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Hospitals and health systems are constantly searching for the balance between quality- and productivity-based physician compensation, among other important physician compensation components. 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 physician 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 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:

  1. According to the Merritt Hawkins 2020 Review of Physician and Advanced Practitioner Recruiting Incentives and the Impact of COVID-19, of the physician production bonuses studied, 64% featured quality-based metrics, up from 56% the previous year. 
  2. The American Medical Group Association (AMGA) 2020 Medical Group Compensation and Productivity Survey 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, the most common determinants were patient satisfaction and clinical quality/outcomes (78% for each), relatively consistent with the results reported by the 2019 survey (78% for patient satisfaction and 72% for clinical quality and outcomes).
  3. The SullivanCotter, Inc. 2020 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 the all specialty groups category). This percentage rises to 9% at the 75th percentile, for comparison. More specifically, the amount of actual quality incentives as a percentage of total cash compensation paid to providers remained relatively consistent for primary care, medical, surgical, and hospital-based physicians from 2019 to 2020, ranging from approximately 5% to 7%.
  4. 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).

Quality performance compensation benchmark data varies by survey or resource and typically ranges from 5% to 20% of total compensation and may continue to grow as organizations begin to utilize this methodology to align physician incentives with hospital goals and patient care. 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, whether the quality performance compensation is “at-risk” or “in addition to” the physician’s historical compensation as delineated further here, as well as identifying those metrics that are clinically relevant to caring for a specific patient population.

As the healthcare industry continues to transform from volume to value, hospitals and physicians should collaboratively consider the implementation of (and potential increase of) quality-based metrics in the development of their physician compensation model. Further, both parties should have a thorough understanding of goals to be accomplished via the use of specific quality performance metrics. If quality performance metrics are properly planned and implemented, physician incentives may align with hospital goals, and patient care can be improved while objectively and fairly compensating physician participation. 

If you have questions about quality performance metrics and/or would like an independent third-party expert to help in the development or evaluation of a physician compensation methodology, contact a PYA executive below at (800) 270-9629.


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