Blog Post

Achieving Organizational Strategies Through Physician Compensation


The healthcare reform environment has hastened the pace at which providers are embracing value-based delivery models. Some 64 percent of respondents to a recent survey are planning on or currently developing a Medicare ACO, and one-third are already participating in a commercial ACO [1]. Further, more than half (54 percent) of respondents report that they are participating in commercial pay-for-performance programs. These initiatives require external partnerships, typically among hospitals, physicians, and payers. But they also demand internal alignment, with an emphasis on physician engagement.

The day-to-day actions of physicians are among the most critically important drivers of clinical quality and efficient care delivery, and efforts to implement value-based care will likely fail if physicians aren’t on board. Financial incentives are an effective mechanism for aligning behavior, and at a time when physician employment is increasingly prevalent, implementing a compensation plan that aligns an organization’s goals directly with physician remuneration is a key lever to achieving strategic objectives.

Current Trends

The survey findings indicate that the vast majority of physicians (about 87 percent) are compensated under a productivity-based plan, and typically these plans have some pay at risk for achieving goals. Today, approximately 90 percent of incentives remain focused on traditional productivity models (work RVU) for most primary care and specialty physicians. However, organizations are putting substantial time and effort into the transition to nonproductivity incentives, which will ultimately represent between 20 and 30 percent of variable compensation over the next several years. Most commonly, basic clinical quality process measures and patient satisfaction goals are incorporated into plans; but in recent years, an increased focus on profitability has materialized, correlating with the market trend toward pay for performance.

Preparing for Success

It takes a year or more to successfully implement a compensation plan, meaning you can’t wait until the launch of your value-based initiative to introduce performance incentives. Starting early will help promote transparency with providers and result in a vetted compensation plan that can be modified as strategic goals evolve. Preliminary steps include:

  • Creating plan principles and/or end-state desired outcomes to ensure the final methodology aligns with the culture and reimbursement strategy of the organization
  • Starting with primary care, because available measures are abundant and results are likely more relevant to value-based initiatives
  • Considering panel size as a volume metric (The exercise of developing an attribution methodology and risk-adjusting panels will help physicians reorient to new care models.)
  • Developing specialty-specific metrics that are within the control of physicians and can be tracked and monitored on a routine basis (The bolstering of IT systems will be required to support data collection and dissemination.)
  • Starting with small percentages/dollars, but allowing for flexibility over time, thus mirroring the organization’s journey toward value-based payment
  • Using a transition period, typically 6 to 12 months, during which physicians receive shadow statements, including real-time performance and projected pay amounts

In a value-focused environment, the long-term success of your organization depends on the leadership and support of your employed physicians. Developing an appropriate compensation plan is the most direct manner to create alignment between your physicians and the organization in support of value-based goals.

This post was initially featured, July 21, 2014, on the hfm Healthcare Finance Blog.


  • 1.

    ECG National Provider Compensation, Production, and Benefits Survey, year 2013 based on 2012 data.