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Leadership Coaching Corner

A Problematic Repeating Pattern of Physician Beliefs in Community Hospitals and Health Systems

Daniel Zismer, Ph.D.

The following article was featured in The Governance Institute's E-Briefings in May 2019. Article includes contributions from Daniel K. Zismer, Ph.D., Greg Carlson, Ph.D., Greg Hagfors, M.B.A., and Elliot D. Zismer, M.S. For more information visit

Article Overview

Most community hospitals and health systems in the U.S. are in a transition from independent physicians dominating the composition of medical staffs to employed physicians assuming this position. Depending upon where an organization is in this transition, the relative proportion of these two groups can create challenging dynamics for organizational success and stability. Governing boards, along with senior leadership teams, should understand how related dynamics and potential “situational disorders” can affect organizational performance and culture.

Key Board Takeaways

Governing boards should work with senior leaders and physician leaders to understand:

  • The status and expected direction of the ratio of employed to independent physicians, by specialty, over the next five years with related rationale presented by senior leaders.

  • The organization’s current and projected net operating margin and net operating cash flow productivity derived from the work of employed and independent physicians over the next five years.

  • The “alignment” of key stakeholder groups on the whole of the variable set presented here to serve as a road map to the integrated culture that will be required to effectively meet mission and strategic goals in the face of increasingly complex health policy and related market dynamics.

Culture Alignment, High Performing Healthcare Organizations and the Role of Governing Boards

Daniel Zismer, Ph.D.

Castling Partners together with the Keystone Culture Group are pleased to provide you with our recent contribution to the Governance Institute’s “E-Briefings”; March, 2018.

“Culture” and the alignment of culture throughout an organization is an aspect of health system performance where trustees can take an active role. This article provides a practical perspective with a view on how Culture Alignment plays a role in professional sports teams that perform at the championship level.  Please access the article by clicking the link below.

Culture Alignment, High Performing Healthcare Organizations and the Role of Governing Boards

Ten Lessons for Physician Leaders in Integrated Health Systems

Daniel Zismer, Ph.D.

Career opportunities for physicians as senior leaders within integrated health systems will increase. “Leading Culture” will likely become the larger portion of the Physician Leader’s portfolio of responsibilities. This installment of Castling Partners’ “Leadership Development Series" provides physician leaders guidance on how to integrate their personalities and “natural tendencies” with their leadership style and approach to better encourage a healthy and productive organizational culture.

You may access the article by clicking on the following link:

Ten Lessons for Physician Leaders in Integrated Health Systems

Organizational Compact: A Foundation for Transforming Culture

Davis Fansler

Throughout our consulting work, it’s become very clear to us that developing a truly shared and unified approach to integration and the requisite planning that’s essential for its ultimate success is often difficult without a shared, documented commitment to that effort.  The latest issue of Castling Partners' Leadership Development Series focuses on the Organizational Compact and its importance as a foundation to transform culture.

You may access the article by clicking on the following link:

Organizational Compact: A Foundation for Transforming Culture

Avera Health's Success with Clinical Service Lines and Dyad Leadership

Daniel Zismer, Ph.D.

This installment focuses on Avera Health's journey with the creation and development of clinical service lines and dyadic leadership. Avera's Executive Leadership Team has "gone all in" with its commitment to this effort. Craig Hohn provides useful guidance to healthcare leaders who are contemplating the model as well as those who are at the front-end of implementation.  Please click the link below:

Avera Health's Success with Clinical Service Lines and Dyad Leadership

The Social Psychology of Clinical Service Line Management

Daniel Zismer, Ph.D.

Castling Partners is pleased to release the next installment of our Leadership Coach series; "The Social Psychology of Clinical Service Line Management; A Model and Method for Dyads to Understand and Manage The Inevitable Situational Disorder", by Daniel K. ZIsmer, Ph.D., Managing Director | Co-Founder.

This installment applies a useful social psychology theory to the understanding and management of the inevitable day-to-day challenges of leading and managing complex clinical service lines. The approach and related methods provide a useful tool for the dyads in charge. 

Please subscribe to our mailing list to ensure delivery of future articles.  We hope you find this installment useful.  


Leadership Interview Series: "Legal Considerations of Evaluating Productivity - David Melloh, J.D."

Daniel Zismer, Ph.D.

Castling Partners provides the "Leadership Interview Series" to bring useful experiences and lessons learned to our clients and friends of the firm. Our aim is to support the ongoing development and performance of health and healthcare leaders. 

Issue 2: David Melloh, J.D. assists us in addressing an important and often perplexing question regarding legal regulations and the examination of the productivity performance of the integrated medical enterprise (Please follow the link to view the interview):

Are Leaders of Community-Based Health Systems Permitted to Examine and Analyze the Productivity Performance of the Integrated Medical Enterprise; the Productivity of Employed Providers?

Leadership Interview Series: "Building a Championship Culture - Ben Utecht"

Daniel Zismer, Ph.D.

Castling Partners provides the "Leadership Interview Series" to bring useful experiences and lessons learned to our clients and friends of the firm. Our aim is to support the ongoing development and performance of health and healthcare leaders. 

Issue 1, "Building a Championship Culture", interviews Ben Utecht, tight end for the 2006 Super Bowl Champion Indianapolis Colts.  The discussion focuses on how a "Championship Culture" is vital to success on the field and within organizations.

