Tuesday, April 20, 2010

Compensation Conundrum

I'm asked from time to time what are the prevailing compensation rates for HPM physicians. The follow-up to that question is often, "what are the most common compensation models?"

The most common compensation model for HPM Practitioners is a guaranteed (straight) salary. Guaranteed base salary is straightforward, thus simple to implement. Its greatest value is in its simplicity. But one of the results of straight salary is that often role confusion emerges, because expectations are not clearly articulated, and often misaligned.

We are beginning to see variable (incentive) pay used more frequently than in the past. Base salary with incentive (or what we refer to as a hybrid model) is becoming more common -- where base salary is set, we've found, is critically important to how meaningful are the incentives. Conventional wisdom suggests that at least 20% of compensation should be at risk for the incentives to alter behavior.

Choosing metrics to be used for incentive pay, however, is a daunting process, and it is why straight salary remains the most common plan today. Yet, choosing metrics is a highly valuable process, and the mere exercise of that process yields substantial benefits. In a compensation plan with incentives, the key stakeholders will sit down and eventually come to an agreement on which metrics are most important, and then quantify those metrics. It is a process we refer to as "valuing physician activity".

Incentive pay is typically based upon a work effort metric (such as RVUs, collected revenue, patient visits/encounters). There are metrics in addition to work effort, although at present their use in HPM compensation plan design is uncommon. I'm familiar with a couple of hospices that require a quality gate be passed through before incentives kick in. I'm familiar with plans in which exceeding certain scores in family satisfaction surveys will trigger a bonus payment. And there are a small but growing number of compensation plans that reward what we refer to as group citizenship -- or activities such as committee participation, or mentorship.

The metrics that are used, in the end, are not as important as the process of valuing physician activity.

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