Research

Provider compensation model not working? Here’s how to fix it.

    Overview

    There is no such thing as a perfect provider compensation model. But adhering to these universal best practices increases the chance of successfully developing a new provider compensation model that works for both clinicians and the organization.

    The truth of provider compensation is this: if you’ve seen one provider compensation model, you’ve seen one provider compensation model. That is because an organization’s compensation model is fundamentally determined by local forces.

    The future of value-based care

    Medicare and Medicaid risk is progressing (slowly) – but commercial risk will determine whether the industry tips toward a new cost and quality standard.

     

    Local forces that shape provider compensation models

     

    Organizational strategy

    Whether it’s driving new patient growth, fostering service line collaboration, or reducing physician burnout, compensation models reflect the organization’s broader goals.

    Amount of reimbursement
    at risk

    Organizations with considerable fee-for-service reimbursement are more likely to base compensation on productivity while those with more reimbursement tied to risk are more likely to consider straight salary or panel-based incentives—with medical groups in mixed financial models likely to have a hybrid model including both.

    Competition during provider recruitment

    Given the national demand for physicians and advanced practice providers, compensation models allow organizations to attract talent, compete during negotiations, and retain their existing workforce.

    Medical group culture

    Organizations with stronger cultures rely less on financial incentives to motivate physicians and more on performance transparency and communication of
    employment expectations.

    Fair market value (FMV)

    Though the Advisory Board does not provide legal advice, federal law requires an organization’s compensation model cannot exceed the going rate for that specialty in that market.

     

    Five universal best practices in provider compensation redesign

    These local forces mean there’s no national standard to copy-paste—which makes compensation redesign a major undertaking. Even good compensation models can fail. But every organization can develop a model that is right for them or “least wrong.” Here’s how.

    • 1. Have and use a compensation philosophy.
    • 2. Ensure incentives don’t have unintended consequences. 
    • 3. Evaluate incentives at the collective level. 
    • 4. Give everyone a path to success. 
    • 5. Consider if expected behaviors should be penalized rather than incentivized. 
     

    Parting thoughts

    Creating and rolling out a new compensation model is only half the battle—organizations must align compensation redesign with operational changes that support it. Transforming incentives without a corresponding change in practice fails consistently. As you’re redesigning compensation, consider what enablers providers will need to both execute on and benefit from your updated model.

    Ryan Furr-Johnson also contributed to this article.

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