Physician Compensation Models


In order for a practice to succeed, a strong physician-compensation system must be in place to both incentivize the physicians as well as to make sure that profits are maximized. Equal salaried compensation does not account for the physicians’ differences in performance, productivity, quality, and delivery of patient care. It may be hard to implement a new compensation model into an already existent practice, and there is always initial opposition to new ways of doing things. However, it may be well worth the effort as with a little planning and added accountability, the right incentives can truly drive profits up and engage the physicians. Engaged physicians lead to higher caliber patient care, increased revenues, a greater work environment, and the growth of the practice overall—happier physicians lead to happier patients. Multiple compensation models exist, each with its own merits and drawbacks. I have listed several of the most common models below.

The Revenue Compensation model is the most straightforward—the higher the revenue generated by a physician, the higher the compensation for that physician. This model is the simplest to understand and implement. Financial reports can easily identify the revenue generated by claims billed for a specific physician during a given timeframe. However, this model neglects to measure the factors that go into patient care, as well as the costs of running a healthcare practice, and may therefore not be perceived as equitable. It also does not create adequate incentive measures.

The Net Income model is similar to the revenue model, but also takes into account the costs incurred by the physician while generating the revenue: the greater the revenue and the lower the costs, the higher the physician compensation. This leads to a closer relationship between physician performance and compensation. However, taking costs into account comes at a cost—there is no straightforward way to allocate practice costs to individual physicians, and doing so may be costly and time-consuming.

The Base Salary plus Productivity model is one in which a portion of the physician’s income is fixed, but the remaining portion is based on some measure of productivity. This is a compromise between the traditional compensation method and a productivity-based method, and has several benefits. First, since there is already a base salary, the productivity incentives do not need to be as drastic as in a strictly productivity-based method. Second, the physicians are guaranteed to make a portion of their income regardless of patient volume, which may not always be in their control and may reduce seasonally.

Finally, the Multiple Factor Performance model rewards physicians for productivity and non-financial factors as well. This system is a lot more complex in design and may cost some money to implement. However, it has its benefits as it encourages physicians to provide quality and not just quantity; and with good quality come repeat patients, and higher revenues in the long run. Additionally, as commercial and federal payers are moving closer and closer to a quality-based payment system as opposed to a fee-for-service one, it would be of great benefit to the practice to incentivize physicians to meet quality measures.

The model that I would recommend is one of a Base Salary plus Multiple Factor Performance. Each physician should have a reasonably set salary base, but should also be held accountable for meeting productivity and quality measures in order to receive performance bonuses. These measures can include patient volumes, chart completion, patient satisfaction, continuing education, reduction of ER/urgent care visits, compliance with meaningful use requirements, proactive care for chronic condition population sets, and other such desirable behaviors. There can also be a common goal of reducing costs, and the amounts saved can be distributed among the whole staff, not just the physicians in order to engage ancillary staff in the growth of the practice as well. The physician compensation models outlined above can also apply to midlevel providers such as Advanced Registered Nurse Practitioners and Physician Assistants.

About the Author:


Sonda Eunus, MHA

Sonda Eunus is the Founder and CEO of Leading Management Solutions, a healthcare management consulting company ( Along with a team of experienced and knowledgeable consultants, she works with healthcare practice managers to improve practice operations, train employees, increase practice revenue, and much more. She holds a Masters in Healthcare Management and a BA in Psychology.


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