This document outlines key principles for developing equitable physician compensation plans: 1) Plans must be clearly understood by physicians and promote trust through their involvement; 2) Formulas should be simple to compute and avoid complexity that breeds distrust; 3) Compensation must be fair across specialties and allocate overhead costs appropriately based on resource usage. Finally, 4) Incentive structures should encourage behaviors that maintain the financial viability of the group and align with its strategic goals.

1. Compensation Plans
Michael L. DeVries, CFP®, CHBC, EA
VanderLugt, Mulder, DeVries & Elders

2. Four Principals
▪ Trust the Formula
▪ Clearly Understood
▪ Must Be Equitable
▪ Group Incentives Must be Promoted

3. Trust the Formula
▪ Change cause for apprehension; perceived as
threatening
▪ Key to Success – physician involvement
▪ Model Sample Computations
▪ Good Financial Information
▪ Management Reports
▪ Financial Statements
▪ Trust person administering the formula
▪ Trust in partners

4. Clearly Understood
▪ Complexity of the Model
▪ Don’t “split hairs”; Keep it Simple
▪ Complexity leads to errors, which leads to distrust
▪ Human Nature to distrust things we don’t
understand
▪ Need Understanding of how behavior affects
compensation
▪ Create a narrative of formula that can be used
as a reference

5. Must be Equitable
▪ Use of objectivity
▪ Establish equality in the computations /
Multi-Specialties
▪ Allocation of overhead based upon
utilization of resources
▪ Review practice objectives and production
patterns

6. Incentives Must be Promoted
▪ Money directs behavior
▪ Maintain financial viability of group
▪ Model must be in alignment with Group
goals
▪ Group needs to adopt common philosophy
▪ Design compensation model to encourage
desired organization behaviors

7. Examples
▪ Fee for Service – physicians must be
productive
▪ Factors may include – number of visits, hours
worked
▪ Groups adding new physicians or new
locations may need less emphasis on
individual production

8. Incentives Must be Promoted
▪ Money directs behavior
▪ Maintain financial viability of group
▪ Model must be in alignment with Group goals
▪ Group needs to adopt common philosophy
▪ Design compensation model to encourage desired
organization behaviors
▪ Promote long-term success
▪ Factor patient satisfaction, outcomes, and quality of
care
▪ Define Group strategy
▪ Direction, Goals and Purpose

9. Determining Equitable Allocations
▪ Allocation of Revenue should be first step
▪ Calculate Expenses based upon actual
performance
▪ Direct
▪ Equal
▪ Utilization
▪ Volume
▪ Consider RVU factoring / cost per RVU

10. Summary
▪ Model the plan before implementation to make
sure it encourages the desired behavior
▪ Make certain the data used in the computation is
accurate
▪ Communicate frequently and regularly – building
consensus is essential to success
▪ Review the plan frequently in light of
organizational or industry changes
▪ When change is indicated, do not be afraid to
change gradually.