Strategic Compensation Models for Medical Practices

Strategic Compensation Models for Medical Practices 

Recruiting and retaining talent is a constant challenge in any industry, but it tends to carry more weight in the medical field. According to the Association of American Medical Colleges (AAMC), the U.S. could face a physician shortage of 86,000 positions by 2036. 

Practice leaders must consider financial incentives along with market requirements for quality, outcomes, and patient experience.  

To proactively navigate these competing needs, practices should develop a well-structured compensation model. Implementing a compensation strategy helps organizations fairly pay employees, meet market standards, and can increase retention rates among staff. 

How Compensation Affects Physician Retention and Satisfaction 

When creating a compensation model, it is important to take a step back, and ask, “what defines our practice?” or “who do we want to be?”  Answering this question can be complicated, so it’s important to make sure the process is inclusive. Consider interviewing your physicians to get everyone’s input, comparing your practice’s data points to those published in national surveys, and reviewing your payor contracts. With a holistic view of your practice, you’re better positioned to determine the type of practice you want to be—or should be. After pinpointing what defines your practice, you can move forward with designing a compensation model that will recruit and retain providers who will align with your practice and goals. 

Aligning Compensation with Practice Goals 

A successful compensation model is one that leaves everyone “equally unhappy.” Everyone has to give a little. By identifying your physicians’ pain points, you can better understand what employees find unsatisfactory and what is (or isn’t) negotiable within the practice.

Common physician pain points include: 

• Burnout
• Lack of work/life balance
• Insufficient income
• Electronic Health Records (“EHR”) dissatisfaction 
• Significant time spent on administrative duties 

It’s important to make sure your physicians’ wants and needs are heard. Understanding this perspective can help leadership create a strategy to increase retention rates and find physicians who are on board—and on the same page—with your goals.  

For example, if your goal is to be a practice that focuses on furthering research to support exceptional outcomes, philanthropy, or both, you will need the support of your physicians to achieve it. 

Understanding Physician Compensation Models 

When pinpointing the right compensation model, look for one that intersects with your employee and practice needs while also looking for economic stability.  

Since the COVID-19 pandemic, there have been continued challenges and changes, especially in the healthcare industry. Several more compensation models have been generated in hopes of increasing physician retention rates. 

1. Straight salary is like most traditional compensation methods. With a straight salary, physicians have a structured and consistent salary monthly, meaning other factors such as productivity cannot affect the agreed upon wage. 
2. Base salary + bonus is exactly as it sounds. It offers physicians a consistent monthly salary but offers the chance to acquire bonuses by reaching target goals. This incentive can come from patient satisfaction, performance initiatives, etc. This model typically appeals to both practices and physicians because it promotes incentives for both the physician and the practice.
3. A productivity compensation model pays physicians a percentage of their billings based on the resource-based relative value scale based on patient visits. Often, this physician compensation design is favorable to practices as it holds individuals accountable for their own productivity while incentivizing productivity since it determines the physician’s paycheck.
4. The value-based care model offers compensation based on factors such as cost of patient care, outcome, and quality of care. Implementing this model can promote physician efficiency and various incentives as it is based on results and facts. 

Financial Viability 

You can have the most well thought-out, diplomatic compensation model in the world, but if it doesn’t make financial sense for your practice, it won’t be successful. All too often we see compensation models that have absolutely nothing to do with a practice’s income. A practice’s net income is the absolute maximum amount that could be distributed to its physicians. After all, no business can survive if it’s paying out more than it brings in. To ensure your compensation model is financially viable, consider running models that can help you determine the true cost of compensation over time. 

Successfully Implementing the New Compensation Model 

After evaluating which compensation model best fits your practice and growing goals, you need to determine the best way for implementation. One key way to do this is by making sure your physicians understand the practice’s model from the get-go. Taking the time to brief current and future physicians on your specific compensation design outlines an initial standard. This can help alleviate future struggles and pain points and lead to attracting and retaining physicians within your practice.