As reimbursement shifts to value, is your physician compensation plan keeping up with the changes? Programs like Value-Based Purchasing, Readmission Penalties, and Hospital Acquired Conditions Penalties are holding hospitals accountable for quality, satisfaction, and outcome measures. To be successful under programs today, hospitals must engage physicians to manage and improve the processes that influence these metrics. Here are five tips for using your compensation plan to engage and empower physicians and boost your success in a value-based environment:

Tip 1: Create mechanisms to encourage physician leadership. Clinical skills and knowledge are required to manage and improve quality metrics. It is therefore vital that hospitals engage their best physicians to lead quality improvement programs. However, traditional production-based incentive plans can actually discourage leadership and involvement in these areas. To leverage your physician talent, you must build a compensation plan that rewards physicians for their leadership, not just wRVU generation. Mechanisms may include offering protected time for administrative duties, prorating wRVU targets, using medical directorships, or awarding as-needed payments for specific duties.

Tip 2: Incorporate quality metrics into physician compensation. When it comes to managing and improving quality, all physicians should have skin in the game. Incorporating quality metrics in base or bonus compensation will hold physicians accountable for providing high quality care. We recommend involving your physicians in metric and target selection. Most physicians have never been held accountable for such measures and may be skeptical of quality measurement. Through their involvement, physicians will feel a sense of ownership and help you select meaningful and relevant quality metrics. We also recommend starting with a modest pool of quality-based dollars (i.e., $10,000 to $15,000 for primary care) to allow all stakeholders to become comfortable with quality measurement before significant dollars are at risk.

Tip 3: Build in flexibility to allow a gradual increase in quality dollars. Because major quality-based payment programs will be phased in over a period of years, we recommend building a flexible compensation plan that can evolve in concert with hospital reimbursement programs. At this point in time, patient volume is still the primary revenue driver, so physician productivity incentives should be maintained for the immediate future. As implementation of reform progresses, however, the compensation structure should allow for increased emphasis on quality incentives. This gradual phase-in will also allow physicians and management to develop comfort and competencies in quality measurement over time.

Tip 4: Refocus incentives to include group pools and/or team goals. To effect organizational change, physicians must work together. A properly aligned compensation plan can encourage teamwork and collaboration by focusing on group results or awarding citizenship bonuses to collaborative physicians. It is important, however, to keep in mind the natural practice patterns of certain specialties. Group-based targets may work well for collaborative specialties like oncology, hospitalists, and cardiology, but may not be applicable for traditional primary care practices with clearly defined patient panels.

Tip 5: Understand the legal parameters of structuring physician compensation. Although many clients prefer to leave it up to the lawyers, hospital administrators should have general knowledge of the regulatory and legal issues surrounding physician employment. Specifically, those who deal with physician compensation should understand the Stark Law, the Anti-Kickback Statute, and the concepts surrounding fair market value. By understanding and applying these concepts in the early stages of planning, you’ll reduce the likelihood of regulatory problems and wasted effort. You will also make more prudent decisions about when to involve lawyers and/or third party valuation experts.


Neal D. Barker

Partner and Managing Director, Compensation and Compliance