A physician compensation formula that is unfair or even perceived as unfair can wreak havoc on a medical practice. At its most basic, an effective compensation formula addresses the pressures of managed care while motivating physicians to be a cost-efficient and productive team.
– Manageable It should not be excessively difficult for management to monitor and administer.
– Consistent The plan should be consistent with the philosophy and mission statement of the practice, incentivizing behaviors that further practice objectives.
– Flexible Given todays turbulent healthcare system, the plan should be flexible enough to allow for future modification. There are essentially six different models of physician compensation, each with its own pros and cons. 1) Equal share. This is the simplest arrangement to administer. It presumes that all participants are equally skilled and motivated and are performing at the same level. This model discourages overutilization, but offers no incentive for productivity. Additionally, it penalizes high producers and allows low producers to “coast.” 2) Straight salary. Straight salary is easy to administer but can disincentivize the more entrepreneurial members of a group. Further, it commits the practice to paying guaranteed salaries, a liability that can cause serious problems if revenue falls. 3) Salary + bonus. This method offers security while incentivizing physicians to increase performance. The danger is that it often depends on subjective measurements to determine bonuses and can be complex to design and administer. 4) Productivity. This model seems the most “just” under our capitalistic economic system by rewarding extra effort. On the downside, it can foster intragroup competition and encourage overutilization. In addition, a production-based compensation system requires substantial accounting to assign overhead burden fairly. 5) Capitation. Capitation rewards appropriate utilization and encourages physicians to have an interest in providing appropriate and efficient care. However, it may also encourage underutilization and requires complex tracking of data. 6) Productivity plus capitation. This method recognizes the different revenue streams coming into a practice. However, it is complicated to administer, and the two-tiered practice style it encourages can create a dichotomy within the practice, with differential treatment levels based on patients payment streams.