Please follow the link below to read the interview:

Leadership Interview Series Vol. 1 Issue 1: "Building a Championship Culture - Ben Utecht"

Physician Compensation: Crossing the Chasm from Volume to Value

Davis Fansler

We are in the midst of a monumental move away from predominant fee-for-service reimbursement models in favor of structures that pay for value in healthcare. While fee-for-service reimbursement is expected to be a part of how health services are reimbursed for the foreseeable future, payers are beginning to reward accountability for clinical quality, population health, cost reduction and patient experience. Physician compensation plans that pay clinicians exclusively for volume are evolving to incorporate incentives for improved outcomes and exceptional patient experience. Failure to do so, could jeopardize the viability of a provider organization, whether large health systems or small independent practices. 

Traditionally, physician compensation plans may have been viewed merely as a formula for dividing the physician compensation pie into individual slices. More recently, many health care organizations have found benefits in viewing their physician compensation program as a strategic tool to maintain or grow the size of the compensation pie by aligning incentives with key strategic initiatives. Organizations should be mindful about how their physician compensation plan can help their business stay relevant and nimble in the face of sweeping payment reform. If current strategic plans and/or compensation models are in conflict with the direction of healthcare reform, they must be updated.

You Get What You Pay For

If physicians are compensated primarily on productivity, such as work Relative Value Units (wRVUs) or net receipts, a higher volume of services is what physicians will likely produce. This leaves few incentives for a physician to devote time and effort to the improved clinical performance of the practice. Many argue that this overemphasis on quantity and volume has led to a costly system with little focus on accountability for cost and quality.

Newer compensation methodologies do include incentives for productivity, quality and patient satisfaction.  Estimates vary on how widespread the trend is but a survey by HealthLeaders Media noted that 57% of physician compensation plans factor in quality metrics and 50% used patient satisfaction to guide physician payment incentives. This trend is expected to rise significantly in the coming years, especially with improved access to reliable measurement tools and metrics.

Quality and patient satisfaction incentives still represent only a small percentage of most physician compensation packages. One survey suggested these factors comprise around 3-5% of the compensation, but noted an expected increase to 7-10% in the next few years. 

Paying for physician citizenship, time devoted to administrative, strategy or improvement activities should also be considered. Traditionally, these duties have been expected as part of a physician’s job and not paid as a component of the compensation structure. Healthcare reform, however, demands greater physician involvement in non-patient care activities as physicians are expected to embrace and drive benchmarks for quality and patient satisfaction. Building in financial incentives to recognize and encourage the increased participation is recommended.

The trick is to create a balance that will keep physicians productive, motivate responsibility for patient care and experience and encourage active citizenship to guide improvements.  Working toward 60-80% production-based pay, with the remainder at risk based on other incentives, may be a realistic goal for many organizations over the near term, though most are not there yet.

Considerations for Hospitals and Health Systems

Health systems have advantages to incorporating qualitative outcome-based measures into physician compensation plans. 

First, they typically have more capital to help ease the transition to new compensation models. This means they can set aside funds to create a “soft landing” for physicians whose income could be negatively impacted by the new measures in the short-term. This capital allows time for physicians to adjust their practice without drastic and sudden negative financial consequences. 

Second, health systems often have better developed health information technology (HIT) infrastructures to access and measure quality data. It is an advantage to have internal staff with the skills to extract important quality metrics. 

Third, health systems and hospitals tend to have significant leverage with payers to negotiate for nonproduction-based reimbursement models. Negotiating payment for population health initiatives such as medical home models can be easier for larger health systems, for example. Incorporating quality and patient satisfaction incentives into physician compensation packages is an easier sell when payers are already reimbursing for them.  

One of the main challenges for tax-exempt hospitals and health systems is that greater attention must be given to regulatory and compliance issues. Physician compensation cannot exceed fair market value parameters in order to comply with the Stark and anti-kickback laws and other IRS regulations. Independent review is necessary to ensure compliance when considering changes to the compensation model or when negotiating with new physicians. 

Needs for Small to Medium Sized Independent Physician Practices

It is no secret that independent group practices face significant obstacles to survival. Independent medical groups can survive, but only by being nimble and responsive to the payment reforms. Remaining indispensable in the healthcare marketplace will require a shift away from production-only compensation that still dominates independent practices. To do so, three considerations should be on the strategy board:

1.    Build a Solid Foundation for Data Collection. Determine what useful quality metrics can be gleaned from electronic health records and collect patient experience data from surveys. The practice must develop ways to regularly measure and report group and individual results to providers, patients and payers. 

Engaging payers to learn their priorities will be important in determining metrics to start tracking. Independent practices often lack the leverage with payers that larger health systems have. Even so, payers are becoming more open to working with smaller groups to incentivize items that impact quality and overall cost of care such as cancer screenings, immunizations, coronary artery disease management and wellness checks. 

Even if payers are not ready to pay for non-production items just yet, getting ahead of the game to understand what measures they are most interested in for the future is useful to know now. Practices do not need to wait for payers to catch up before building non-production incentives into their compensation.

2.    Strong physician leadership development. Surviving the shifting reimbursement environment takes strong physician leaders devoting time to strategy and business planning. 

When physicians are not compensated accordingly for these efforts or given proper authority to direct changes, the result is usually a practice with minimal focus on strategy. This is dangerous when haphazard planning and lack of responsiveness to reforms can mean the death of an independent physician practice.

