Components are changing to accommodate the need for flexibility and the push toward value-based care

By Bonnie Darves

The COVID-19 pandemic has unleashed upon the entire health care sector the biggest challenges it’s endured in decades, yet the effect of the massive disruption in care delivery, hospital volumes, and physician group revenues have had an almost negligible effect on physician compensation structures. During the early “lockdown” months, some physicians experienced temporary income declines, some were furloughed, and those in the surgical specialties were hard hit when surgery volumes took a nosedive. Overall, fortunately, compensation stabilized significantly in 2021, in large part because the market remains intensely competitive and demand for services high, and many organizations were able to access government assistance programs to meet payroll.

Halee Fischer-Wright, MD, president and CEO of the Medical Group Management Association, noted that the MGMA’s 2021 physician and provider compensation report found a modest 2.6 percent compensation increase for primary care physicians and a decrease of less than 1 percent for surgical specialties, despite the turmoil. “Practices acted quickly to leverage government programs … and adapted to new delivery models such as telemedicine, so they were able to ramp up quickly when patient volumes returned,” she said.

Experts expect, however, that physician groups and the large entities that employ doctors learned an important lesson during the pandemic: plan for the unexpected, starting now. As such, employers will likely adjust compensation structures going forward to enable them more financial flexibility to respond to future uncertainty, even if the contracts that job-seeking physicians are presented today don’t look markedly different than they did two years ago.

“The pandemic’s effect on physician productivity and patient volumes may have been an anomaly, and organizations managed to adjust, but they’ve learned that they need to incorporate more flexibility in their physician compensation models going forward. What that means for physicians is that they’re likely to see more frequent compensation changes than in the past,” said Fred Horton, president of the AMGA Consulting, affiliated with the American Medical Group Association. That’s not necessarily a bad thing, Mr. Horton maintained, but it does mean that physicians need to be aware of and ask about factors that might trigger compensation-structure changes. “Physician should expect transparency in terms of how their compensation plans are structured and whether changes are planned,” Mr. Horton said.

Value and quality metrics making their way into contracts

Shifts in compensation structures are occurring, however, on an incremental basis, and both employed physicians and those seeking to make a career move are well advised to get at least a basic understanding of the changes. For example, the long-predicted move toward inserting quality payments and incentives, and even penalties for not meeting quality or performance metrics — regardless of whether those metrics are levied by government payers, commercial payers, or even the groups themselves — is taking hold. It’s only a matter of time, experts said, before quality-performance measures produce visible effects on physicians’ paychecks.

Andrew Hajde, CMPE, director of consulting at the MGMA, pointed to two big-picture developments that are starting to take hold in physician compensation structures: value-based care metrics that call for care efficiency, equitability, timeliness, and safety; and risk-based contracts, in which specified quality metrics are tracked and physicians (or their employers) are accountable for providing quality care while avoiding excess hospital readmissions or other suboptimal outcomes. “These movements, long in transit, are really picking up pace now, so we’re just starting to see these value-based components showing up in physician compensation models,” Mr. Hajde said. “Overwhelmingly, however, we’re still seeing primarily RVU-based models,” he explained, in which physicians are paid on and required to meet organization-established productivity standards and may see their incomes affected upward or downward accordingly.

Here’s how contract-set productivity expectations might transpire in practice to affect physicians’ income, according to Mr. Horton: Organizations are setting productivity parameters, so even physicians who are on salary-based compensation models might have a contract clause that states that their compensation level is contingent on their meeting work RVU (relative value unit) targets. “For example, for a physician who receives a $300,000 salary, the contract might state that their productivity can’t drop by more than 10 percent if they’re to retain that salary,” he said. “Similarly, physicians with lower salaries might see their compensation increase if they exceed the contract’s stated productivity expectation.”

Productivity incentives, primarily in the form of physicians’ work RVU performance, are likely to persist in part because they offer employers a legally sanctioned and relatively fair way to reward their higher-performing physicians, all sources interviewed for this article reported. Recent experience suggests that RVU-component compensation models, which a decade ago were predicted to have disappeared by now, are still very common. David Fontenot, president and co-founder of the Texas-based physician recruiting firm Adaptive Medical Partners, reported that in 95 percent of the searches his firm has conducted in the past two years for fully employed practice opportunities, approximately half have included an RVU-based incentive and 32 percent have included a quality-based incentive.

“The quality-based component has been steadily trending up over the last three to four years but transitioning from volume- to outcomes-based compensation is a delicate balancing act,” Mr. Fontenot said, in the persisting highly competitive physician-hiring market. “We almost never see traditional income guarantees anymore, though occasionally we’ll see employed-model offers with an option to shift to pure production compensation after a one- or two-year period,” he added. “What we are seeing, however, is hospital employers tinkering with hybrid structures — compensation models that blend quality incentives with work RVUs in an attempt to get closer to a value-based model,” he said.

Although competition for physicians remains a key factor in how compensation packages are structured, the changes that are occurring, if incrementally, suggest that employers and practices are still seeking that elusive “sweet spot” in incentivizing physician performance via compensation structures without risking burnout, according to Patrice Streicher, a former president of the National Association of Physician Recruiters who serves as operations manager for Vista Staffing. “The most significant change I’m seeing in compensation models now is that there’s more diversity than we’ve witnessed in the past 25 years. The primary driver of this diversity is trying to find the optimal model that supports and incentivizes value-based care — the focus on patient outcomes, visit experience, and readmissions reduction — without negatively affecting productivity. And that’s challenging,” Ms. Streicher said.

