3 Questions to Ask When When Designing an Employed Physician Compensation Plan

Physician employment is becoming more and more prevalent as hospitals look to integrate and align with physicians. C.J. Bolster, national director of the healthcare practice at Hay Group, discusses three questions every hospital leader should ask when designing a physician employment and compensation plan.

1. How do you want to structure your hospital-physician relationship? Determining how to structure your hospital-physician relationship is the first — and probably most important — step in determining how physicians will be employed. "I think the biggest trend in physician compensation is being extremely mindful of where you're going to go strategically, how you're going to position the group and the organization's organizing structure," Mr. Bolster says.

He says hospitals have several options for how to employ and compensate physicians. Some health systems might choose to manage the physician group as a separate division in the same way as a hospital. "You might manage [the physician groups and hospitals] as a portfolio of companies that has to stand on their own economically," he says. "There's a lot of people who think like that."

He says other hospitals may approach physician employment as integrated, coordinated care organized around a service line such as cardiology. An integrated multi-specialty group practice might place the patients at the center of the model and let the physicians work around the patients rather than based on a particular service line. "There are a lot of nuances to those different types of models," he says.

2. How will reimbursement structures change over the next several years? If your hospital is redesigning your physician compensation structure, you have to be mindful of how reimbursement will change in the coming years, Mr. Bolster says. Most physicians are currently compensated based on fee-for-service and RVU productivity measures, but those traditional structures may change with the advent of health reform. "You have to be very sensitive to changes in your reimbursement patterns," he says. "Quality is going to lead because of pay-for performance. I've got a lot of clients that are still productivity-based, and they're quite concerned that [productivity-based] compensation is reinforcing a set of behaviors that may not be the best."

He says because reimbursement will likely not change overnight, hospitals must be flexible about incorporating quality and outcomes measures into existing compensation models. Over the next five years, he expects to see many hospitals adopt a blended approach to physician compensation, using both RVUs and quality outcomes as incentive in addition to base salary.

3. What kind of culture do you want to create? According to Mr. Bolster, integrated systems such as Geisinger Health System have made culture the central piece of their physician employment models. "If you're a hospital-based system and you want to have a big employed group practice, you are changing the nature of the enterprise to look and feel more like a professional service firm," he says. "In a professional service firm, people expect to be involved to a higher degree. It's not as divisionally and organizationally boxed."

He says physician employment can mean physicians have a large impact on the hospital's operations, through medical directorship positions, committee involvement and board seats as well as clinical practice. "You want to try to be as intentional about this as possible," he says. "[Physician involvement] will happen, and the more you can be intentional, the more you can affect the kind of culture that is created."

He says this can mean providing opportunities for emerging leaders who happen to be clinician physicians. Don't just wait for those leaders to look around for opportunities. Approach them in the initial employment planning stages and involve them in building compensation plans.

Learn more about Hay Group.

Read more on compensation practices:

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