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Pros and Cons of Physician Compensation Models

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While the business of healthcare grows increasingly complex, fortunately, physician compensation models have generally become less complicated over time.  Even though there are still many different payment models in use, physician compensation structures are easier to manage and understand then they were in the past.  Physician payment models will never be a one-size-fits-all proposition for health system administrators.  The following is a brief synopsis of the pros and cons of the most popular physician compensation models.

Straight Salary

Using a preset level of income for physicians is the easiest model to understand.  Typically, the physician is contracted to achieve defined levels of productivity and quality.  On the pro side of a salary model, the physician has a sense of security and a guaranteed level of income.  The con aspect is that a straight salary model does not encourage innovation, or cost reduction efforts.

Salary Plus Bonus

As a means to encourage physicians to increase income, reduce costs, or achieve other predefined performance metrics, a salary plus bonus payment model may be in use.  It achieves the benefit of providing physicians with a guaranteed salary while also having an opportunity to earn a bonus. There aren’t as many cons with this popular method of compensation, although it is critical to determine the appropriate metrics for structuring the bonus.

Equal Shares

The equal shares model of compensation divides revenue equally among the group of physicians after expenses are covered.  This method is most common in smaller medical groups or specialty practices. One of the pros of an equal shares model is that there is a natural aversion to the overutilization of resources.  A downside of this payment model is that there is no incentive for creating efficiencies or higher productivity. In some cases, conflict is created when there is a perception that one or more of the group are under producing.

Pay-for-Performance

More physicians are finding that systems are implementing variations of a pay-for-performance model as a way to tie financial incentives to the achievement of predetermined performance goals.  An obvious benefit to this payment model is that achieving critical performance and quality targets are incentivized.  Physicians are being encouraged to innovate.  On the downside of pay-for-performance models is the complexity and administration of the program.

Productivity-based

Another payment model with many variations is productivity-based compensation.  In this model, physicians receive a percentage of their billings, or they are paid according to a scale that is based on procedures being performed or the type of patient visit. This scale, the resource-based relative value scale (RBRVS) assigns units to each activity a physician performs, called relative value units (RVUs).  An advantage of productivity-based models is that physicians are rewarded for extra effort, and they are also encouraged to be mindful of excessive overhead costs.  A negative result of RVU models is that it may lead to an overly competitive environment between physicians. Another criticism of this model is that while effort is rewarded, there is less consideration of outcomes.

While every compensation model currently in use has not been covered here, it is clear that are many different ways that physicians are being paid for their work.  Pay will always be a factor in determining your next career move, so it is important to understand how your salary is being determined.  Stay tuned to the Jackson Physician Search Blog for a deeper dive into compensation plans that are determined on RVUs.

Our team has decades of physician compensation experience. For personalized information about what we can do for you, contact us today.