Are you struggling to understand how much compensation should be based on a physician’s achievement of quality metrics? If so, you are not alone. Hospitals and health systems are constantly searching for the appropriate balance between quality- and productivity-based compensation, among other important physician compensation considerations. As payment systems based on value (as opposed to volume) are more frequently implemented, our healthcare clients are challenged to contemplate changing their physician compensation methodologies. To help you evaluate this trend and its potential impact on your organization’s compensation model, PYA has consolidated several survey statistics to consider when determining the portion of a physician’s compensation to be associated with the achievement of quality metrics.
Given the growing focus on alternative payment models within the healthcare industry, PYA has observed an increase in the use of quality-based incentives within a physician’s compensation structure. Historically, hospitals and health systems structured a physician’s compensation using primarily production-based performance metrics; in fact, if quality incentives were included in a provider’s compensation structure, the amount of compensation associated with quality was nominal, often only a few percentage points (e.g., less than 5%). However, based on PYA’s experience and relevant market trends, it is probable that the use of quality-based compensation will continue to grow, or at a minimum, remain consistent with current trends, including, but not limited to, the following:
- According to the Merritt Hawkins 2019 Review of Physician and Advanced Practitioner Recruiting Incentives, of the physician production bonuses studied, 56% of them included a bonus based on achievement of quality metrics, reflecting a 14% increase from the prior year.
- The American Medical Group Association 2019 Medical Group Compensation and Productivity Survey (AMGA) reports that, of the non-productivity incentive compensation offered by hospitals, the top two were quality based. Specifically, of those hospitals and health systems incorporating non-productivity incentives into a provider’s compensation structure, 78% and 72% chose patient satisfaction and clinical quality and outcomes, respectively, as quality metrics.[1] Within AMGA’s 2017 survey, these two quality metrics were used by 69% and 50% of hospitals and health systems, reflecting an increase of 13% and 44% in these categories, respectively.
- The SullivanCotter, Inc. 2019 Physician Compensation and Productivity Survey Report indicates that quality incentive compensation approximates 6% and 7% of a physician’s total compensation at the median and mean, respectively (for all specialty groups).
- Based upon information reported by the Advisory Board, current trends indicate that approximately 5% to 20% of a physician’s compensation is determined by non-production-based incentives (e.g., quality metrics).
As is illustrated by these statistics, quality performance compensation benchmark data varies by survey and typically ranges from 5% to 20% of total compensation. In our experience, how much organizations pay for quality generally depends on the meaningfulness of, and difficulty associated with, accomplishing each quality metric (versus quality metrics that may maintain a certain standard of patient care). Other factors we encounter include the ability (or inability) to measure specific quality metrics with relevant sample sizes, as well as identifying those metrics that are clinically relevant to caring for a specific patient population. For these reasons, it can be helpful to involve an independent, third-party expert in the development or evaluation of a physician compensation arrangement.
Performing more than 1,200 physician compensation engagements per year, PYA has significant expertise in the planning and development of physician compensation structures that include quality components. If you would like information about physician compensation, fair market value and commercial reasonableness opinions, or for assistance with any matter involving valuation, strategy and integration, or compliance, contact one of our PYA executives below at (800) 270-9629.
[1] PYA notes that AMGA survey respondents could choose more than one option.
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