A culture of patient first, organization second and physician third must be established. A commitment to such a culture will be paramount given that culture eats strategy for lunch every day. As a result, leaders must convince colleagues to adjust autonomous behaviors in favor of group goals such as reducing variation or improving patient experience. This is especially difficult if physicians were attracted to the independent setting to preserve their autonomy.

3.    Design compensation to compel physician accountability for outcomes and behavior. A solid compensation plan should incentivize physicians to redirect their efforts toward patient centricity and the shared goals for the practice beyond mere volume. 

Capital restraints, autonomous practice culture and limited HIT are some barriers independent practices often face to creating a successful, strategic compensation plan for the new era. These are not insurmountable challenges for medical practices willing to do what it takes to stay independent and indispensable. 

Finding the Right Formula

There is no one-size-fits-all physician compensation formula. Multiple factors must be considered including:

  • local/regional marketplace comparisons
  • fair market value 
  • practice specialties
  • capital available to fund a transition 
  • relationships with payers 
  • current physician contracts 
  • group culture
  • access to quality, cost and patient satisfaction data

It is critical to seek help from an expert experienced in developing strategic physician compensation plans. This will ensure that the plan considers important aspects of the changing marketplace, complies with regulatory standards and is tailored to the strategic goals of the health system, hospital or independent practice. 

Physician Compensation: Key Design Principles for the Independent, Health-System Sponsored, and Faculty Plan Platforms

Davis Fansler

Physicians across the United States have long struggled with the best method to compensate themselves, whether as independent physicians, as members of a faculty plan, or as health system-employed physicians. In the last 7 years, the number of health system-employed physicians has risen from 24% to 49% of all physicians. It is expected to reach 75% within the next 3-5 years. While there will always be independent physicians in most markets, three of every four physicians will be employed by health systems before the end of this decade.

While there have long been varying views on the extent to which physician compensation drives desired behaviors, most agree the design of any compensation plan is an important ingredient in delivering and sustaining strong performance within any of the platforms that may employ physicians. This article will first explore the overarching design principles and characteristics that should be connected to any compensation plan. Then it will provide some specific design principles and components related to the three primary employment platforms for physicians—independent medical practices, hospital or health system-sponsored arrangements, and faculty plans. 

Connecting the Compensation Plan to the Strategic Business Plan

At its roots, any physician compensation plan (or all compensation plans for that matter) must be connected to the sponsoring organization’s strategic business plan. Interestingly, however, many sponsoring organizations, particularly smaller to medium-sized medical groups, lack such a “roadmap.” Any organization should have well-understood strategic goals and business objectives laid out for the short term (one year or less), intermediate term (three years or less), and long term (five years). The provider (and non-provider) compensation plan goals should always be geared toward encouraging the necessary behaviors to help achieve the organization’s strategic objectives. Accordingly, the plan’s goals may relate to practice growth (new physicians, service lines, sites, etc.), improved provider productivity and revenue capture initiatives (coding, documentation, etc.), quality measures (PQRI, NCQA, etc.), and/or service excellence (patient access, patient and/or referring physician surveys, etc.).

Too often compensation plans focus on individual provider productivity and not enough on building and maintaining a well-performing organization. The best plan is organically built, well understood by all physicians in the practice/group/organization, and reviewed and updated regularly to be sure it is appropriately linked to the business plan. 

In essence, this “roadmap” is a promise, a promise to all stakeholders—physicians, staff, patients, families, community, local hospitals—and every effort must be made to keep it, each and every day.  

Overarching Goals of Any Compensation Plan

Here are some critical goals any physician compensation plan must deliver:

•    Attraction and Retention – The compensation plan must attract and retain physicians by offering the opportunity to earn market rate levels of compensation for market rate effort. In addition, the plan must allow for other important contributions to the organization’s growth and market position by compensating for non-clinical activities, including, for example, citizenship (community activities, hospital directorships, group leadership, etc.). Doing so will provide physicians with alternative means to contribute to the organization’s success that are both stimulating and rewarding. The physicians must have faith they are compensated fairly when they “do the right thing.” They also must feel comfortable they have a say in what that “right thing” is.

•    Motivation – As described above, a good compensation plan is well woven into the organization’s strategic business plan. Accordingly, the plan must contain the necessary incentives to better ensure the goals and objectives of that business plan are met. This provides motivation for physicians to become more productive, efficient, and clinically effective practitioners and helps support physician retention.

•    Fiscal Responsibility – The compensation plan must be affordable. That said, the term “affordable” may have different meanings depending on the practice platform. In a private medical group, affordable means the bottom line. In a health system or hospital, it may mean a limit on its “investment” in its physician strategy and further constraints by fair market value limitations. Similarly, in a faculty plan, a balance must be struck between paying market rates for faculty, based on rank, and paying what’s affordable after tuition or state funding has been received. This often puts additional pressure on the clinical practices within the faculty plan to help fund academic efforts.

•    Internal Equity – As with “affordable,” the term “equitable” may have different meanings depending on the employment platform. In an independent practice, any restructuring of the compensation plan usually results in some physicians making less while others earn more because the compensation pool has little elasticity. As a result, “equitable” ultimately equates to the “least unfair to all.” In a faculty setting, it often reflects the interest in compensating teaching as well as clinical efforts.             

