In an era of declining reimbursement, decision makers have become more worried that their organizations cannot continue to sustain the losses in their employed physician network. This has lead to numerous calls from decision makers asking our firm to evaluate all aspects of their employed network, from the overall strategy, to how the individual practices operate on a day-to-day basis. However, the issue of physician compensation is oftentimes the last item a decision maker wants to discuss. Obviously, this issue comes with tremendous political risk, but in our experience, a poorly functioning physician compensation strategy is a major reason why networks are losing so much money.

Below is a list of traits we’ve identified with poorly functioning physician compensation plans. Perhaps you recognize some of these traits from your physician compensation plan.

  • Lacks physician accountability – Too often we see compensation plans that fail to tie dollars paid out to the physician’s performance. Even worse is the number of guarantees we see organizations agree to pay out annually to their physicians, regardless of how well the organization is doing. Even a method such as a wRVU model can lack accountability to overall performance. Your goal should be to create a plan in which both parties can prosper when the overall organization is performing well, but also one that provides enough room for both parties to sacrifice, as smoothly as possible, when the organization is not performing at its peak.
  • Lacks standardization – The more physicians you employ, the more unique employment agreements and compensation plans become. Administrators care too much about getting an employment contract completed that they fail to focus on the long-term effects that compensation plan will have on their organization. Issues such as how frequently you pay out bonuses, how the bonus metrics are set, and what types of bonuses are offered to which physicians all have an impact on your network. Believe it or not, it’s someone’s responsibility to administer all of these plans! The more unique your plans are, the more resources you require to administer them, meaning more overhead. It also leads to a greater risk of mistakes, i.e., underpaying or overpaying your physicians. You’ll never hear from the physician if you overpay them, but you’ll certainly hear from them if you underpay them!
  • It’s out of touch with today’s market – A poorly functioning compensation plan is one that has not been updated to fit today’s marketplace. This is often due to the physicians being comfortable with the plan, and the perception that it will be a huge undertaking (with the possibility of a revolt) to change the plan. This is not a ‘set it and forget it’ strategy, it needs to be monitored and updated to ensure that it is in line with today’s marketplace. An out of date plan is just going to continue to make your bottom line worse, so it’s better to change it now rather than put it off into the future. Be open and frank with your physicians about why the current model is unsuccessful in today’s marketplace, and why the plan should be changed. Seek their input into what they would like to see in a new plan, and form a committee that includes physicians to help develop a new plan. Have a transition period where the physicians are working under both plans, side by side, so they can understand the new plan before its go live date.
  • Complexity of the Plan(s) – We see a diverse array of compensation plans, and we’ve noticed that the more complex the plan is, the more likely it is causing problems within the network. In addition, a complex plan will always lead to issues regarding recruitment of new physicians, as well as retention of existing physicians. A complex plan will also lead to strained relationships between you and your physicians, as they will assume the plan was designed in a way that keeps them from earning at their maximum potential. Your goal should be to develop a plan that is easy to explain to even the least involved physician, as well as a plan that is consistent and fair over time. While some plans can be tailored to better fit a unique situation, it is important that you take time to consider the overall complexity of the plan. Ask yourself who outside of the deal could be able to understand the plan, ask to have the plan reviewed by a third party, or even ask the physicians to explain in their own words how the plan works. If the plan fails any of those tests, it has become too complex and should be reworked.
  • Fails to promote group culture – One of the most critical pieces of a successful compensation plan is that it promotes a group culture within the employed network. Too often, though, we see a compensation plan that does just the opposite, driving physicians apart instead of together. What we typically see is that physicians are going to practice in a manner that is best for them or for their group, and fail to realize how that behavior impacts the overall organization. Having an engaged physician leadership committee is a major resource to tackle this issue head on. Task the committee with developing the key tenets in which the compensation plan should operate. Empower the committee with the ability to take action against any physician or group that fails to abide by those tenets. Having the compensation plan and its tenets created by a committee of leaders, with your approval, will have a much greater chance of success in promoting a group culture than a plan created by your administration.


Neal D. Barker

Partner and Managing Director, Compensation and Compliance