Physician Compensation Series: Compensation Models

There are many different physician compensation models and there are pros and cons to each. The best method is the one that most effectively meets the goals of your practice, partners, and employees.

In addition, you need to consider the change from fee for service to value-based reimbursements. Aligning the physicians’ financial incentives for productivity with the value-based requirements of quality, outcomes and physician experience can be a challenge. Let’s take a look at some of the options.

  • Straight Salary – In the past, a compensation model of pure salary posed a problem since physicians have no financial incentive to increase productivity, nor do they have any financial incentive to participate in organizational initiatives. The straight salary arrangement can be an acceptable compensation model if expectations are clear and employment contract lengths are limited and not extended if expectations are not met.
  • Pure Productivity – The pure productivity model is popular because it holds each physician accountable. If a physician is not productive, they will suffer the financial consequences and on the other side of the spectrum, a physician producing significant wRVUs will see the reward for their efforts. A disadvantage of productivity models is that many private physician practices do not track wRVUs so it is difficult to calculate compensation with this model. Also, since compensation is based on productivity, this model discourages patient sharing as each physician is seeking credit for the wRVUs.
  • Base Salary Plus Bonus – The guarantee of the base salary can be dependent upon physicians meeting a certain level of production measured by either wRVUs or collections. The guarantee may also only apply for a limited time after joining the practice. In this model, the physician would receive a base salary plus a bonus if he/she meets certain targets related to productivity, quality of work and good citizenship, such as patient satisfaction, emergency department calls, and participating in organization initiatives. The physician could also share in bonuses paid by third-party payors.This model can be effective in increasing effort and productivity but can also pose some complications due to the calculations involved and the need to formulate the right balances of base salary, productivity and non-productivity based targets and incentives.This type of compensation model must be evaluated on a regular basis to ensure that targets and incentives are reasonable and align with the practice’s goals and objectives.
  • Revenue Less Expenses – A common model in private practice is determining total compensation based on the physician’s share of the total practice revenue less their share of the total practice expenses. This model incentivizes physicians to reduce expenses and increase their effort but does not support the change from fee for service to value-based care.Also, similar to the pure productivity compensation arrangement, the revenue less expenses model does not provide any financial incentive for participating in organizational initiatives. This model requires proper expense tracking and allocation and may result in physicians micromanaging the process to gain control over the process. Physicians will be disadvantaged under this model if they do not have a great payor mix or an effective billing department.
  • Percentage of Collections – Another common model in private practice is calculating compensation based on the physician’s percentage of collections received by the practice. Due to Stark law, paying a percentage of collections for certain ancillary services ordered by the physician is prohibited, so those services should not be included in this calculation.This data is easier to track than the pure productivity models since it is based on actual collections rather than wRVU calculations, but also rewards highly productive physicians.Similar to the revenue less expenses model, the physician’s payor mix and billing department can be a disadvantage in this model.

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For more information or questions, please contact a member of Withum’s Healthcare Services team.

Value-based care compensation must incorporate incentives for meeting short-term and long-term goals based on evidence and results rather than per unit of service.Employees should be rewarded on a regular basis for meeting short-term goals and long-term goals should have metrics in place to monitor performance over time for employees to meet their goals.

It is important to fully understand the compensation formula and to know what the physician can and cannot influence. Moreover, if your organization has not transitioned to a compensation model appropriate for value-based care, you should consider adding an incentive plan to your compensation formula that allows physicians to become familiar with the measurements, data and financial incentives related to improving the health of the patient population. In value-based care, patient sharing, overall patient health and outcomes take priority over individual physician volume and the physician compensation arrangement should encourage value-based care. For further assistance, contact our Healthcare Services Group.