As healthcare providers continue to prepare and position for healthcare reform, the common challenges associated with physician integration is unchanged.  A successful relationship depends on setting clear expectations, effective operations management and aligning compensation to performance.

On the surface, physician integration is a win-win situation for a hospital and physician.  The hospital is able to bolster its team of physicians, which improves its patient care delivery system.  The physician no longer has to directly deal with health plans, large capital expenditures and running a small business.  Unfortunately, a scenario all too common to hospitals – after hiring the hard-working, independent physician and providing a salary, the physician’s work ethic notably slows down.  Consequences may include a decrease in patients due to diminished access or a physician’s disenchantment with peers and management.  All the while, the individual physician may not understand what is taking place and suddenly finds him /herself in a less revered way.

When demands of an independent practice are absent, many physicians do not feel the urgency to produce for someone else, as they did for themselves.  To avoid this scenario, hospitals must be candid about their expectations and evaluate prospective physician employees accordingly.  Compensation programs must be devised to either reward work efforts or help physician(s) ease out of practice.  If a physician cuts his productivity, call availability, and other contributions by half, the related compensation must be commensurate and be discounted by the same amount.

Many hospitals question, What is the best method for paying employed physicians?  The answer – there is no best “one-size-fits-all” method.  The best way for an organization to pay its employed physicians depends on the unique dynamics of the specific organization.  Every organization will have unique characteristics (e.g., specialty compositions, mission requirements, payer / patient factors, persistent or unresolved problems, cultural traits, etc.) that will influence what the organization needs to achieve through its physician compensation plan.  These characteristics will define objectives that should be incorporated into compensation programs.

There are different types of compensation models and templates that can be evaluated to help hospitals structure their compensation programs.  Before looking at these models, the objective of the compensation program MUST be defined.  Importantly, when designing incentives to promote specific objectives, the risk / reward must be significant enough to directly affect physician behavior.

In contrast to the past, hospitals felt compelled to “own” physicians.  However, the attitude today is one of partnership and shared risk / reward.  Many hospitals are willing to commit the resources to provide physicians the opportunity to maintain historic income levels, but expectations are set so that commensurate value is received in return.  One of the most common compensation frameworks that hospitals now adopt is one that centers on rewarding productivity and other forms of performance.  In other words, hospitals are trying to align hospital objectives of efficiency and fiscal responsibility with physician objectives of income and stability. 

Common productivity models will establish base compensation levels and pay incentives to physicians as they exceed Work Relative Value Unit (WRVU) thresholds or some other measure of output (e.g., charges).  Depending on the market and payer conditions, these models may or may not directly incorporate practice profitability as a variable in the compensation formula.   

The successful hospital and employed physician relationship is based on a fair compensation model that rewards effort in which expectations for productivity or other performance measures are established early in the process.

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