•    Reward Quality and Efficient Care – This has been more or less cavalierly handled in the past. But despite the recent reform law’s relatively light emphasis on cost containment, it is becoming increasingly clear that quality and cost are becoming very important. Although patients tend to take for granted a positive outcome to their health issues, studies are clearly showing that delivering an exceptional patient experience is equally important to clinical quality. So while tracking and rewarding consistent adherence to PQRI, NCQA, and other standards is important, equal emphasis must be placed on delivering exceptional customer service. With patients absorbing more of their health care costs, they are demanding this.

In summary, any reasonable compensation plan should possess the following characteristics:

•    Be aligned with the mission, vision, and business plan of the sponsoring organization.

•    Be sustainable over time.

•    Be aligned with marketplace demands.

•    Be affordable and sustainable beyond the immediate economics.

•    Be easy to understand and administer.

•    Have attainable goals and targets for participants.

And remember – “If you can’t measure it, don’t pay for it.”

The following explores the specific employment platforms and the unique characteristics and principles that are generally attached to each compensation plan:

Independent Practice

As stated above, developing a compensation plan within an independent medical practice has some challenges. First, the compensation pool is the net income of the practice and earnings are rarely retained. Therefore, any new compensation plan will result in some physicians making more than before and others less. This sometimes makes approval of the new plan difficult, which relates to the second challenge within this platform—governance. Decision-making in a smaller to medium sized practice tends to be consensus-driven. Even a larger medical practice, when it comes to approving a new compensation plan, typically requires a vote of the physician shareholders. Consequently, while the “least unfair” approach to compensation design may be desirable, garnering the necessary support to actually get a new plan approved can take some time and even lead to some attrition among the physician ranks. In many independent practices, where one vote is awarded per shareholder, it becomes difficult to change the compensation plan when certain physicians are asked to vote for a pay decrease to keep the group together.  

Another challenge for a medical practice relates to lifestyle issues. More often physicians are seeking a balanced lifestyle. Studies show that on average physicians are working four hours less per week than their peers 30 years ago. This is the equivalent of 36,000 fewer physicians, which only compounds the shortage crisis, particularly in primary care. Such lifestyle issues can cause problems with the call schedule, which inevitably is intertwined with the compensation plan. In addition, with the economic downturn, retirement plans for many physicians have been put on hold. This often widens the demographics of a practice and makes succession planning tough, which causes further strains on both the compensation plan as well as group harmony overall. 

It is advantageous for a practice to have clear retirement and call policies in place before it delves into a redesign of the physician compensation plan. This is an important ingredient of strategic planning that cannot be emphasized enough. 

Finally, physicians within a practice may have very different payer mixes. Pediatrics versus internal medicine is a classic primary care example. This can create income distribution challenges as well, which is why we typically support the use of work RVUs (wRVUs) in any compensation plan, given that they are payer neutral and most fairly measure clinical effort.

With these challenges, what are some fundamental characteristics and components that should be considered when an independent medical practice pursues a new compensation plan?

•    Use of wRVUs – As stated earlier, we generally subscribe to the use of wRVUs as a productivity measure because it is payer neutral and does not penalize a physician that may have a less favorable payer mix. It is also easier to administer when compared to using the practice’s net revenue as the starting point. Generally, the wRVU measurement serves to create the base compensation for each physician, whether that is considered a salary or draw. We often suggest the use of tiers where mean productivity and conversion factors are established based on the practice’s most recent fiscal year performance. Tiers above and below that mean can then be established that would carry higher or lower conversion factors, respectively, to further encourage improved productivity. The bottom line is this: if a physician practices at the “mean” productivity, the starting point of compensation should be the “mean” of the national/geographic surveys. Depending on the practice’s operations and geography, other factors can be measured and rewarded based on performance.  

•    Allocation of Costs – In an independent medical practice where there can be widely disparate levels of productivity due to lifestyle and/or imminent retirement plans, it is typically best to allocate certain costs to each provider. These would likely include each physician’s nurse, mid-level, or any other personnel who work directly for that physician. Other costs may also be directly allocable, including drugs (e.g., chemo), office space, equipment leases, etc., as appropriate.

•    Incentive Bonus Pool – The creation and use of an incentive bonus pool as part of the total budgeted compensation pool is also encouraged. Typically, this should be no less than 10% of the total pool and no more than 30%, depending on the importance and urgency of the strategic business objectives and performance improvement initiatives of the practice. Most Human Resource managers suggest that unless 20% of a person’s paycheck is in the form of incentives, behaviors will not change. The following are typical areas that could be incorporated into an incentive:

o    Quality measures 

o    Patient experience/satisfaction 

o    EMR implementation 

o    Chart documentation and service coding

o    Cost containment

o    Citizenship/leadership activities 

It should be noted that the bonus pool can also serve as a budgetary cushion. Therefore, a bonus pool will exist only to the extent there is one after each quarter, year, etc. 

The components described above fulfill many of the fundamental characteristics of an effective compensation plan—the structure is simple and easily administered; the incentives tied to the bonus pool can change each year depending on the practice’s strategic and/or business objectives for that year; it’s affordable and sustainable; and it delivers reasonable internal equity.

Health System- or Hospital-Sponsored Group or Network

Compensation plans within a hospital-sponsored group or network typically have many of the same characteristics and components as the independent practice platform. But there can be important differences:

•    The size of the compensation pool tends to be more driven by the group’s/ network’s performance and the amount the hospital wishes to “invest” in their physician strategy each year. Therefore, the compensation plan is able to more consistently deliver market rate compensation levels, which an independent practice may struggle to do, particularly if it is in a poor payer environment.

