Ways to reward your physician leader

Physician Compensation Report, October 9, 2006

Finding a good physician leader can be difficult, because most physicians are trained to provide medical care rather than run a business.

Hospitals and health systems have executive leaders to navigate the healthcare reimbursement and regulation maze and run a profitable, quality facility, and they receive appropriate reimbursement for it. However, most group practices don’t have executive leaders and instead rely on a physician—rather than another staffer or a business manager without medical training—to do this job.

“It’s a credibility issue,” says Peter Lucash, CEO of Digital CPE, a training and consulting firm based in Charleston, S.C. A nonphysician manager may have difficulty calling physicians to task, and miscommunication and possible resentment can lead to turf battles, he adds.

For that reason, when you do find the right physician for this job, provide adequate compensation for taking on this additional work, says Geoffrey Anders, J.D., CPA, president of The Healthcare Group in Plymouth Meeting, Pa.

Recognize the value of leadership

One of the first and most important steps to rewarding a physician leader is recognizing what a solid leader adds to the practice.

Some physician partners have trouble with this, in part because physician leaders typically must reallocate a portion of their time from clinical duties to managerial duties, which means they see fewer patients and bring in less income in the short term.

Also, to cover the clinical workload the physician leader gave up, other physicians in the practice may have to see more patients or the practice may need to bring in an additional physician or nonphysician practitioner. This may cause resentment and some may think that the physician leader is doing more harm than good by seeing fewer patients, warns Lindalee Lawrence, president of Lawrence Associates, a Wellesley, Mass.–based compensation consulting firm.

“You need to realize that a leader who really leads is going to do more good for the practice than [he or she is] going to do seeing patients,” Anders says, offering the story of a cardiac surgery group whose physician leader spent two years working with the local hospital to open up two additional heart rooms. This move increased the group’s revenue by $2 million. “That is a lot more than he could have done for the group seeing patients,” he adds.

Reward your leader

Once you get buy-in from your physicians regarding the need for a leader, develop a compensation package that will keep the leader happy in his or her pivotal role. There are multiple ways to reward a physician leader, depending on your group’s culture and current compensation methods. Following are five options to consider:

Fixed stipend. Some physicians may be satisfied with a fixed amount of additional compensation for the managerial work. This often appeals to the physicians who aren’t overly concerned about the money and take the leadership role because they enjoy the business side of practice, Lucash says.

However, remember that paying a fixed stipend doesn’t provide incentive to grow the practice, as the leader will receive the same compensation whether the practice does well or poorly.

Variable stipend. To provide an incentive for the physician to aggressively grow the practice, you can offer a variable payment based on a percentage of the group’s net income (e.g., money available for physician compensation). In smaller practices, 5 percent to 7 percent of net income is a common amount. This money is then treated as overhead for the rest of the physicians when compensation is divided. “This approach is used more often when the managing responsibilities are on top of a full share of patient responsibilities,” Anders says.

Although a variable stipend provides additional incentive for the leader to grow the practice, it also has a downside. The leader doesn’t have complete control of the practice’s success, and if compensation is based heavily on net income, the leader may not receive adequate reimbursement for his or her efforts, Lucash says. Don’t punish a qualified leader for declining reimbursement, rising costs, and other factors that are out of the leader’s control and can lead to poor performance.

“You need to reward them on the upside, if the practice is successful, and soften the hit on the downside, because they still need to be compensated for the time they put in,” he adds.

Gross-up factor. Another option for rewarding your leader is to value management equally with patient-care time. In a productivity-based system, you would need to “gross up” the leader’s productivity to reflect time spent managing the practice. For example, if the leader dedicates one day per week to management duties, adjust productivity measures as if he or she saw patients that day.

If your practice divides income equally rather than based on productivity, you can simply pay the physician for management duties at the same rate that you pay physicians for patient care.

Bonus payments. Another way to provide an incentive without tying compensation directly to net income is to offer bonus payments triggered by meeting specified performance measures. This is how many larger hospitals reward executives. “You want to have some sort of performance measure,” Lucash says. “You can set out goals you want to accomplish and reward a bonus above and beyond base compensation.”

Nonmonetary rewards. You don’t have to limit your leader’s rewards and incentives strictly to compensation. Many practices offer nonmonetary rewards such as additional vacation time or relief from on-call duty, Anders says. You can also provide time off and funding for the leader to attend business conferences and seminars to learn practice-management skills.

Remember to ask your leader to provide input about rewards. Don’t assume that you must limit these to money. Work to develop a reward system that will keep the leader happy in that role.

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This story first appeared in the October 1, 2006, edition of Physician Compensation Report, a newsletter by HCPro Inc. For information on all of HCPro's products, visit www.hcmarketplace.com.