Physician compensation
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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.
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Physician compensation
- 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.
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