Key points: Developing compensation plans and implementation strategies, private practice and employed groups, and paradigm shift from volume to value. Below are the compensation trends physicians and and NPPs
Few practice topics promote as much interest and emotions as compensation. With good reason -compensation plans define how salaries, bonuses and benefits are distributed. Paying people is easy, right? Perhaps on the surface, but the reality is often different. Providing fair value compensation in today’s environment is multi-dimensional and arguably growing more complex. For group leaders, few issues demand as much time, skill and diplomatic acumen as executing successful compensation plans. At best, these issues can drive spirited discussions, reveal parochial viewpoints and expose potential cultural minefields. For both private practice and health system employed groups, compensation is critical to group cohesiveness, profitability and ultimately survival. Fair value compensation is the glue sustaining the group. Better performing, profitable groups are more often paid fairly for value, have skilled leaders, and function as a quality care delivery.
Healthcare reimbursement continues moving from fee-for-service payment models toward structures targeting quality and value over volume. This shift, at its core, is driven by the need to reduce growing and unsustainable healthcare costs. The group’s P&L will show provider compensation as a large expense and one that must be sustainable. Simply, without financial subsidies, elementary economics dictates the group cannot pay more than it collects. These points and others, i.e. recruiting new physicians, retiring partner exits, market competition and growing payor and hospital system influence, are good reasons to evaluate your compensation plans and business model. At the end of the day, we know deep down, it’s far smarter to look ahead and begin the needed discussions, data reviews and strategic planning. Taking the lead and getting out front now is step one. Successful leadership and resolving hard issues is never easy. Discussions regarding money and value are generally not easy. Money matters and compensation requires a deft approach and understanding of what’s important.
We will briefly review some basic tenets surrounding group compensation plans. A few caveats:
- There are many compensation models and variations designed to address physician partners, employed physicians, new physician on partnership track and practice NPP’s.
- Each group is different and one size will not fit all.
- Private practice compensation, while similar, is inherently different than health system owned employment models.
- Defining provider compensation that’s accepted fair value is often difficult. Example: Two urologists or NPP’s in the same practice and same compensation, are they of equal value? The answer, most often, is maybe or it depends, prompting additional questions and supporting data. Addressing the second and third tier questions often defines multiple pieces.
- Paying people fairly is easy, except when it’s not.
Below is a quick summary of some basic group compensation models we see working with groups of all sizes.
- Shared or Socialists’ Model. At its basic, practice revenue less operating overhead expense is shared equally among partners. There are numerous variations of this model.
- Production Model. Revenue is predicated on physician productivity. This model while successful for some groups, often has some socialist tenets. This model can be easy or drive overly complex accounting. This model can be adjusted to simple percentages models. For example: 50% production – 50% shared. 70% production – 30 % shared and so on.
- Hybrid Model with Production and Socialists Tenets. Essentially a blend of production and shared.
- W-RVUs. These are more prevalent in physician employment contracts with health systems and often are limited to w-RVUs and no ancillary value. These can be a hybrid model with specific production targets and bonus structure.
For many groups, we see current compensation that reflects past performance or expected performance. This is often true in compensation plans with escalator clauses, i.e. additional bonus awarded above a certain threshold. This is also seen in plans with downstream increases based on specific production targets. When working with group compensation issues we see consistent themes and concerns. For example: Does performance drive compensation? Are we equally unfair to all? How do you define and track value and performance? Is the current plan working? Is the group adding a new partner? Can the group retain key team members? Can the group recruit new talent? These are all fundamental questions along with available revenue when evaluating compensation plans.
Quick Action Plan Summary – Successful compensation models.
Step 1. Develop a strategy to maximize value for performance.
Step 2. Define that strategy into tactical and strategic performance metrics.
Step 3. Provide compensation models, current and proposed with lookback targeting individual and group productivity metrics. Show two-three years of current and proposed compensation models.
Step 4. Develop action plans, proposed supporting budgets and define needed progressive steps.
Step 5. Develop effective top-down communications to support team buy-in. Effective communication is a difficult skill to learn.
Step 6. Keep it simple. Ideally, how compensation is distributed is best if you can explain core elements in two to three simple declarative sentences.
In closing, the PRS team partners with group practices, physicians, and hospital system owned multi-specialty groups of all sizes and geographic locations. This unique relationship provides us an unrivaled view of the growing impact on practice profitability and organizational stress levels. We understand medical practice dynamics and complexities and know this is not an easy environment. We understand that having the right partner on board with hands on experience is essential. Successful groups have effective compensation plans. Developing and integrating successful compensation plans requires respected leadership, adroit communication skills and a keen understanding of group dynamics. Rest assured, there will always be more challenges but few as important as ensuring compensation is distributed appropriately.