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:
- How do we best align the cash income of practicing physicians with the goals of the organization?
- Is there behavior pattern potential that we wish to minimize (or eliminate) based upon our organization’s mission and strategic plan in markets served?
- Is there a compensation model that remains productive regardless of the financial arrangements made with, or required from payers (including governmental payers)?
- Can a compensation model for physicians actually encourage goals for the highest quality patient care?
- 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:
- How does the organization expect to pursue contracting with commercial payers; is the assumption of financial risk central to the strategy?
- 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”?
- Will the organization become a leader in effective “total cost of care” management in markets served?
- 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:
- brand value prominence;
- effective total cost of care leadership;
- superior patient experience outcomes;
- standard of care clinical outcomes; and
- 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:
- non-cash benefits;
- on-call models;
- professional development opportunities;
- professional security/ job security;
- market position (e.g. market leadership);
- innovation of the patient care ecosystem;
- culture of the organization;
- ability to attract and retain patient markets; and
- 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.
- 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.
- If a “productivity model” is required, what is the definition of productivity?
- 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:
- 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.
- 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.
- Physician leaders manage the productivity of colleagues.
- Physicians must connect with/appreciate/work to the productivity requirements of the business model we’re all in.
- Physician leaders recognize that physicians can pursue work effort patterns that run counter-productive to organizational goals.
- Physician leaders bear the responsibility to guide and manage the professional behaviors of colleagues toward the required goals of the organization that supports them.
- 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.
- 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.