Traditional compensation models–simply matching market benchmarks or maximizing productivity–do not meet the challenges the healthcare industry now faces: provider shortages, increasing burnout, changing patient expectations, and the shift toward value-based care. We believe compensation should be viewed as a strategic lever, one that can directly influence provider recruitment, retention, clinical quality, and patient and employee satisfaction. By aligning compensation plans with organizational goals and evolving care delivery models, organizations can create a more sustainable, outcome-driven approach that supports institutional mission, providers, and patients.
Compensation Alignment Enhances Recruiting Efforts
Provider recruitment has become a battle for talent with compensation at the front line. Many organizations, however, still rely on work relative value units (wRVU)-based compensation models that may be ill-suited for today’s expectations around flexibility, work-life balance, and value-based care. Young providers entering the workforce increasingly prioritize autonomy, team-based practice, and the ability to make a meaningful impact over focusing solely on the amount of compensation.
Compensation packages that integrate quality incentives, care coordination bonuses, and support for teaching, research, and administrative roles can differentiate an organization from its competitors. As an example, consider an organization that offers an innovative hybrid model: base salary plus bonuses tied to patient outcomes and team-based performance. Such a model doesn’t just attract forward-thinking clinicians, but it also demonstrates the organization is committed to providing comprehensive, high-quality care and maintaining long-term relationships with patients and providers. Further, organizations can offer compensation packages that enhance their recruiting strength with creative offerings like student loan forgiveness, sign-on bonuses, or relocation support. These compensation elements can carry significant weight in a candidate’s decision-making process.
Retention Begins with Compensation Alignment
Recruitment is expensive and burdensome, but the cost of losing a physician is greater, sometimes millions of dollars in direct recruitment costs and lost revenue, productivity, and continuity.[1] To retain top talent and meet patient care objectives, organizations must design compensation plans that promote provider engagement, satisfaction, and alignment with institutional goals. That means going beyond wRVUs to include incentives such as the following:
- Patient satisfaction scores
- Quality metrics (e.g., infection rates, readmission rates)
- Team-based outcomes
- Care coordination efforts
- Professional development and leadership contributions
A strategically aligned compensation model incentivizes behaviors that help the organization achieve its goals. If, for example, an organization’s goals include improving chronic disease management, managing emergency department overutilization, or enhancing care transitions, those priorities should be reflected in how the organization pays providers. When providers believe the full spectrum of their contributions is valued (e.g., seeing patients, mentoring junior colleagues, leading quality improvement initiatives), they are more likely to remain with an organization.
How to Operationalize Strategic Provider Compensation
Based on PYA’s extensive experience in provider compensation design, we have identified the following approaches to successfully operationalizing strategically aligned compensation models:
- Benchmark, but don’t blindly follow market data. Understand your local context, organizational goals, and unique differentiators, while maintaining compliance with the Stark Law and Anti-Kickback Statute.
- Engage providers in design. Co-develop compensation structures with input from frontline providers to ensure buy-in and feasibility.
- Build in flexibility. Create tailored compensation tracks for hospitalists, primary care, specialists, and physician leaders.
- Measure and refine. Continuously assess whether compensation plans are achieving their intended strategic outcomes. Be flexible and stand ready to adjust as needed.
Conclusion
Compensation is no longer a passive financial mechanism. Instead, compensation should be viewed as a strategic instrument that shapes behavior, aligns priorities, and drives organizational performance. When designed with intention, compensation plans can reinforce a culture of quality, collaboration, and accountability. Intentional compensation planning can support long-term relationships between patients and providers, elevate care continuity and patient outcomes, improve recruitment and retention of top-tier providers, and enhance overall patient and provider satisfaction. Organizations that strategically leverage compensation will not only meet today’s challenges but also build a stronger, more resilient future.
If you would like additional guidance related to provider compensation design, fair market value, commercial reasonableness, or any matter related to compensation valuation, compliance, or strategy and integration, our executives are happy to assist.
[1] https://www.practicematch.com/employers/recruitment-articles/the-actual-cost-to-recruit-a-physician-in-2024.cfm
