Why Many Physician Compensation Plans Fail

Physician compensation is a key source of physician satisfaction or dissatisfaction. And it is the number one reason why physicians leave groups.

Medical groups need the stability that comes from close attention to each group's unique requirements.

The most common failing is that emphasis is placed on actual plan design. What is needed is a set of clear-cut strategies to build the foundation for good plan designs. 

The following strategies are tools for your practice.

1. The Primary Goal of Your Compensation Plan is the Preservation of the Group

Physician turnover has destroyed many practices. Studies have shown that it costs more to replace departed physicians than their salaries. Additionally, potential replacements see red flags when being recruited to replace physicians who have exited. And, worse, it is not uncommon for the departed physicians to remain in the community or nearby, thereby taking "their" patients with them. This means that the replacement physicians have to build new patient bases. The consequence: The replacement physicians may require two to three years to make any real contributions to the group's overhead.

2. You Can't Please the Entire Group

Consider this, in a six-physician group, you may have five happy campers and only one doctor who is unhappy.  As consultants, we have found that these less-happy souls are usually the top producers and want the formulas changed. A pleased majority is not to be interpreted that the formula is working. For example: we worked with a six-physician pediatric group where the high producer wanted the long-standing, equal-share formula changed to provide more reward for production. The remaining five partners had resisted for some time, since changing the formula would result in less take-home for them. However, if he left, all of their overheads would quickly rise, resulting in much less take-home than if he stayed. We also pointed out that a replacement pediatrician would not be as productive for some time.  For these five, it was choosing a little less income versus a lot less income. They chose to allow him greater rewards, agreeing to a production-based formula.

3. Annual Review Helpful

It helps to anticipate changes. In too many cases the physician requesting changes has expressed an interest in change, but has not made these requests formally and clearly.  At a later stage, this requesting physician, still unhappy with the current plan may be seeking a quick decision, only to be stalled - and decide to exit. An annual review with each physician member of the group may help pick up "early warning" signs of dissatisfaction.

4. One Size Usually Does Not Fit All

Surgery groups usually have different formulas than primary-care practices that are, in turn, different than medical specialists. Some multi-location groups have found that formulas that apply to one locality may not apply to others. One same-specialty practice could be hard-charging; another, more laid back. For example, one of our client internal medicine groups, valuing time off, opted for eight weeks of vacation per year and is willing to take home less. Others thrive on production, working more hours per week and per year.  This is where the annual review, the one-on-one discussions with each physician, the review of production data, can all be combined to arrive at improved formulas, when called for.

These guidelines may help you address a critical part of group success. Before defining compensation formulas, focus first on simple strategies: 

- Keeping the group together;

- Recognition that not everyone is pleased with current or new formulas;

- An annual review with all group members to let them know that their opinions matter;

- Different groups may require different rewards and different formulas.

Many physicians and administrators know they cannot impartially review their compensation plans.

They often determine that these sensitive issues are best left to outside experts - who are not involved with the physicians on a day-to-day basis. Instead, they have relied on their accountants or practice management consultants.