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Examining Compensation Methods and Models for Hospital-Physician Alignment


Healthcare attorney Bruce Johnson and administrator Jim Gangelhoff discuss the various models of hospital-physician alignment and integration, the compliance issues each presents, and physician compensation methods and incentive structures that work.

“Raise your hand if you work in a physician-owned practice,” Bruce Johnson asked. Just over half of the MGMA attendees in the packed room at Johnson and Jim Gangelhoff’s session “Quality and Cost-based Compensation Methods and Compliance Considerations” raised their hands.

“Now raise your hand if you work in a hospital-owned practice,” Johnson continued. The other 45 percent raised their hands.

“Of those who raised their hand for physician-owned practices, how many of you think you might be raising your hand for hospital-owned in the next few years?” Johnson began, then continued, “No, don’t raise your hands - it will violate your confidentiality agreements.”

It’s quickly becoming clear that physicians selling their practices to or at least aligning with hospitals is a topic of significant interest to the attendees of the 2010 MGMA conference in New Orleans. Every session discussing this trend has been standing room only and the subject has come up in many sessions beyond the numerous ones on practice-hospital integrations and selling one’s practice.

So even though Johnson, a healthcare attorney and consultant with Faegre and Benson LLP, and Gangelhoff, administrator at Rapid City Regional Hospital in South Dakota, discussed healthcare reform and compensation and compliance issues generally, most of the session focused on various models for aligning with hospitals and hospital-related compliance issues like Stark and anti-kickback laws.

Johnson spoke first, outlining three common physician-hospital alignment strategies, moving from most physician ownership to least.

The first strategy Johnson called “Service Line ‘Co-management’ and ‘Gain Share,’” and is a “service relationship related to key service line management, and directed at efficiency, cost management, quality and other objectives.” Essentially the practices and hospitals are still separate entities, but work together to provide services to patients without duplicating them.

The second strategy discussed was “Contracting and ‘Clinical Integration,’” which has the practice groups and hospitals aligned in a clinical integration network model where the two entities are separate but part of a joint venture.

“Integration and Employment” is the third strategy Johnson discussed. This model has the physicians from the practice now working directly for the hospital and being compensated for services performed.

It’s this third method that Johnson and Gangelhoff discussed at length, outlining compensation structures that work, discussing quality and productivity measures, and common compliance issues. The model presents some potential operational issues such as maintaining physician engagement and sense of ownership, as well as continuing to operate the practice efficiently under the new management.

One important consideration is how to navigate the possible different ways of compensating practice physicians and how to incentivize those performance standards. Compensation can be determined by production, quality, or cost, or a combination of those, but Johnson noted that effectively incentivizing whatever compensation structure is put in place is the key.

According to Johnson, an effective incentives structure must be simple, understandable to the physicians, measureable, relevant (i.e., in the physicians control to change so they have ownership over the impact their performance has on payment), achievable, focused on quality and good patient care, operationally feasible, and include timely, meaningful reporting and feedback.

Gangelhoff illustrated these ideas through a case study of his own cardiology practice, The Heart Doctors, as it integrated into Rapid City Regional Hospital. He outlined the concerns of the physicians, the steps taken to ensure the physicians still had some say, and the compensation structure and incentive bonus system agreed on by the hospital and practice.

There are a number of factors pushing the physician and hospital worlds together, Johnson said. He pointed out, “If the world wasn’t changing, we wouldn’t be talking about this stuff. We’d be doing it the same way we’ve always done it.”


Abigail Beckel is managing editor for Physicians Practice. She can be reached at

For more MGMA 2010 conference coverage, be sure to visit our MGMA Conference Insider page.

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