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The Right Questions to Ask When Managing Physician Compensation, and Why All the Cool Kids Are Doing it

Remember in high school, the group of cool kids everyone really admired? They wore cool clothes and always found a way to make eating lunch cool, too. The reality is, those kids were interesting, but the kids I’m referring to were the ones who asked probing questions. The ones who brought new insights into the classroom that sometimes seemed well beyond their years. It’s that same attitude that drives real innovation in the physician compensation space today.     

Over the past 10 years, we have had the pleasure of working with health systems and providers of all size across the nation in the physician payment area. Here is the most important thing we have learned: Most systems are trying to solve the wrong questions related to physician alignment and compensation. 

Despite recent staffing shortages driven by the impact of Covid-19, there has been a huge influx of hiring of new physicians – at least a 70 percent increase in employed physicians alone since 20121. But, simply getting them into the fold and onboarded has been time consuming. So much time has been focused on the immediate fires, that the day-to-day crisis of getting physicians credentialed in the health plans and at the hospital correctly (so they can get paid), becomes the main driver. 

The complex payment systems used for physician employments have a couple of parts that are often processed in different areas of the organization. Here’s an example of just some of the pieces that can make up a physician’s contract: 

This physician’s overall compensation cap is set at $320,000 – meaning, under no circumstance should the physician be paid more than $320,000 in any rolling 12 months. The question for hospital payment teams becomes this: Do you have the payment processes and people in place to support each individual calculation as well as the compensation cap monitoring? 

If you’re not totally sure, that’s okay. Here are the most critical questions you can ask yourself to determine how well your payment operations align with your compensation goals. (Questions the cool kids in healthcare are just beginning to ask themselves).

  1. Are we partnered with the right physicians?
  2. Who are we paying, and for what?
  3. How much are we spending on each type of physician contract?
  4. Do we know all aspects of our arrangements – PSAs, part-time employment contracts, etc.?
  5. Is this the best way to spend our physician alignment budget?
  6. Why is Hospital A in our system spending less than Hospital B, and yet, is more profitable?
  7. How can we reduce, streamline and automate any of this?
  8. And the most important question: Is there a way to reduce the total physician expenditure? (By the way… the answer here is always yes.)

As hospital executives look for ways to simplify the processes of paying physicians, they often focus on how to put a low-cost solution in place to make collecting time from physicians easier on them, but not necessarily on the doctor. Setting up a SharePoint file for doctors, for example, to have them log into (when they remember), is not really solving the administrative burden doctors face in long run – especially when 68 percent of doctors say burnout is still an issue for them and 55 percent reported spending 1 to 3 hours per day on admin work already2. This is not where you want physicians spending their time. 

On the flip side, using automation to speed up calculations and operationalize your current spreadsheets alone without the full picture only answers part of the equation. The salary true ups, for example, do not have the other aspects of the pay embedded, such as on-call, admin hours, quality bonuses, etc.

What today’s hospital executives should focus on is the big picture. Why? Because all of these little silos of payments roll up into a REALLY big number for any hospital (potentially hundreds of millions of dollars, in fact, every year). And you cannot manage that which you do not measure. 

Being able to look at this holistically instead of trying to solve for single pain points and trying to really look at your physician contract spend as a whole, can help consolidate some of the disparate processes or systems that are in place to manage all these different buckets.

A big opportunity comes when we stop underestimating the people side of this and stop making siloed decisions that have repercussions downstream to the physician compensation teams or finance.  It’s about trying to provide that visibility for everybody in all departments. And that’s a pretty cool thing to do if we can pull it off. 

This blog post originally appeared on the American Association of Provider Compensation Professionals (AAPCP) website.

1 Healthcare Finance News, 2021
2 Ludi Survey of randomized group of physicians; 2021

Want to learn more about this topic? Check out a case study from one of our CFO clients that optimized his hospital's physician compensation processes with automation.

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