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Effective Compensation Design: Why It Matters for Your Medical Practice

Jul 3, 2023

Recruiting and retaining talent is a constant challenge for any business, but it tends to carry more weight in the context of a medical practice. Practice leaders must worry about physicians’ financial incentives in addition to market requirements for quality, outcomes, and the patient experience. Without a plan for how to compensate physicians, it can be difficult to meet these competing needs.

A well-structured compensation plan gives you a guide for paying your physicians while helping your practice meet market requirements. Here are four questions to ask when designing a compensation plan for your medical practice.

Who do we want to be?

The answer to this question should serve as the basis for your compensation plan. If your practice’s goal is to care for as many patients as possible, your compensation model would be different than, say, a practice focused first and foremost on serving the community as a whole.

Although answering this question can be complicated, it’s important to make sure the process is inclusive. Consider sitting down and interviewing your physicians and be sure to get everyone’s input. Compare your practice’s data points to those published in national surveys. Review your payer contracts. With a holistic view of your practice, you’re able to determine the type of practice you want to be—or should b —and move forward with designing a compensation plan that will recruit and retain providers who will help you get there.

Are your physicians on board with your goals for the practice?

A successful compensation plan is one that leaves everyone equally unhappy. This may sound harsh, but it’s true. Everyone has to give a little. Identifying your physicians’ pain points can help you better understand what is and isn’t negotiable. With this in mind, it’s important to make sure your physicians and leadership are on board—and on the same page—with the goals for the practice. 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.

Is your compensation plan financially viable?

You can have the most well thought-out, diplomatic compensation plan 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 plan is financially viable, consider running models that can help you determine the true cost of compensation over time.

Do your physicians fully understand your compensation plan?

This may be the most critical component of designing a compensation plan for your medical practice. Your physicians need to understand how it affects them. Any buy-in or financial confidence you’ve instilled in your compensation plan will be worth nothing if your physicians can’t decipher what it means.

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Chris S. Schultz

Chris Schultz is a Partner with over 20 years of accounting experience. He has worked extensively with physicians, dentists, executives, clinics, and hospitals, bringing a personally invested approach to each of his client relationships.

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