At the same time, Ms. Streicher added, organizations are trying to create compensation models that also accommodate specific practice characteristics, such as location, specialty, and the prevailing physician practice culture, particularly regarding practice decision-making.

Other components, new models on the rise

An example of the experimentation that’s occurring as hiring organizations try to align cultural factors with financial realities, Ms. Streicher points out, is an emerging trend toward revenue collections–based components in compensation models. It’s an odd shift, she acknowledged, that hearkens to the early days of group-practice models in which partners simply divvied total collections to pay themselves. But it’s possibly an appealing model to entrepreneurial physicians who want to play an integral role in how the business is run and profit from fiscal prudence and aren’t highly risk averse.

“We’re seeing models in which practices pay a salary initially but then shift the physicians to compensation based on a percentage of collections,” Ms. Streicher said. “In some cases, physicians who’ve transitioned to collections-based models are earning more than they did in volume- or productivity-based structures,” she said. While this is unlikely to become a prevailing model, it’s worth watching and it’s appealing to employers seeking to reduce their financial risk, she noted.

The other trend Ms. Streicher is seeing — one that may be due in part to the havoc the pandemic wreaked, when physicians saw that their stability was determined by their employers’ ability to withstand an economic crisis — is a move among some physicians to embrace permanent 1099 compensation structures. In these models, physicians are paid directly by the organization but are essentially self-employed independent contractors and therefore responsible for paying taxes, funding their benefits, and possibly even covering their malpractice insurance. This model, akin to locum tenens but with a few twists, offers inherent flexibility for physicians who want to manage their own practice lives and perhaps explore different locations.

“More doctors today are interested in becoming part of a ‘permanent pool’ of physicians while working as independent contractors,” Ms. Streicher said. This inherent-flexibility trend is also exhibited by the growing number of physicians seeking telemedicine opportunities that don’t require them to be fully place based. “A lot of physicians are requiring some or all telemedicine as part of their search now,” she added.

Another compensation model that’s gained ground in recent years, especially since the pandemic, is the direct-care model, in which physicians care for patients in employer-based clinics funded by large employers seeking more input into the care their employees receive. The appeal for physicians is that the model isn’t predicated on productivity thresholds and throughput but rather on wellness strategies and outcomes, according to Bob Bregant, president of Steel Healthcare Solutions in Overland Park, Kansas, and past president of the National Association of Physician Recruiters.

“I think physicians are attracted to direct care because they see fewer patients a day — 10 to 15, not 25 to 30 — and have a predictable Monday to Friday work week,” Mr. Bregant said. “Some physicians see direct care as a way to get off the productivity treadmill. About 95 percent of my recruiting recently has been for these opportunities.” In these models, primarily straight salary, the compensation structure is simple and bonus that accrues is based not on productivity but on patient satisfaction and chronic disease management and prevention.

In terms of traditional compensation components, some appear to be going away, notably rich education-loan-repayment offers and highly lucrative signing bonuses, several sources observed. While this was occurring to some extent before the pandemic, it’s becoming more prevalent now as hospitals try to adjust to the financial challenges the pandemic posed while reducing cash inducements and future payout commitments in a volatile revenue environment, Ms. Streicher noted.

Overall, Mr. Hadje added, hiring organizations are seeking ways to build in more flexibility in their compensation models, to protect themselves and their ability to weather financial downturns. “What we’ll see, I think, is physician employment contracts that include clauses permitting employers to adjust compensation models more frequently if or as needed,” Mr. Hadje said.

In Mr. Horton’s view, physician compensation models, especially the way that components are measured and weighted with the compensation formula, will continue to change more rapidly than in the past. “Organizations are still focused on getting the formula right, but at the same time they’re trying to incorporate more flexibility to respond to market conditions and more transparency overall,” he said.

Tips for evaluating compensation models’ components

Given the complexity of compensation structures and the changes afoot, it can be challenging to job-searching physicians to evaluate how a prospective employer’s compensation plan will affect their own bottom line. Here are some tips for navigating the current offer environment:

Ask the organization’s financial officer to explain how the model’s components will figure in an actual paycheck over a year or a few years, based on their physicians’ own experience. “You want to know how compensation has played out over time for other physicians in terms of bonus structures, RVU targets and thresholds, and quality incentives,” Ms. Streicher said. “And ask potential colleagues about how any inducements worked out — did they get what they were promised?”

Ask about the total-compensation picture — and expect a clear answer. Physician should find out what the model will translate into in total compensation, if they perform well and meet contract-set targets, Mr. Hajde advised. “Then take that total compensation figure and compare it to national compensation-survey findings for either new physicians or veteran ones, depending on your situation, in terms of the median and other percentiles. And don’t forget to take benefits value into account,” he said. He notes that contracts tend to fall in one of two models — physician employment agreements, which are like standard agreements, or physician services agreements, in which physicians are more like contractors than employees. Job-searching physicians should thoroughly understand the distinctions before they start looking, he added.

If there’s an income guarantee, find out what happens down the road. “Physicians should ask for concrete examples of how physicians’ compensation fared after the guarantee period ended — as in, what did it look like in year three, five, or even 10?” Mr. Horton advised.