•    Incentives within the bonus pool can also have very different features. For example, there may be incentives tied to the hospital’s overall financial performance. Quality measures may also be more hospital driven.

•    The most critical aspect of these compensation plans, however, is their ability to encourage a greater sense of “groupness” among the physicians in order for the hospital to achieve the benefits of its physician strategy. Most physicians who become employed by a hospital don’t do so to necessarily join a larger, fully integrated medical group. They do it for financial and market security. As a result, many networks are mostly a collection of smaller or individual practices, and it is very difficult to deliver accountable care in the absence of true physician collaboration.     

•    The use of professional services agreements (PSAs) as an alternative to physician employment by a hospital bears mentioning. In these instances, the medical group retains its professional corporation, which continues to employ the physicians. The hospital acquires and/or leases the medical practice’s assets and enters into a PSA with the medical group. While it is ultimately up to the physicians how they divide up the payments received through the PSA, many of the same mechanisms (e.g., use of wRVUs and conversion factors) and incentives can and should be built into the agreement. Therefore, the PSA is in many ways a compensation plan; it’s simply at a group level rather than an individual provider level.

Faculty Plan

What obviously distinguishes a faculty plan from the other two platforms are the teaching, research, and other scholarly activities required of its physician faculty members. The biggest challenges typically encountered in these situations include the following:

•    The departments or divisions within larger departments (i.e., surgery, medicine, etc.) tend to operate as autonomous silos. As a result, not unlike the hospital-sponsored group, there is very little cohesiveness or “groupness” among the departments. Operating policies and procedures can vary widely. Patient satisfaction and access can also run astray because there is no incentive for departments to ensure they maintain open doors.  

•    Department chairs are vested with a lot of authority, including how departmental dollars for physician faculty compensation get distributed. Therefore, there can be many different compensation plans operating within the faculty plan.

•    With cutbacks in state funding and/or the decreasing degree to which tuition dollars adequately support the teaching mission of the medical school, there is increased pressure on the physicians to make up the difference through clinical productivity. Such a tendency risks financially penalizing faculty for their teaching efforts. It’s important to reward teaching equally with clinical effort. As is often said in these circles – “No margin, no mission.”

Given these challenges, the following guiding principles will assist when pursuing a compensation plan design effort:

•    Quantify the school’s teaching, research, and scholarly requirements of its physician faculty (this excludes the basic sciences component). With all of the self-reporting of activity, there are inevitable abuses in how faculty time is actually spent. So for each department, division, and even faculty member, establish their expected teaching effort each year as measured in hours. For example, establish standards for prep and delivery time for a new lecture. This is a relatively straightforward effort, although understandably more difficult for the GME years, particularly when it comes to inpatient and outpatient rounding. Given that these activities actually generate patient revenue, the question really is the extent to which rounding with residents impacts or “drags” the productivity of the attending physician. It may help to use a common “drag” to accommodate this. 5%-8% is usually a reasonable estimate, meaning a physician rounding with residents should equal 92%-95% of a physician rounding without residents in terms of clinical productivity. Once the teaching requirements are “walled in” and distributed among the faculty, it is possible to determine the extent to which tuition and/or state funding covers that cost and, therefore, the extent to which clinical productivity must make up the difference. Once teaching, research, and scholarly activities are properly quantified and distributed among the faculty, clinical productivity capacity can be determined and baseline productivity targets can be set for each physician and rolled up to the division and department levels. 

•    Here are some ideas to further encourage “groupness”: 1) set departmental productivity bonus targets. Physicians can’t earn productivity bonuses until the department hits its target. Given that there is often a wide variation in productivity levels, particularly between newer and older physicians, this can be a useful mechanism to encourage better distribution of patients; 2) create incentives to implement standardized policies and procedures in areas such as patient scheduling, coding and documentation, and implementation of an EMR/EHR; and 3) focus on quality measures such as the use of PQRI, NCQA, and other measures. And don’t forget patient, referral physician, employee, and student satisfaction surveys and initiatives.      


While there are fundamental characteristics and principles that accompany any physician compensation plan, depending on the employment platform, there are some nuances that need to be considered. All plans generally should encourage productivity, strategic growth, cost containment, quality, and patient satisfaction. However, in the independent practice, it’s about developing a plan that’s the least unfair to all. In the hospital-sponsored setting, the key is generally to encourage “groupness,” and with the faculty plans, it’s usually about “groupness” and managing teaching time. 

All of these goals, while they may seem complicated, can be accomplished with relative simplicity, ease of administration, and sustainability. In our experience, an annual review of the goals is essential (with minor or even major changes needed). No compensation plan should be the same every year for 3-5 years. The 2010 health reform law and a medical group’s ability to recruit and retain the best physicians each year are two examples of why constant review is essential.


Clinical Service Line Strategy: Managing the Risks of Geographic Expansion

Daniel Zismer, Ph.D.

Please accept our invitation to read the Zismer/Schuh article reprint from the the July issue of the Healthcare Financial Management Journal [HFM] titled:

"Clinical Service Line Strategy, Managing the Risks of Geographic Expansion"

This article demonstrates a novel approach to the understanding of whether a CSL is scaling up "economically or dis-economically". This method is designed to be a practical management tool for CSL dyad leadership teams.

