Hospitals systems in many markets are aggressively growing their employed physician networks. Driving factors include local competition with other hospital systems, opportunities for referral network expansion with increased portals of entry, and the ability to create integrated care structures. Changing reimbursement models from a ” do more, make more” model to a “do better, make more” approach creates alignment pressures between physician and hospitals. How then to structure physician employment in a manner that appropriately aligns incentives with hospital management, and allows integration of two divergent cultures.
Cultural differences account for some of the difficulty in physician and hospital integration. Physician culture places value on autonomy and the ability to work independently, emphasizes the need for rapid decision making and creates an aversion to hierarchy. Conversely, hospital leadership is focused on process and deliberative decision making, tends to embrace the collective mission of the organization, and places value on organizational structure as a key to success.
The compensation plan thus becomes a critically important tool in fostering and maximizing the physician hospital relationship. What then is the optimal structure that fairly compensates physicians, encourages physician alignment and engagement with the hospital, and provides the appropriate incentives in the transition from volume based to value based healthcare? Three general methods, with a number of variations currently exist: (1) straight salary, (2) productivity based compensation (the eat what you kill model), and (3) salary plus production bonus. Each model has Pro’s and Con’s, and may or may not align with the strategy of the hospital, including attracting and retaining talented physicians, especially sub-specialists.
Salary or fixed compensation model: Provides financial security and removes risk associated with variable business cycles and accounts receivable, but doesn’t include either productivity or quality as a component of the financial package.
Productivity based compensation: Incentivizes providers to be maximally productive but also puts them at risk for business decisions made by the hospital that may negatively impact their ability to compete effectively in the market place. Additionally, it creates intra-practice competition for patients that may impair developing effective strategies to compete outside the practice or hospital system. Finally, it may also create a situation that what’s in the hospitals best interest is at odds with the best financial interest of the physicians.
Salary plus productivity (and other bonus parameters): This model appears to provide the right mix of provider security along with levers of control that can incentivize providers to maximally align with hospital strategy.
The question then is:
What’s the best model for physician employment that best incentivizes engagement, encourages productivity, attracts and retains top talent, and yet creates an atmosphere of shared risk and alignment?
If salary plus productivity works best, what is the appropriate level of productivity compensation that encourages physicians to be busy but doesn’t lead to potentially detrimental competitive behavior..10%..15%..20%?
What metrics should be used to calculate productivity?
How do you incent activities such as participating in research trials, publishing academic papers or presenting at meetings that may have clear benefit to the hospital in terms of prestige or patient recruitment but are not as objective as a WRVU model?
What’s the optimal way to incorporate quality metrics into a compensation model?