Data Mine: You Get What You Pay For

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.

This material is available to MGMA members only.