Lauren Duren, Client Advisory Services & Healthcare Director
October 11, 2023
Physician compensation models play a crucial role in the success and satisfaction of medical professionals. Compensation models continue to evolve, and it is essential to remember that there is no one-size-fits-all approach when it comes to compensation plans.
We’ll explore the pros and cons of different compensation models. Each has unique advantages and challenges, and choosing the right one depends on factors such as entity structure, organizational goals, provider mix, and compliance requirements.
The straight productivity model is a popular choice among physicians and medical practices. This model holds each physician personally accountable for their productivity, with their earnings directly tied to the quantity and quality of their work relative to specific metrics such as charges, collections, wRVUs (work relative value units), encounters, or visits.
The advantage of this model is that it rewards physicians for their efforts and incentivizes them to be productive, often proving favorable to the bottom line. However, it may discourage patient sharing among physicians as each one seeks credit for their individual productivity. Providers are also less incentivized to participate in organizational initiatives that distract from revenue-generating functions. Additionally, tracking and calculating compensation can be challenging, especially for groups that do not have a robust system in place to monitor wRVUs.
The straight salary model provides physicians with a guaranteed base salary, ensuring financial stability while offering the opportunity to earn additional compensation through performance-based incentives. This model gives physicians a sense of security while motivating them to achieve specific targets related to productivity, quality of work, patient satisfaction, or participation in organizational initiatives. Regular evaluation and adjustment of the compensation structure are essential to ensure that targets and incentives remain aligned with the practice’s goals and objectives.
Revenue Less Overhead
Another common compensation model in private practices is based on revenue minus expenses. Under this model, physicians receive a share of the total practice revenue after deducting their portion of practice expenses. It is important to understand the groups of revenue and expenses specific to your practice so you can best allocate them.
This model encourages physicians to contribute to the practice’s financial success by reducing costs and increasing revenue. However, it does not support the transition from fee-for-service to value-based care and may not provide financial incentives for participating in organizational initiatives. Effective expense tracking and allocation are crucial for this model to ensure fair compensation distribution and prevent micromanagement by physicians seeking control over the process.
Salary + Incentive Bonus
The salary plus bonus model combines a guaranteed salary with the opportunity to earn additional bonuses based on performance metrics. This model is gaining popularity as it provides physicians with financial security while incentivizing them to increase their income through exceptional performance.
By aligning compensation with both quantity and quality metrics, practices can incentivize innovation, patient satisfaction, and improved patient outcomes. However, implementing and administering these models can be complex, requiring careful performance monitoring and the establishment of appropriate quality metrics. Despite the challenges, production plus value-based incentives offer the potential to drive significant improvements in patient care and practice performance.
When deciding how to pay physicians, there are significant regulations to keep in mind. The two most notable are the Anti-Kickback Statute and the Stark Law. In summary, the Anti-Kickback Statute prohibits actual payment for referrals for any items or services, and the Stark Law prohibits referrals from a physician for designated health services. We recommend utilizing a healthcare-specific attorney to ensure physician compensation plans are compliant with these programs.
Choosing the Right Model for Your Practice
When selecting a physician compensation model, it is crucial to consider various factors, such as the practice’s goals, the desired level of physician accountability, and the regulatory compliance requirements. Consulting with legal and financial experts specializing in healthcare compensation can provide valuable guidance. By carefully considering the advantages and challenges of each model, you can make an informed decision that not only attracts and retains top talent but also aligns incentives with your practice’s mission and enhances overall financial viability.
Remember, compensation plans are not static, and regular review and adjustment are necessary to adapt to evolving healthcare trends, workforce demographics, and regulatory changes. By staying proactive and responsive to the evolving landscape, your practice can adopt a compensation model that fosters physician satisfaction, practice growth, and better patient care. Please contact us with any questions.
Lauren Duren is a Client Advisory Services & Healthcare Director at Lutz. She began her career in 2012. She provides accounting and consulting services to clients, focusing on the healthcare industry and independent medical groups.
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