Incentive plans playing bigger role in physician earnings

More and more medical practices base at least some compensation on patient satisfaction, readmissions, clinical outcomes and other performance metrics.

By Victoria Stagg Elliott — Posted Oct. 4, 2010

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Various incentive or bonus arrangements are rapidly becoming more common, particularly for the growing number of physicians employed by hospitals and large health systems.

The Hay Group's 2010 Physician Compensation: Prevalence and Planning Report found that 69% of the health care organizations surveyed used some kind of annual incentive plan in 2010 for employed physicians. Only 49% did so in 2008. Group practices were more likely to build compensation packages around annual incentives, with 92% doing so in 2010. Only 70% had these plans in 2008.

The number of hospital-based practices offering annual incentive plans grew from 40% in 2008 to 63% in 2010. Many institutions that did not offer these compensation plans are considering them.

Other surveys have reported comparable percentages of practices and organizations using incentives as part of physician pay.

"No one should be surprised that health care organizations are moving to link pay to performance," said Ron Seifert, executive compensation practice leader of the Hay Group's health care practice. "Hospitals will increasingly be rated on performance metrics such as patient satisfaction, readmissions and clinical outcomes, and reimbursements are likely to be linked to these as well. Financially, it's in an organization's best interest to embrace these changes now, rather than waiting for all the reform dust to settle."

The most recent report includes data from 91 parent organizations of 210 practices. Researchers found that incentive plans increasingly are tied to performance metrics such as patient satisfaction and quality, rather than just volume.

As the use of incentives has gone up, base salaries have flattened, the survey said. For example, the medical organizations surveyed budgeted for an average 3.1% increase in physician base salaries in the 2009-10 fiscal year. A 3.1% increase was planned for the 2010-11 fiscal year.

Physicians might make more in an incentive-based system than they would earning only a salary. A study by the Medical Group Management Assn. and the Society of Hospital Medicine found that the lower a hospitalist's base salary, the higher total earnings.

The Hay Group survey did not track what percentage of physician pay comes from incentives.

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A changing payment structure

View in PDF

Click to see data in PDF.

Performance-based incentive plans are becoming a more common part of a physician's compensation package. These usually are offered on top of a base salary.

Here is the percentage of physician practices that offered annual incentive plans, by practice structure.

2008 2009 2010
Hospital-based 40% 51% 63%
Group-based 70% 75% 92%
Integrated health care system 43% 67% 67%
All physician organizations 49% 63% 69%

Source: 2010 Physician Compensation: Prevalence and Planning Report, Hay Group, September

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