues, Care Transformation, Performance Improvement, Employee Satisfaction, Employee Engagement, Workforce, Strategic Alignment, Workforce Planning, Compensation, Labor Expense, Staffing

This white paper offers key insights and best practices from a progressive independent medical group working to develop a more centralized and strategically aligned compensation model.

Continue reading to learn strategies for overcoming the following challenges:

  • Shareholder opposition
  • Lack of funds for new payment incentives
  • Decentralized practice structures
  • Physician Practice Roundtable members, log in to download the white paper.

Executive Summary

Medical groups must adapt compensation plans to reflect new market realities. Although models based purely on productivity provide strong financial incentives to maximize fee-for-service (FFS) revenue, their inflexibility makes it difficult to align them with evolving medical group strategy.

To succeed in an environment characterized by increasingly risk-based payment, groups need to include a greater variety of performance incentives in compensation.

Independent medical groups face unique challenges when evolving physician compensation.

Independent medical groups face unique challenges when evolving physician compensation. Many rely on a net collections compensation model, which not only rewards productivity at the expense of other goals, but also fosters a culture of individualism across physicians and practice sites.

Shareholder opposition, lack of funds for new payment incentives, and decentralized practice structures pose further challenges to independent group leaders looking to develop more centralized, strategically aligned models.

Progressive groups focus on four imperatives to overcome these challenges.

Four Imperatives for Transforming Physician Compensation

Start with small, easy-to-achieve incentives

To habituate physicians to performance measurement and non-productivity pay, successful medical groups begin with small incentives, typically less than 5% of physician compensation.

They also set incentive metrics to a low standard at first, raising requirements as physicians accept the new system and improve performance against these metrics.

Simultaneously, the groups work to communicate the importance of performance measurement to physicians through a variety of channels.



Use compensation withholds to fund non-productivity performance incentives

Many groups begin by paying for new performance-based incentives with revenue from pay-for-performance contracts or government incentive programs, such as Medicare’s Physician Quality Reporting System (PQRS).

However, progressive independent groups are increasingly withholding a portion of fee-for-service (FFS) collections to create incentives large enough to support significant physician behavior change.



Modify productivity rewards to centralize compensation strategy

Compensation based on net collections promotes an individualistic culture by tying income solely to a physician’s personal revenue and practice expense management.

To unify physicians across the medical group and standardize compensation at the organizational level, some progressive groups are transitioning to other methods for rewarding productivity, such as work relative value unit (wRVU)-based compensation.



Establish flexibility to update your model as needed

As physicians become more accustomed to non-productivity-based incentives and organizational strategic objectives evolve, medical group leaders must secure the authority to regularly adjust incentive metrics and size.



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