How To Develop a Physician Compensation Plan

There is a simple reason why physician compensation must be altered in a practice, even if it is a long, painstaking process that can anger many in your organization.

“What drives culture? It’s physician behavior. What drives physician behavior? Physician compensation,” said Frank Ford, president of Ford Zipf & Associates, a consultancy firm in Concord, N.C. “If you have issues with misalignment of physician behavior and where you are trying to go as a practice, that’s why you have to change physician compensation.”

Ford, along with Meghan Wong, from the Medical Group Management Association’s (MGMA) consulting group, spoke on physician compensation design at the MGMA’s Annual Conference, held this year in Nashville, Tenn.

The length of the process of revamping physician compensation depends on the size of a practice. For smaller practices, it’s easier and will take about three months, Ford said. For larger practices, it will take more than a year to get done. It’s better to roll it out over time, he said.

Ford said the place to start is to do research and analysis. “Most of [research and analysis] is making sure you know how your compensation model is performing today,” he said. “You may find out the compensation model isn’t broken, it’s just not communicated well.”

This process includes conducting surveys with physicians and interviewing them one on one. For the latter, if you are working in a large physician group, this will mean finding the right physicians to represent the masses, rather than talking with everyone. More than just getting their feelings on the current compensation plan, practices will want to reassure physicians why it’s being redone and that it’s not a scam to cut their pay. A select group of physician champions should be included in the compensation design committee, he said.

Drawing Up the Plan

Once that part is done, practices should figure out what compensation model works best for them. Ford advised practices and physician groups to start with two to three concepts and figure out an overall theme. The practices will have several considerations for its compensation model, including new physicians who will be salaried for a year, part-time physicians, and non-physician providers (NPPs).

Practices should identify how much of the physician’s compensation will be a base and how much will be incentive-based. Ford said if a practice has paid totally on relative value units (RVUs) and salary, it should start low on incentives. “You want to develop trust in the system and the data and the model,” he said. Also figure out how many times per year you will draw and pay out incentives. “Some do it semi-annually; I don’t recommend that. The more frequently you [pay out] should be the norm,” he said.

Most incentives will be around reducing costs and improving care. Ford said there are two kinds of incentives: measurable objectives and those based on behavioral subjectiveitems. If you use the latter, there will be less trust in the model from physicians. Another decision around incentives practices should consider is whether or not the funds used to pay them out will internal or external sources, such as government or insurance-based reporting programs. When paying out incentives based on quality of care, Ford advised practices to start with data familiar to physicians.

Other than incentives, practices will have to figure out how base compensation derived from production targets will be designed. This means establishing what money with RVUs is based on - survey data, ancillary income, or expected net income. Other elements will have be tied into the compensation plan as well and practices should be covering all of their bases, especially those in a large group. “What [practices] don’t want to do… is change 5,000 contracts,” Ford said.

Lastly, Ford said with any new compensation plan there will be winners and losers. Practices should do an analysis and test to find that information out, because they won’t be able to afford turnover in key specialties should the new plan lead to staff defection. Plan redesign may be necessary.

Coming back to the implementing this plan slowly point, he said a good idea would be to start with the specialties who will do better under the model and “create inertia.”