Amid political and regulatory uncertainty, the fundamental needs of the US healthcare system remain unchanged: providers must deliver high-quality care to more patients in a more cost-effective manner. Given this context, provider compensation remains a primary focus for most healthcare organizations.
Now in its 19th year, ECG’s Physician Compensation Survey provides market-specific data on physician and advanced practice provider production, compensation plan design, recruiting, benefits, and operations. This year’s data showed that the major issues motivating organizations to examine and reconfigure compensation arrangements are:
- Financial performance.
- Migration from volume-based to value-based reimbursement systems.
- Pressures from nontraditional competitors.
We will unpack these key insights in the next sections.
Cost Pressures Demand a Return to Financial Performance
Over the past 12 to 18 months, many healthcare systems have experienced significant financial pressure. Lower-than-expected patient volume and increases in commercial rates, combined with greater expense pressures, have forced many organizations to implement comprehensive performance improvement initiatives.
Growing Investment per Physician
The continued growth in the number of employed providers, along with accounting configurations, has perpetuated the investment and losses in the physician enterprise. As of 2017, the investment per physician was approaching $230,000. The results of ECG’s 2018 National Medical Group Cost and Infrastructure Survey indicate that the average investment could top $250,000 per physician.
Unbalanced Patient Demand and Staffing
Provider compensation is typically the single largest expense in the physician enterprise, and organizations have again shifted focus to ensure that incentives align with the economics of practice. Many health systems have a significant provider surplus due to opportunistic practice acquisitions. This has resulted in an unbalanced physician organization where staffing of primary care and specialties is mismatched with patient demand. These issues often manifest in low or unsustainably high productivity and inefficient practice operations. Compensation models can serve as barriers or enablers for improvement.
The Shift from Volume to Value Has Slowed Due to Market Context and Provider Pushback
In recent years, nearly all organizations invested heavily to migrate toward compensation arrangements that reflect the rapid change to a value-based reimbursement environment. While there are many organizations and markets that have seen (sometimes significant) changes to their revenue profiles, the shift has been slower than anticipated.
Decelerating Implementation of Value-Based Metrics
Value-based compensation remains a relatively small component of total reimbursement—quality and patient satisfaction elements constitute between 7% and 8%—and has been mostly stable over the past several years. Organizations have scaled back implementation of value-based metrics due to a variety of factors, including:
- Slower-than-anticipated changes to reimbursement.
- Organizational shifts in priorities to focus on financial performance.
- Limitations in available and meaningful value-based measures.
- Resistance from providers.
- Uncertainty regarding the political environment shaping healthcare policy and reimbursement.
Broadening the Definition of Provider Performance
Organizations should continue to explore and experiment with compensation concepts that broaden the definitions of provider performance. While productivity and throughput should always have a place in compensation systems, it is important to reward provider performance in domains such as:
- Stewardship of medical expenditures.
Organizations that have balanced and flexible compensation mechanisms are best positioned for success in any environment.
Nontraditional Competitors Continue to Enter the Market
Nontraditional physician aggregators such as Optum, DaVita, and other investor-backed entities have become very attractive alternatives to hospital employment. Under these alternatives, physicians are able to maintain a measure of autonomy relative to employment, along with, in many cases, ownership interest or equity in their practices—something that is not available in not-for-profit health systems.
In some markets, these alternatives are pervasive; in other markets, they are relatively new. Health systems are just now beginning to recognize these competitors. This makes optimizing the compensation model design and partnerships with providers critical to attract and retain the highest-quality physicians in the market. We expect to see more thoughtful responses by health systems over the next several months.