You can view this by clicking the "Download" button below.  We hope you enjoy this work. 

Apparent Agency Risks and Co-Management Agreements with Independent Specialty Physicians

Kevin Egan, J.D.

Apparent agency is a legal doctrine which imposes liability on a system or hospital for the actions of an independent physician, often unexpectedly.

The co-management of various clinical functions between institutional providers such as hospitals and legally separate, independent physicians or groups is understandably more and more common in the healthcare industry, for many practical reasons. Co-management today often sees hospitals entering into contractual relationships with “independent” groups of physicians who provide management and leadership functions traditionally handled by employed personnel. These efforts are made in the name of clinical integration and quality of care. 

However, the use of these structures generates institutional liability risks which all need to recognize. Many jurisdictions now apply the doctrine of apparent agency in healthcare settings, resulting in the imposition of liability upon the institutional provider for the misdeeds of independent practitioners. Typical of these is Gilbert v. Sycamore Municipal Hospital, 622 N.E. 2d 788 (Ill.1993).

Gilbert involved a rather simple fact pattern, which saw the plaintiff present to Sycamore Municipal with chest pain. A local multi-specialty clinic had contracted to supply emergency room coverage and a member of that group saw the plaintiff, ordered several tests and discharged him. Several hours later, the plaintiff returned via ambulance to Sycamore Municipal, where he died of cardiac arrest. In concluding that the hospital could be held liable for the actions of the independent group which treated the plaintiff, the Illinois Supreme Court recognized that it was reasonable for members of the community to rely upon the hospital, its reputation and those who, by all appearances, acted as if they were hospital employees.

The Court, in effect, concluded that the hospital “held itself out” as responsible for the care provided by the physician without distancing itself in any manner from the actions of an otherwise independent practitioner. In this setting, the appearances observed by the plaintiff when presenting created a set of facts that led the Court to conclude that apparent agency existed when the plaintiff was cared for at the hospital.

This foundation has been expanded in the healthcare setting over the past 20+ years by other jurisdictions and a number of factors have been recognized as creating apparent agency as viewed from the patient’s perspective. Here, appearances are dangerous and can override the most carefully drafted independent contractor agreement.   See, e.g. Wilkins v. Marshalltown Medical and Surgical Center, 758 N.W. 2d 232 (Iowa 2011) and Pamperin v. Trinity Memorial Hospital, 423 N.W. 2d 848 (Wisc. 1988). Today, the doctrine is applied in most jurisdictions when the facts and trappings surrounding problematic outcomes lead to the conclusion that a physician or group providing care or management was seen as an agent or an employee of the hospital or system where the incident occurred. Factors such as the function or nature of the services or leadership provided, the marketing of a given program or service line and the manner in which services were delivered are critical to the creation of apparent agency; each case is very fact-specific.

It should be noted, however, that not all jurisdictions have evolved to this point. For example, Minnesota has not yet extended the apparent agency doctrine to the healthcare setting, although some of its courts suggest that such an extension is now appropriate. (See McElwain v. Van Beek, 447 N.W.2d 442, (Minn. App. 1989).

Hypothetical Case

Community Hospital (CH) struggles to effectively operate its cardiac service line. In an effort to improve both financial profitability and clinical performance, CH contracts with an independent group of cardiologists to supply critical services needed to manage important aspects of the service line.

The contract between CH and the group includes a set of financial incentives for cost savings and perhaps a gain-sharing component. The group chooses to exercise its contractual authority and authorizes the use of an additional and lower-cost brand of implantable cardioverter defibrillator (ICD), which benefits the group financially. As use of the new brand of ICD expands at CH, problems with them begin to affect patient care; leads break and removal is challenging. The manufacturer of the ICD begins a recall of the defibrillator, fearing national liability risks.

Internal counsel commences an inquiry; it reveals that one member of the group, who utilized the problematic ICD at a much higher rate than any other cardiologist, was paid a significant consulting fee by the company which manufactured the troublesome ICD.  

Litigation is on the horizon and CH wonders if it can avoid these challenging facts and liability for the management activities of the group, which it still views as independent.  


Both practitioners and institutional providers need to be aware of this often-hidden risk, which cannot be eliminated simply by rewording a contract or two. 

A thorough approach involves an institutional recognition of these concerns, coupled with clear discussions of the risks inherent in clinical service line co-management. Attention to operational detail is the key. It is prudent to initially survey the universe of contractual co-management relationships in place to get a feel for what is being “outsourced” to allegedly independent physicians. A review of all program marketing efforts, including the following, is critical:

  • Service Line Advertisements,
  • Phone listings,
  • Billboard usage,
  • Television and radio campaigns,
  • Social media use,
  • Health fair flyers,
  • Web page referrals,
  • Office locations,
  • Logos, name tags and coats, and
  • Consent forms.

Senior leadership needs to perhaps modify these marketing tools subtly so as to minimize the presence of factors that might lead a court or a jury to conclude that apparent agency exists. Finally, since this risk will always be present to a degree in the co-management setting, insurance carriers likewise need to work with all to assure that appropriate coverage is present. Only by following these steps can the increased use of clinical co-management continue without undue risk or surprise.


February 2016: Role of the Physician Leader and the Psychology of Integrating Physicians with a Health System

Daniel Zismer, Ph.D.

