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Aligning Physician Compensation with Industry Best Practice

Aligning Physician Compensation with Industry Best Practice

We are at a monumental point in health care in the United States today as the effects of the Affordable Care Act (“ACA”), signed into law in 2010, continue to appear.  One of the core reflections of the ACA is the transition of reimbursement from the previously dominant fee-for-service realm to more of a qualitative/value-based environment.  As an effect of this transition, it is greatly assumed that healthcare organizations will also pass on this mentality to the compensation of their employees.  For example, compensation plans for physicians will shift to better align incentives with value-based care that will reward a combination of physician production, resource management, and health outcomes.  Aligning payments to hospital employees (e.g., physicians) in the same manner by which the hospital is being reimbursed is key in ensuring the long-term financial viability of the organization. 

Managing this transition to new compensation models and managing their impact on physicians and their compensation programs are among the biggest challenges that organizations will face.  Today, many physicians are presented with mixed messages as they need to manage the care of patients, improve quality outcomes, control costs, have open access, and keep patients out of the clinic or hospital, but still need to be productive and generate fee-for-service income. This dichotomy has created many issues for physicians and their hospital partners, and it is one that likely will not be sustainable in the long term.

Regardless of the changes in the healthcare delivery model, we at Gallagher Integrated believe that physician compensation must follow common-sense principles. As mentioned previously, physician compensation must reflect reimbursement patterns. While productivity will remain a component of most physician compensation plans for the near future, other components such as clinical quality, patient satisfaction, efficiency outcomes, adherence to best practices and proven clinical protocols, utilization of the electronic health record, and citizenship are all important, increasing in prevalence, and becoming a larger part of a physician’s overall compensation. It will be imperative that organizations analyze and understand what compensation components are a part of physician compensation programs today and how productivity (e.g., work RVUs) factors into current compensation levels.  Organizations will need to plan for the future as compensation models shift to align with the changing environment.

A critical component of any competitiveness or compliance review is a comparison of the physician’s compensation to market norms. Therefore, it is more important than ever that organizations have access to market data that includes not only total cash compensation, but also the underlying individual compensation components.  Recent studies have indicated as many as 60% of physicians have some level of income derived from qualitative incentives. Gallagher Integrated works with a number of organizations that are improving their second or third generation quality plans while others are adopting programs and incentives that de-emphasize physician productivity and promote the role of performance (e.g., patient satisfaction, clinical quality and outcomes, clinical integration, shared savings, bundled payments, and clinical care coordination). Organizations are asking for reliable data and need to have the ability to see how these non-productivity payments impact physician cash compensation and corresponding productivity ratios in order to appropriately structure and implement these types of incentives such that physician total cash compensation is appropriate.

Due to the aforementioned changes in the healthcare realm, Gallagher Integrated conducted its first annual Physician Compensation and Production Survey this year which provides organizations with insight regarding individual components of pay. Reporting compensation data in this manner provides valuable intelligence on pay practices and compensation for physicians in an ever-changing landscape.  The survey was developed to provide data access and visibility to the components that make up physician total cash compensation.  The survey illustrates that approximately 80% of respondents include a qualitative or operational incentive component in their physician compensation plans for at least some of their employed physician population. Furthermore, the majority of those organizations that do not have a qualitative incentive today are considering implementing one.

The survey found that the typical incentive opportunity for those physicians that have a quality incentive generally represents up to 15% of their base/production-based compensation. When these payments are added to the other potential payments that organizations can offer to their physicians (e.g., advanced practice clinician supervision, call coverage, administrative services), we find these payments can be significant and have a substantial impact on the competitive positioning of cash compensation.

While the data shows that base/production-based compensation comprises roughly 90% - 95% of the total income paid to all physicians in aggregate, non-productivity payments represent a much larger part of the total cash compensation picture for physicians that have these additional components as part of their compensation plans. Thus, it is important to differentiate between total cash compensation and individual components of cash compensation like qualitative/operational incentives.

As part of our inaugural Physician Compensation and Production Survey, Gallagher Integrated asked participating organizations to provide additional information regarding their physician pay practices. The following information was obtained from survey participants regarding organization policies and procedures in the area of qualitative/operational incentives:

What was the Average Maximum Incentive Opportunity OFFERED, as a Percentage of the Clinical Base Salary plus Productivity-Based Pay?

Response

Primary Care Specialties

Medical Specialties

Surgical Specialties

Hospital-Based Specialties

0% - 5%

43%

57%

61%

34%

6% - 10%

38%

24%

22%

43%

11% - 15%

15%

13%

11%

19%

16% - 20%

3%

4%

5%

3%

21% - 30%

1%

0%

0%

0%

More Than 30%

0%

2%

1%

1%

 

What was the Average Incentive Opportunity EARNED, as a Percentage of the Incentive Opportunity?

Response

Primary Care Specialties

Medical Specialties

Surgical Specialties

Hospital-Based Specialties

0% - 20%

52%

46%

46%

50%

21% - 40%

0%

1%

1%

0%

41% - 60%

7%

7%

6%

6%

61% - 80%

19%

19%

23%

23%

81% - 100%

22%

27%

24%

21%

 

A deeper dive into the survey data has also illustrated that across all specialty groupings (i.e., primary care, medical, surgical, and hospital-based) the average incentive earned as a percentage of a physician’s clinical base salary plus productivity-based pay ranged from approximately 5% - 7%.  While these figures provide a snapshot of the physician compensation landscape today, we at Gallagher Integrated believe that these percentages will most certainly rise as the transition to a more value-based environment continues to transpire.

For the complete results of the first annual Physician Compensation and Production Survey, please contact Gallagher Integrated at comp.surveys@IHStrategies.com.

Kevin  Loeffler

Kevin Loeffler is a Consultant with the Physician Services practice of Integrated Healthcare Strategies, a division of Gallagher Benefit Services, Inc. Mr. Loeffler’s work is dedicated to helping clients better align their physician compensation systems, improve the financial performance of the physicians’ practice, and ensure regulatory compliance. His areas of focus include the audit, design, and implementation of physician compensation models, market research and surveys, total compensation compliance audits, practice operational improvement, and performance management ...

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