Key insights
- Reassessing your compensation formula can help prevent physicians from leaving and reduce recruitment challenges due to compensation issues.
- As a practice becomes less homogeneous, it may be appropriate to incorporate an equal share into the formula.
- Common problems with physician compensation plans include productivity variances and no group cohesion.
Learn when and how to update your physician compensation plan.
Is it time to review your clinic’s compensation plan? Does the current plan cause any concerns or elicit conversations among physicians? Has the practice grown or added new specialties?
Many groups continue to use legacy compensation models in place for years, regardless of changes within the practice or the market. A compensation formula that worked when your group was formed may need adjustments for the practice to grow and thrive.
Reassessing your compensation formula can help prevent physicians from leaving and reduce recruitment challenges due to compensation issues.
When and why regular compensation review is needed
A physician practice’s compensation plan should be reviewed every few years. Benefits include:
- Aligning practice changes with how those impact the formula and individual compensation
- Serving as a touchpoint with physicians on their compensation model
- Keeping the formula reflective of the group’s culture while still rewarding individual production and work effort
- Supporting group dynamics, such as consideration of an equal share
Remember, adjustments can be made to a formula without a full compensation change.
Incorporating equal share in compensation formulas
As a group expands and adds different specialties or subspecialties, the gap between the providers’ production typically increases. As the practice becomes less homogeneous, it may be appropriate to incorporate an equal share into the formula.
By adding doctors, the practice benefits by offering a more comprehensive experience to its patients. In addition, doctors in some subspecialties naturally refer patients to other doctors within the practice. A shared layer in the compensation model reinforces and rewards this behavior.
Equal share considerations
We typically see this played out in the ophthalmology specialty. A pediatric ophthalmologist typically produces at a lower level than a comprehensive ophthalmologist because children’s procedures typically take longer than cataract surgeries on adult patients. However, the practice benefits because the pediatric ophthalmologist’s patients stay with the practice and other family members usually become practice patients due to the close relationship with the pediatric ophthalmologist.
Patient care and complexity should also be considered in adding an equal share to the compensation formula. The type of patients some sub-specialists treat sometimes require longer visits. The practice benefits by having the sub-specialist available to treat those patients. These other doctors can be more efficient because the sub-specialist is taking patients out of their schedule.
As an example, if a neurology group adds a Parkinson’s specialist, those patients can take longer and such visits don’t often have a matching higher value. Having an equal share supports the patients getting the treatment they need while the practice offers higher quality specialized care. The practice also benefits by being able to market themselves as a high-quality center of excellence by having the subspecialties.
Common problems with physician compensation plans
Explore some common problems with physician compensation plans:
No group cohesion
Some compensation formulas are merely cost accounting exercises and do not encourage group cohesion. In one situation, physicians thought their practice was not acting as a group, with too many decisions made with the emphasis placed on each site.
It turned out the compensation formula was merely a vehicle to allocate every expenditure and employee to a physician and location. There was no component of sharing or group dynamics. In addition, there was no process or structure for decision-making.
Productivity variances
The larger the group, the more variance there usually is between physicians' production levels. The wider the productivity variance, the more challenging it becomes to have a compensation formula that works for most. Adding to the complexity, more physicians are desiring better work-life balance while wanting to be paid at market rates.
Another common problem is when doctors are not informed of their individual production level compared to previous years or to the other physicians in the practice. This sometimes results in those doctors being displeased with their compensation.
Physician compensation plan steps to take now
To address problems before they start or to update your compensation plan as an important tool to retain physicians, take these important next steps:
Evaluate compensation formulas on a regular basis
Evaluate your compensation formula every few years so it reflects the current culture and rewards individual production. The changing landscape of rising costs and declining reimbursement makes an appropriate compensation formula more critical than ever.
Be clear and transparent
Provide clear communication and transparency with physicians to reduce confusion and angst surrounding compensation. Physicians need to be informed and reminded of how behavior affects payment and compensation. Further, there is no room in a practice for a provider who falls behind and is not current on their charting and documentation.
Consider adjustments for subspecialities
As the practice and market evolve, consider adjustments to the formula for new subspecialties.
How CLA can help with physician compensation plans
If you’re wondering how your compensation plan is holding up, CLA can help. Our physician practice team has decades of hands-on experience with physicians of all types.