Building a Better Physician Compensation and Performance Model

Case Study · September 13, 2017

Key Takeaways

  1. Engage physicians early and often. Physician leadership and engagement are essential to successful outcomes.

  2. Create and adhere to guiding principles. These foundations provide a “true north” to assist with conflict resolution and to keep everyone moving forward.

  3. Think beyond the dollars. Traditional financial incentives can only go so far in driving value-based performance. It is important to recognize physician performance in areas outside wRVU production.

  4. Identify the decision-makers. All engagement should be accompanied by a defined process, with the decision-making authorities clearly outlined in advance. Decision-makers will need to align both qualitative and quantitative insights to select the best paths forward.

  5. Fail fast. Embrace the nature of the process by creating clear and effective feedback loops—with sufficient breathing room—into all timelines.

  6. Create a purposeful communication and change-management strategy. Show that the status quo is not an option, focus on the whys, and support it with communication that is appropriately segmented by audience.

Spectrum Health Medical Group (SHMG), one of the largest multispecialty medical groups in the Midwest, recently redesigned its physician-compensation models to better reflect the fast-changing health care environment that we all face.

Shortcomings of SHMG’s Previous Models

Since its formation in 2008, SHMG has grown significantly through a combination of strategic acquisitions, integrations, and national recruitment efforts and now includes nearly 1,000 employed physicians and 500 advanced practice providers. Originally, the group recognized compensation models ranging from a fixed-salary approach to a purely volume-based approach. As in most other health care delivery organizations, physicians represent the highest-paid group of employees. We believe that it’s critical for the daily work of these individuals to be aligned with the goals of the organization.

SHMG’s previous models were in line with the approaches used in medical groups across the country. However, we found them to be insufficient for a variety of reasons, including the heavy emphasis on individual work relative value unit (wRVU) production, a lack of value-based performance measures, reliance on quarterly reconciliation payments and supplements, and the fact that staff physicians were ineligible to participate in a system-wide incentive compensation plan (ICP).

SHMG’s previous models also were tied to an outdated performance-review system that centered mainly on an annual evaluation in which physician leaders were asked to meet with their direct reports to discuss accomplishments and determine goals before assigning a qualitative performance rating (e.g., “meets expectations”). Despite best intentions, this approach was lacking in many respects; for example, conversations between physicians and their physician leaders were infrequent, the physician leaders had received minimal training on effective coaching and feedback approaches, and formal relationships were not always understood across the medical group.

Designing a Comprehensive Model

We were determined to overcome these challenges and create an innovative physician-compensation and performance model that would uphold the guiding principles of being patient-centered, simple, equitable, flexible, balanced, and sustainable. In addition, this new compensation model would need to support physicians in performing what became known as “Job 1 and Job 2.” Job 1 for every SHMG physician is to deliver high-quality health care services to their patients. Job 2 is to continually improve upon Job 1. This simple, direct, and powerful message became a rallying point during the entire redesign and implementation process.

After understanding the significant challenge that was at hand, we knew that it was vital to involve the right stakeholders in the redesign process as early as possible. In all, >30 individuals from cross-functional groups were engaged during the 16-month, physician-led redesign process, which began in May, 2015 and was completed in September, 2016.

Creation of the “All-In” Model

The result was the creation of a comprehensive, system-wide compensation and performance model that addresses each of the guiding principles. Financial compensation and rewards within the newly designed “all-in” model involve 3 individual, although related, components: (1) base pay, (2) a department performance incentive, and (3) a physician performance incentive.

Component 1: Base Pay

A base component, or salary, is an integral part of any physician-compensation model. However, the physician-led committee driving the redesign wanted to ensure that all compensation components ultimately would be focused on performance. Therefore, the decision was made to embed a performance-driven element into the base component. Under the new model, each physician is paid a consistent biweekly base salary that is tiered to reflect his or her previous year’s performance. Currently, there are 8 standard tiers across the medical group, ranging from 70% to 140% of SHMG’s specialty-specific median benchmark for compensation. Departments in which physicians share a group culture and share responsibility for all activities can elect to receive the same base pay department-wide, without tiers.

Because of the varied work environments within individual specialties, departmental leaders were granted some flexibility to select the performance criteria that they believed would best support them in accomplishing their strategic goals. Defined guardrails and governing processes were put in place to help maintain consistency, internal equity, and regulatory compliance. An example of how our primary-care physicians chose to formulate their base pay is shown in the figure below.


  Click To Enlarge.

Component 2: Department Performance Incentive

Historically, many specialties within SHMG used scorecard-based compensation components to recognize physician performance in areas outside of wRVU production. The results were mixed. Practitioners in some areas, such as primary care, successfully identified high-impact metrics and targets that physicians trusted. Others struggled to identify meaningful non-productivity-related metrics that were reportable and trustworthy. Using lessons learned from previous scorecard iterations, the compensation steering committee created a redesigned scorecard, applicable to all specialties, that became known as the Department Performance Incentive (DPI). To reduce variability and complexity, bounding parameters and reportable metrics were identified to help to guide departments in their DPI scorecard designs. For example, 5 areas—service, access, citizenship/ARTS (administrative, research, teaching, and strategic), value, and clinical activities—must be recognized across all departments. The DPI component is paid out annually in March and is expected to be an average of 5% of specialty-specific median benchmark compensation. An example of how our primary-care physicians chose to calculate their DPI is shown in the table below.


  Click To Enlarge.

Component 3: Physician Performance Incentive

Traditionally, select executives and physician leaders throughout Spectrum Health have been eligible for an annual performance incentive based on the achievement of predetermined system-wide goals related to quality, patient experience, cost of care, and so on. This program, known as the Incentive Compensation Plan (ICP), was widely viewed as successful in rewarding system-wide success and performance. However, despite their critical role in helping to achieve ICP success metrics, staff physicians were not eligible to participate in this bonus plan. SHMG leadership used the larger physician-compensation redesign effort to create a convergence of goals by allowing all physicians to participate in a modified version of the ICP known as the physician ICP (P-ICP). The P-ICP closely mirrors the broader ICP while excluding metrics that, for legal and compliance reasons, cannot be tied to physician pay. The P-ICP is paid out annually to eligible physicians in September and is worth up to 5% of specialty-specific median benchmark compensation.

Expected Impact of New Model on Performance Metrics

The new compensation model is being introduced in a phased plan with a 1-year transition period to allow physicians to see how the model works prior to its implementation. Primary care physicians and physicians in Women’s Health have been in the transition stage since January 2017. Although the new compensation model is still in its early stages and we do not yet have data to evaluate its impact, we are optimistic that it will positively affect several key performance metrics, including:

  • Per-member, per-month cost of care (as measured by payor partners).
  • Patient experience (as measured by patient-satisfaction surveys).
  • Quality of care (as measured by response times, readmission rates, and registry data, for example).
  • Provider satisfaction (as measured by engagement surveys and retention rates).

Where to Start

Medical groups and health care organizations wishing to pursue similar compensation model redesign and transformation processes should undertake several initial steps:

  • Assemble a physician-led steering committee that includes leadership representation from all relevant specialty areas.
  • Develop a comprehensive work plan that includes an overall timeline, meeting cadence, milestones, decision matrix, and anticipated deliverables.
  • Establish clear and documented guiding principles and goals for the new compensation model.
  • Assess the effectiveness and limitations of all current compensation models to gauge the magnitude of change that will be required to achieve the determined goals.

At that point, the organization will be ready to begin the redesign process within the established project work plan.

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