One certainty of the U.S. health system is more consolidation; mergers, acquisitions, partnerships and other integrating transactions. An increasing proportion of these transactions will include physicians; physicians coming directly from training and those who have practiced for years; those who decided “independence is no longer for me (us)”. 

Integrating transactions can take a number of forms with various terms and conditions applied, including varying compensation plans. The point of this installment of Physician Leader Coach is the need for physician leaders to be “at the table” from the beginning to manage the “psychology” of the process; enhancing the odds of success with the relationship building with physicians joining health system.

Regardless of whether the integrating event is an employment agreement or practice asset acquisition followed by employment, the senior physician leader of the organization should be engaged at the beginning of the process to understand the terms and conditions of the arrangement and to prepare the new physician(s) for their relationships with the health system. The “checklist” to follow stems from experience with the “on-boarding” of physicians with integrated health systems. The guidance is provided as a checklist for messaging. 

  1. The mission, vision, values of the organization and their application to ALL who serve patients and other customers of the organization. The message here is “these matter”. 
  2. “You” are now part of an organization with a singular purpose and unifying strategy. To join our organization will cause accommodation to our strategic vision for our organization. While we will respect your autonomy and judgment as a practicing health care professional. This is not a “private practice” eco-system; meaning, we expect collaboration and respect of colleagues and what we stand for.
  3. While you may hold, maintain and nurture a primary relationship with patients, patients are not “your property”. All of us have an obligation and responsibility for their care as well as the experience we deliver. 
  4. All work within a structure, this structure is designed to provide for an environment of respect, fair treatment and mutual support. The structure (and related policies, procedures, related rules and processes) are, by definition, a “bureaucracy”. Our goal is to minimize its intrusion on your freedoms of professionalism and job satisfaction. 
  5. What may be “most efficient for you", may, in fact, impede the efficiency and productivity of the whole? Leadership and management is sensitive to your need to be productive, efficient and proficient in your practice. The goal is to balance your needs with those of the medical practice and the organization overall. 
  6. All practicing professionals are subject to review by peers. Our philosophy of peer review is intended to be constructive and supportive. We believe all practicing professional can improve. The delivery of high-quality, cost effective care is a journey not an outcome. We encourage you to embrace the process. 
  7. There are multiple ways for you to contribute to the ongoing progress of our mission, including ways to lodge concerns and complaints and, when necessary, there is a pathway to “the top” of the organization to make your message heard. Our goal is for you to be heard through appropriate channels. 
  8. With the goal of best care for patients every time, we encourage you to use the resources of the organization, including referrals to other providers within the organization unless, in your professional judgment, patients are not well-served by utilizing resources within the organization, and to the extent that you believe it to be the case, you exercise your responsibility to inform medical leaders of your views with the supporting evidence. 
  9. All members of the organization are expected to be good stewards of organizational resources. Good stewardship does not translate to “the health system just trying to save money”. The messages you convey, to colleagues, staff, patients and their families are important. As a licensed, healthcare professional in the organization you hold a respected position of influence and responsibility as a role model. 
  10. The organization is making a long-term commitment to your professional development and growth as a member of the organization. You are not seen simply as a “producer of revenue”. You are, as are others, the heart and soul of the organization. 
  11. Medical leadership expects to engage you with honesty, integrity and “straight talk”. We expect the same from you. 
  12. We invest in the development of the staff that support you. We expect them to perform at high levels. They are with us for the same reasons as you. While they may be assigned to you, working to serve the patients you serve, they should not be considered “your employees”. This may, at times, cause concern and confusion since staff are partners in our mission, vision and display of common values. 

1-12 above is offered as a framework for establishing a healthy and productive start to a relationship. Experience shows that, often times, too little attention is paid to the psychology of the relationship. 

Experience also shows that medical leaders who take their responsibilities seriously with this process provide a solid foundation from which a productive relationship can begin. Much more often than not, physicians coming on-board will respect the intention and spirit of the process as much as the messages delivered. 

If the organizational structure includes clinical division or departments, the leaders of these units can participate with senior health system physician leaders in messaging the process. 

Non-physician leaders and divisional or departmental managers should know and understand the process so as to be supportive; especially as they participate in the early phases of relationship development with physicians new to the organization.


January 2016: Re-Defining Productivity for Physicians in Integrated Health Systems

Daniel Zismer, Ph.D.

Most of the compensation plans for physicians employed by health systems in the U.S. are productivity-driven with “productivity” defined as the production of a work relative value unit (wrvu). Paying physicians within this model requires the application of simple math skills; the wrvu’s produced for a defined accounting period are multiplied by the internal value established per wrvu and by clinical specialty; that yields the cash compensation earned for a given accounting period. Easy yes, productive, maybe. 

The issue at-hand is the definition of a “productive physician compensation plan” in a U.S. healthcare marketplace that is attempting to (and perhaps struggling to) redefine clinical care strategy. Ostensibly, there is a mounting challenge to the historic, and perhaps, classical definition of physician productivity as an exercise where the goal is to produce as many work units (wrvu’s) as possible within a given accounting period; regardless of the value (positive or negative) delivered to patients and the sponsoring organization. 

Such an approach to compensating physicians is not the norm in a select few organizations. Some, well-advanced, integrated health systems have determined that it is not a principal goal to create an eco-system of incentives based upon a goal of “incenting” physicians to optimize their current cash compensation potential. 

