Changing the game: what CFOs should know about physician compensation: Healthcare CFOs and other leaders should consider market characteristics, base salaries and incentives, and the structure of the compensation package when developing a physician compensation plan

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Author: James M. Otto
Date: Oct. 2012
From: Healthcare Financial Management(Vol. 66, Issue 10)
Publisher: Healthcare Financial Management Association
Document Type: Article
Length: 2,769 words
Lexile Measure: 1450L

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Healthcare reform is a game changer for hospitals and health systems, with new rules and new objectives for participants. Any organization that is serious about competing in an era of reform should routinely check in with its star players--its physicians--to find out what they want and to understand their backgrounds and experiences, why they joined the organization, what motivates them to stay in the game, and what they view as obstacles to winning performance.

A game-winning strategy for hospitals and health systems should include compensation structures that engage physicians in the mission of the health system and enable them to work toward goals that support the mission, vision, and goals of the organization. Developing a meaningful compensation structure encompassing salary, incentives, and benefits--involves taking an in-depth look at the organization's culture, mission, and underlying philosophy and considering their value in relation to each of these areas.

The expectations of employed physician groups may vary from group to group. Some groups will be expected to cover their expenses, while others will be expected to generate a positive margin. Some will contribute in ways that go beyond their financial ROI. The best way to arrive at a meaningful physician compensation structure is to consider these and other issues and to seek ways to reward physicians based on outcomes that are rooted in the organization's strategic mission.

For example, physicians can be key contributors in developing protocols and identifying standard approaches that improve quality of care and outcomes and streamline costs. At some organizations, physicians assist in evaluating how much the organization spends on equipment for various specialties and help to narrow selection or the use of a particular item. Physicians also can bring value to a system by participating in discussions related to revenue for their specialties and by working with the hospital or health system in negotiating discounts from vendors.

The key to achieving the system's overarching objectives--both short- and long-term--with the support of its physicians is to identify the behaviors that will be compensated and to compensate those behaviors within a program that has the flexibility to respond to changes in revenue models.

There are three critical questions healthcare CFOs and other leaders should ask when developing a physician compensation plan.

Effect of Market Characteristics

The first critical question to consider is, How will market characteristics influence physician compensation? How an organization defines the market when considering pay levels is a key component of an organization's compensation philosophy--and is a topic that deserves continuous debate. When defining the physician market, the following factors should be carefully examined:

* Geographic pay issues

* Pay by specialty level (see the sidebar on page 71)

* Salary versus total cash (i.e., incentives)

* On-call pay practices

* Special benefits (e.g., supplemental retirement, long-term disability)

Another point to consider is whether the organization should take private practice pay into consideration.

There are trade-offs involved in reducing the burden of a physician who leaves private practice for a hospital. The benefits for physicians include reduced personal risk, less time spent...

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Gale Document Number: GALE|A322025945