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Get Creative with Physician Compensation


Changes in healthcare mean considering different compensation models, including alignment compensation.

Fair and transparent compensation is essential for the recruitment and retention of physicians. Whether physicians are employed by medical groups and hospitals or are members of closely aligned independent physician associations or independent practices, they care about their compensation and expect it to be evenhanded and clear.

Today's undulating healthcare environment makes it imperative that physician organizations have a compensation structure that aligns physician interests with organizational goals. This is much easier said than done due to an array of contracts - from fee-for-service to risk-based - demanding positive outcomes, lower costs, effective population health management, and a high level of patient satisfaction.

In a typical group practice where often there is a mix of contracts with different methods of reimbursement, including shared savings, bundled payments, and global capitation, how is it possible to get everyone on the same page? Organizations are using the "funds flow" concept, which determines how much each physician will be compensated from this continuum of contracts.

Is funds flow alone enough to recruit, reward, retain, and retire talented physicians embracing the new paradigm? It might have been in another time and place, but not as we enter 2015. A serious physician shortage is looming that will make the retention component essential.

The Affordable Care Act (whatever your perspective on its approach and cost) has provided insurance for over 20 million Americans. While the insured population has risen dramatically, the supply of primary-care physicians has risen only slightly. Young people graduating from medical school continue to gravitate to specialties because they pay significantly more than primary care and some offer a greater balance between work and family, something highly desired by the current generation of millennials finishing their medical training.


For primary-care practice administrators and those who run physician networks, the work of recruiting and retaining physicians in this high-demand environment is about to get much harder. Primary-care physicians will be able to compare opportunities and will seek to ensure - as any person would and should - that they are getting the best deal for themselves and their families. The result will be much more movement by physicians among practices, hospitals, and networks than we have seen in the past.

We are already seeing a major primary-care physician realignment occur, with many practices changing their flags and affiliating with new networks. Some networks are becoming much more dominant in a region and others are beginning to fade.

Future success will require attracting new physicians and retaining existing staff in this challenging environment. Doing so will require a step beyond a funds flow approach.

Alignment compensation plans are one possible solution in recruiting, rewarding, and retaining physicians embracing the new outcomes-based reimbursement methods. Conversely, underperformers will make less than the high achievers within such a program.

Alignment compensation basically works like this: The organization adopts a supplemental compensation plan with carrots and sticks based on performance. Carrots could be for any metric, such as lowered readmission rates, high scores in patient satisfaction surveys, and high quality ratings; sticks are also in play for physician behavior that fails to meet previously agreed upon outcomes. Payments into the supplemental plan grow tax-free, are distributed tax-free, and can be used for both retirement and major expenses along the way. Fortune 1000 companies have rewarded executive performance for decades through "non-qualified" deferred compensation arrangements and Supplemental Executive Retirement Plans such as these.

Medical practice managers and physician organizations need an edge in attracting and keeping their most talented performers, thereby ensuring high quality services for their patients. New methods of compensation, such as alignment plans that provide incentives for performance while limiting the tax burden, are a valuable tool in the arsenal.

Marylou Buyse, MD, is the former president of the Massachusetts Medical Society and the Massachusetts Association of Health Plans.

Barry Koslow, JD, is president and CEO of MKA Executive Planners, a Massachusetts-based executive benefit and retirement planning firm. Koslow can be reached at bkoslow@mkaplanners.com.

This article originally appeared in the March 2015 issue of Physicians Practice.

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