We’re all familiar with healthcare’s new direction and jargon—”Fee for Value”; “Value-Based Purchasing”; “Patient Centered Medical Homes” and “Value-Based Care Organizations.” What these initiatives have in common are physicians. Employed physician networks are significant assets that take time and resources to build. The challenge now is figuring out how to leverage those assets to add value to your organization.

Most hospitals and health systems today are losing money on their networks. One major contributor to the increased operating losses hospitals are experiencing in their employed physician practices is shown on page two. While Medicare reimbursement remained stable from 2001 to 2011, practice operating expenses rose 51 percent. Two other factors are expected to contribute to future losses: increased technology costs and increased payroll, since more employees will be required to assist in innovative patient care programs.

Reimbursement rates, changing practice guidelines and federal regulations may be beyond your control, but there are other factors you can control that can help cut your losses as reform becomes the new reality. One important step to take: make sure your organization’s strategic goals are aligned with the overall strategic goals for your hospital or system.

Evaluating Your Current Compensation Plan
These ten key questions can help you determine if you need to develop a new physician compensation plan:

  1. What is the primary goal for the compensation plan?
  2. Does the compensation plan fit into the employed physician network’s goals and objectives?
  3. Is physician compensation in sync with productivity?
  4. Does the plan support and mesh with strategies and tactics for clinical integration?
  5. Does the current plan lack consistency and standardization between individual physicians and between practices?
  6. Are physician performance expectations clearly spelled out?
  7. Are quality metrics included in the compensation plan?
  8. Does the plan allow both increases and reductions to base compensation based on productivity?
  9. Does the organization provide physicians with performance and operating metrics so that they can see and understand how their practice fits into the organization?
  10. Finally, is the program sustainable?

If you answered, “No,” to any of these questions or aren’t sure how to answer them, it’s time to evaluate whether your current compensation model adequately positions and supports the physician network’s market objectives.

Common Characteristics of Successful Compensation Plans
In working with clients to develop and implement new compensation models, we’ve identified the seven key attributes of successful compensation programs:

  • Ensures mutual success
  • Meets the legal requirements for fair market value
  • Incentivizes both physician productivity and quality measures
  • Promotes a positive physician culture within the organization
  • Allows for the recruitment of new physicians and strengthens retention
  • Has the flexibility to respond to changes in reimbursement and value-based initiatives
  • Makes sense and is sustainable

If you’re wrestling with physician compensation issues, keep these seven attributes in mind. Another point to remember: changing compensation plans is a highly sensitive undertaking. It requires experience, a clear and defined process, superior communication skills, an alliance with key physician leaders, solid data and a common understanding among all parties about the goals for the new plan.

Neal D. Barker

Partner and Managing Director, Compensation and Compliance