There are many American sayings that have special meaning in healthcare. The idiom, “you get what you pay for,” has a different context in healthcare than its historic use. In its common use, it describes how price is related to the quality of the product, meaning that you should not expect a cheap product to be of good quality. In healthcare, this saying can be used to describe the incentives in physician compensation formulas.
If the compensation formula is designed to reward production, the incentive is to produce what is measured. In private practice, where the pool of practice income after expenses is the amount available to compensate the practice shareholder/partners, it is common practice to distribute this amount either equally among the doctors or proportionally by an agreed-upon measure, such as work RVUs (wRVUs), collections or billed charges. Under this type of compensation formula, the physicians who contribute the most to the practice are rewarded with greater compensation than those who contribute less.
Hospital- and health system-owned practices have a different basis for compensating their providers, usually designing a compensation formula to meet legal and regulatory requirements of fair market value (FMV) while also paying a competitive wage that will attract and retain the physicians and advanced practice providers (APPs) needed for their practices. These organizations understand that they get what they pay for, usually designing provider compensation packages to reward contribution to their organization.
In terms of incentive, providers paid a salary have the least incentive to work harder, see more patients or schedule more complex cases. Organizations that use a salary-based compensation system typically incorporate bonus arrangements or use past performance to influence salary levels.
While physician-owned and hospital-/health system-owned practices have different legal constraints, they have similar objectives in designing a physician compensation method that supports the needs of the organization. The annual MGMA Provider Compensation and Production Survey collects compensation and production information from medical group practices of all types, sizes and owners; the data are summarized and reported in the MGMA DataDive Provider Compensation. Compensation method is among the demographic information collected in the survey and is reported as its own statistic and in the context of provider compensation.
Figure 1 displays the overall compensation methodologies across all the practices that participated in the survey, categorizing the plans as 100% salary; 100% production; a majority of compensation from salary or production along with a portion of compensation attributed to meeting quality metrics; or some other combination of measures.
The most common methods are 100% salary (25.5% of respondents) and “other” (38.0% of practices). Most interesting, though, is more than a quarter of practices (28.3%) reported incorporating quality metrics in their compensation plan along with salary or productivity components.
Including quality metrics in the provider compensation formula is often in response to contracts with commercial and government payers that include bonus arrangements or penalties associated with meeting quality metric goals. In many instances, quality metrics are included in the reporting requirements along with other goals tied to the cost of care, so it is not unusual to see similar incentives integrated into the provider compensation systems.
In January 2022, JAMA Health Forum published an original research article describing a cross-sectional study of 31 physician organizations affiliated with 22 U.S. health systems.1 This study found these health systems continue to focus on rewarding volume of services despite growth in value-based payment arrangements from payers. Survey results found in MGMA DataDive corroborate this finding and provide further insight into the degree to which quality metrics are incorporated in physician compensation in hospital-/system-owned practices and independent practices.
Do these incentives work? Does a practice really get what it pays for? MGMA DataDive survey data show that, in general, these incentives translate well into physician compensation. Table 1 shows that physicians with the greatest compensation in their specialty category in physician-owned practices — where there is a limited revenue pool to be distributed — were paid under a compensation formula that rewarded productivity. Hospital- and system-owned practices, even though they exist in a very different environment, report something similar: The doctors who are paid under a compensation plan that incentivizes production have greater compensation than those on salary.
Perhaps one of the most interesting findings is that doctors with quality metrics in their compensation methodology seem to do very well compared to their peers. MGMA survey findings reveal that, from the provider’s perspective, there is no apparent downside to having quality metrics in the compensation formula, as these physicians were usually the highest paid compared to their peers.
MGMA DataDive survey data also provide a reflection of the varying ways in which physician-owned and hospital-/system-owned practices design their compensation formulas for their differing environments. Table 2 shows that physician-owned practices are four times more likely to have a 100% productivity or equal share compensation system compared to hospital-/system-owned practices. It also shows that both ownership types have similar percentages of compensation plans that are 100% salary or “other.” The practices with “other” generally described their compensation systems having multiple components, such as having a base salary with a productivity bonus, or having incentives for call, medical directorships, community engagement, or serving in a leadership position.
Figure 2 illustrates the percentages of practices that include quality metrics by specialty and ownership. The frequency of compensation formulas with quality metrics in hospital-/system-owned practices is relatively double that of the frequency of physician-owned practices. This observation is consistent with how these systems are typically larger practices with the more sophisticated information systems needed to collect quality metrics. Hospital- and system-owned practices are also more apt to have government and payer accountable care organization (ACO) contracts that reward the organization for meeting quality and cost-saving goals and could benefit by having similar quality metrics in their provider compensation plans.
The lag in how private practices have implemented physician compensation methodologies that incorporate quality metrics compared to hospital- and system-owned practices may be explained by another popular idiom. Private practice executives describe three actions that often lead to dissatisfaction among the practice’s physician owners:
- A major building renovation or construction project
- Implementing or changing the practice EHR
- Changing the physician compensation formula.
Each of these events creates turmoil with significant practice impact and costs that, if there is a problem, will be deemed the fault of the administrator and could be cause for his or her termination.
Astute administrators accept that construction projects or changes in the information systems are inevitable; however, in the context of the physician compensation system, they take to heart another American idiom — “If it ain’t broke, don’t fix it.”
- Reid RO, Tom AK, Ross RM, Duffy EL, Damberg CL. “Physician Compensation Arrangements and Financial Performance Incentives in US Health Systems.” JAMA Health Forum. 2022; 3(1):e214634. doi:10.1001/jamahealthforum.2021.4634.