Is It Time to Reevaluate Your Physician Compensation Model?

A significant advantage to this methodology is that it offers security. It also enables otolaryngologists to increase their income through performance. On the down side, this methodology may cause minimum work standards to become de facto norms. This methodology also places a large component of income at risk, depends on subjective measurements in apportioning that at-risk portion, and can be complex to design and administer.

Pure Productivity: A pure productivity compensation methodology is sometimes referred to as “eat what you kill.” Under this methodology, an otolaryngologist is paid a certain percentage of what he or she brings into the practice. The remaining collections are typically paid to the practice in order to cover overhead expenses, such as leases, malpractice insurance, support personnel, equipment and supplies.

The obvious advantage of this model is that it encourages extra professional effort and seems “just” in a capitalistic economic system. The disadvantages are that it feeds intragroup competition, requires substantial accounting management to assign overhead burden fairly, encourages overutilization, and can even discourage “corporate citizenship,” such as practice governance and management, teaching, and other activities not connected with patient visits.

Productivity Plus Capitation Mix: Capitation rewards certain physician behavior, such as appropriate utilization, and encourages physicians to have an interest in appropriate and efficient provision of care. The productivity-plus-capitation-mix methodology recognizes the different revenue streams coming into a practice, rewards physician activity appropriately per stream and encourages efficiency as physicians move into pure capitation. It is, however, complicated to administer, and the two-tiered practice style it encourages can create a dichotomy within the practice, with differential treatment levels based on patients’ payment streams.

In today’s competitive environment, any effective compensation formula should also address the following five qualities:

• First, it should be economically fair.
• Second, it should be comprehensible.
• Third, it should not be excessively difficult for management to monitor and administer, and it should be flexible enough to allow for possible future modification.
• Fourth, it should be consistent with the philosophy and mission statement of the practice.
• And finally, it should stimulate otolaryngologists to be effective, with definable financial rewards for behavior and activity the practice wishes to encourage, including encouraging and incentivizing otolaryngologists to be more accountable for:

  1. Patient outcomes;

  2. Overall patient satisfaction;

  3. Administrative responsibilities, including electronic medical record implementation and other practice compliance policies;

  4. Physician recruiting, including speaking at conferences;

  5. Serving on committees, both internal as well as for outside organizations;

  6. Practice marketing efforts, including developing new physician referral sources; and

  7. Mentoring young physicians who are new to the practice.

Overall compensation models should incorporate strategies designed to meet the new patient care accountability standards, retain existing otolaryngologists, and stay competitive in the practice’s physician recruiting efforts.

Implementing These Changes

Change is difficult and it takes time, especially when it will most likely impact the earnings of otolaryngologists in a practice, some positively and some negatively. It is vital to get acceptance from the otolaryngologists (both owners and employees) and to communicate that these changes are not being driven by the practice, but by much larger “forces”—namely third-party payers and a consolidating health care landscape. It is equally important to reinforce that maintaining the status quo may not allow the practice to remain financially viable and independent.