The question on the table is one of “how does a health system define and pay for physician productivity moving forward?”

We go on to frame the issues for physician leaders. Questions lead:

  1. How do we best align the cash income of practicing physicians with the goals of the organization?
  2. Is there behavior pattern potential that we wish to minimize (or eliminate) based upon our organization’s mission and strategic plan in markets served?
  3. Is there a compensation model that remains productive regardless of the financial arrangements made with, or required from payers (including governmental payers)?
  4. Can a compensation model for physicians actually encourage goals for the highest quality patient care?
  5. As we move to inter-professional team care for our patients, is there a compensation model that best encourages the application of experience and talents of providers at varying levels of: skill, experience and licensed scope of practice?

To effectively pursue the framework provided above, physician leaders must understand organizational strategy. Again, questions apply:

  1. How does the organization expect to pursue contracting with commercial payers; is the assumption of financial risk central to the strategy?
  2. Is optimization of financial performance under likely Medicare and Medicaid policy changes a driver of strategy; e.g. become recognized as a “high value provider”?
  3. Will the organization become a leader in effective “total cost of care” management in markets served?
  4. Is brand loyalty a principal goal of strategy; i.e. rising to a superior position in market “mind share”, based upon perceived brand value/brand quality?

With answers to the questions prescribed above, what is the work of physician leaders in the design and management of physician compensation plans? Presuming the organization has decided to pursue the objectives of:

  1. brand value prominence;
  2. effective total cost of care leadership;
  3. superior patient experience outcomes;  
  4. standard of care clinical outcomes; and
  5. required organizational financial performance;

Physician leaders must go about the business of re-designing cash compensation models for health system compensation with the following goals in-mind the model will attract the best and brightest with incentives that extend beyond cash compensation potential:

  1. non-cash benefits;
  2. on-call models;
  3. professional development opportunities;
  4. professional security/ job security;
  5. market position (e.g. market leadership);
  6. innovation of the patient care ecosystem;
  7. culture of the organization;
  8. ability to attract and retain patient markets; and
  9. ability for the business model to sufficiently re-capitalize itself as moves forward in competitive markets.

So, what should be the mental model for physician leaders be as they consider the best compensation model for health system physicians?

Again, we return to questions. This time they are compensation model design questions; question considered and acted upon by a number of successful integrated health systems.

  1. Is our health system sufficiently mature to move to a salary model? Some are and some aren’t. Mayo, Cleveland Clinic, Gundersen Health System, Group Health Plans and some academic health systems in certain markets are. 
  2. If a “productivity model” is required, what is the definition of productivity?
  3. What factors are considered as important in the productivity of physicians in the organization?
  • “units of effort produced” only, regardless of attendant operating economics;
  • effects of production or total costs of care as defined by payers;
  • upside earning potential of individual within clinical specialties; i.e. upside cash compensation earning potential; and
  • non-cash benefits of being “in the system”; e.g. the practical (on-call), culture, work/life balance, market security, collegiality and long-term professional development opportunities, and job security.

Physician leaders must exert influence here, even to the extent that it concerns non-physician leaders. Physician leaders must step forward on behalf of the organization to take a stand based upon principles: 

  1. Total cash compensation is not the principal goal on which we will hang our hat. Our value to physicians now and in the future is more than that.
  2. Our definition of “productivity” must go beyond wrvu’s produced, patients seen and professional charges produced; but, we must be a financially productive health system, overall; financial performance counts. 
  3. Physician leaders manage the productivity of colleagues. 
  4. Physicians must connect with/appreciate/work to the productivity requirements of the business model we’re all in. 
  5. Physician leaders recognize that physicians can pursue work effort patterns that run counter-productive to organizational goals.
  6. Physician leaders bear the responsibility to guide and manage the professional behaviors of colleagues toward the required goals of the organization that supports them. 
  7. If the organization decides to support innovation of inter-professional teams, the designs of these teams may not be supported by the internal compensation design for physicians who lead the teams; in fact, physician compensation designs may sabotage the overall productivity of teams.  
  8. As physicians/providers do their work, the incentives that encourage that work must also build the financial strength of the health system for the long-term physician leaders are uniquely positioned to ensure the potential of this goal. 

Now for the counter-intuitive position on physician compensation design

Health system leaders, including physician leaders, are often quick to opine on productivity-driven physician compensation plan design as being “counterproductive in a U.S. healthcare economy that is moving from fee-for-service to value”. The theory is, as health systems are paid differently by the governmental and commercial payers, physicians will, in turn, need to be compensated differently; designs that are productivity-driven will counter-productive. 

Not so fast! Irrespective of how health systems earn revenue (which is likely to be an experimental science for years to come) physicians and other providers will need to see patients, diagnose problems and perform procedures. The processes of care delivery will need to remain productive and efficient. Is there anything wrong with an orthopedic surgeon producing at the 90th percentile of peers if procedures performed are the right ones, done on the right patients, for the right reasons? In theory, a productivity-driven physician compensation plan is just fine in a world of new payment schemes for health systems providing there is a peer-driven process in place to ensure the set of conditions described above. 

This installment of Physician Leader Coach did not prescribe the next best compensation plan for integrated health systems for a reason; it doesn’t exist. There are many that can work providing they are guided by: the right questions, the right principles, the right performance metrics and the right physician leaders.