Physician Employment Strategies: Maximizing Alignment and Engagement

Complexities of physician employment strategies to create alignment and engagement

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?




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Participant comments on Physician Employment Strategies: Maximizing Alignment and Engagement

  1. You have identified the ultimate paradox in the hospital administration-physician relationship. There are usually only two things that the two sides can typically agree on: growth and quality. Both physicians and administrative leaders can rally around these two goals. However, the path they each would take to get there, is often remarkably different and highlights the culture clash that is inherent to non-clinicians holding the roadmap to goal achievement.

    This same discordance of how to reach a certain goal between physicians and non-clinical administrators, is the same one that makes compensation models so problematic. The corporate suite tends to evaluate things from a binary perspective. They create the org charts and groups in order to have a consensus. Is it a leader or a loser? Is it growing or is it shrinking? Is it good quality or bad? Is it profitable or not?

    Physicians live in both a binary world: sick or healthy? Improving or worsening? Alive or dead? However, more so than our administrative counterparts, we have a significant arbitrary aspect of our profession. Teaching, research, speaking, publishing, local and national reputation, mentoring, new skill adoption, and constant educational requirements, to name a few.

    The “value” of these can not be measured by employers. I suggest that until a clear value is assigned to each and every currently unmeasurable thing a physician does, it will be very difficult to have a compensation model that rewards physicians fairly for the many roles they play. Perhaps creating such a value system is a first step to the solution.

  2. We are exposed by similar challenges in our compensation plans for our doctors and decided to co-develop a compensation plan together with administrators and our specialist. I believe this is possible especially in the elective care field we are operating in.

    Currently we offer a 90% fixed compensation plan and have a 20% variable plan. We’re moving towards an 80/30% compensation scheme. This allows for an 110% compensation and provides incentives for our specialists to align the organizations and specialist interests. The variable compensation is paid on the basis of individual specialist and group performance. These contain performance indicators such as quality measures, NPS scores, production measures. An important aspect to successfully implement the compensation plan is the co-creation with the specialists. If it were to be imposed on specialist by administrators, the support is likely to be less and creates tensions between management and doctors.

  3. It is very very difficult to measure quality in medical care. Quality of life measures could help and are well validated. But how much do you attribute to the physician’s performance? The more I think of variable compensation for physician the less I support it. The 90%/20% plan seems to be a good compromise…

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