Skip to main content

4 Physician Compensation Factors to Watch

Analysis  |  By Debra Shute  
   January 04, 2018

Determining how to pay doctors in various markets and specialties has become more nuanced than ever.

Physician compensation was already complex before the healthcare industry began its protracted shift from volume to value.

A recent survey produced by Integrated Healthcare Strategies, a division of Gallagher Benefit Services, looks at how healthcare organizations are updating their physician pay practices to reflect an evolving reimbursement climate.

Aurora Young, a managing director in the physician services practice of Integrated Healthcare Strategies, gives her take on the survey data and market trends. Here are four takeaways.

1. Medians are becoming less meaningful

While national survey data remains the foremost factor in physician pay practices across specialties, it's far from the only factor at play. More local variables such as payer reimbursement, clinician supply and demand, and the prominence of quality incentives (which may be offered as carve-outs or additional earnings) make arriving at an offer decidedly more complex.

In surgical specialties, for example, productivity-based payment rates are determined by national survey data (85%), regional survey data (42%), local market norms (38%), financial affordability (37%), and negotiated rates (18%), according to the survey, which allowed participants to select multiple production metrics.

"Local factors mean that not all organizations can afford to pay at the median," says Young. "They're being more nuanced than in the past. They're not just opening a book, pointing to the median, and saying, 'That's what we'll pay.' "

2. The move to value isn't as slow as it looks

Consistent with other national survey data, healthcare organizations are tying a rough average of 10% of physician compensation to quality or value-based incentives.

Despite the industry's seemingly drawn-out transition to value-based care, that level is "about right," says Young.

"Most of our clients will say that their actual reimbursement coming from these value-based initiatives is less than 5%. So to be at 10% of pay for physicians is actually outpacing reimbursement a bit. They're recognizing that they need to be preparing themselves and aligning their pay models with what they expect to be an increase in those value-based initiatives and the reimbursement dollars flowing from that."

On the other hand, organizations in regions with reimbursement moving more quickly into value-based care are more aggressively targeting 20%–30% in performance-based pay.

"It's a balancing act for organizations," Young says. "You don't want to necessarily be too far ahead of your market, and you don't want to be behind the game."

Note that Gallagher's 2017 survey reveals that 84% of physician compensation plans included a qualitative and/or operational incentive opportunity, an increase from 80% in 2016.

3. There's more to productivity than meets the eye

"What might be driving compensation per work RVU up, even though production hasn't changed, is the layering of additional payments into the structure," Young says.

"You're asking your physicians to spend more time to support non–wRVU generating/value-based initiatives, such as advanced practice clinician supervision and medical directorships. Those are additional cash compensation components in the published data, so they are helping to drive up those rates per wRVU."

4. Sometimes metrics miss the mark

Across specialties, fewer than half of physicians surveyed (41%–47%) earned most (81%–100%) of the incentive dollars they had the opportunity to acquire. Meanwhile, almost one-third (22%–32%) took home 20% or less of the incentives offered.

Having high numbers of physicians falling close to all-or-none extremes may indicate that the difficulty of achieving incentive targets was not well-matched to the level of risk organizations sought.

"One conjecture is that organizations whose physicians are earning all of the incentive may have attempted to establish metrics at hard-to-earn levels and missed the mark. And some organizations that moved quickly into value-based payments could have unintentionally set their metrics to stretch-level performance," Young says.

Finding the right balance is challenging for organizations, as is determining whether to offer incentives as an add-on or carve-out. "It comes down to financial sustainability," she says. "At most organizations, reimbursement is not going up. If they have the same pool of funds to work with, and no additional dollars from payers, they're going to be more fiscally conservative about how they incorporate these incentives."

Debra Shute is the Senior Physicians Editor for HealthLeaders Media.

Get the latest on healthcare leadership in your inbox.