While many health systems are introducing quality and value measures in their physician compensation formulas, a pioneer of that strategy has moved to straight salary for its employed physicians.

In 2002, Geisinger Health System, based in Danville, Pa., became one of the first health systems to tie the compensation of its employed physicians to their performance on quality and efficiency measures. Thirteen years later, it reversed course, scrapping compensation incentives based on performance measures and productivity.

“At the end of the day, there's never any perfect system to incent exactly the right things,” says Jaewon Ryu, MD, JD, Geisinger’s executive vice president and CMO. “You’re either missing something that should be in the measurement pool or maybe some things in there aren’t exactly the right things.”

Jaewon RyuSince January 2016, Geisinger’s nearly 1,600 employed physicians have been paid a straight salary and expected to adhere to a “social compact” that delineates the health system’s goals. The new strategy seeks to make it easy for physicians to support the health system’s population health focus without worrying about how it affects their pay. 

“We felt that this approach would work better for us to make sure we were always  doing the right thing for our patients, such as coordinating care and addressing care needs proactively,” Ryu (pictured at right) says.

Physician Compensation Trend

The idea of aligning physician compensation strategy with a health system’s quality and efficiency goals has been popular for years, but actual implementation of pay-for-performance (P4P) compensation plans was fairly rare until recently, says Travis Singleton, senior vice president for Merritt Hawkins, the nation’s largest physician search firm.

Although many health systems aspired to physician P4P, most lacked the critical mass of physician employment to proceed. Employment reached a tipping point about three years ago, and now the majority of physicians are employed instead of independent.

Merritt Hawkins’s 2017 Review of Physician and Advanced Practitioner Recruiting Incentives reported on the 3,287 permanent physician and advanced practitioner search assignments that the company conducted during the year ending March 31, 2017:

  • Seventy-two percent of searches included salary plus bonus.
  • Of the 2,359 searches that offered salary plus bonus, 39 percent included quality measures in the bonus formula—up from 23 percent two years earlier.
  • Among the 922 searches that featured a quality-based bonus, 21 percent of compensation, on average, was determined by quality—down from 29 percent the previous year.

The trend of incentivizing quality-based performance may gather strength, Singleton says, but he also thinks it may ultimately fade.

“There certainly is no standard way to do it,” he says.  “For those that have had this in place for some time, have they seen better medicine for it? Frankly, I think you could debate that.”

The Case Against P4P

Singleton cites three reasons why tying quality performance to physician pay may not be worthwhile.

In many cases, there is no widespread consensus on which quality measures to use. “The definition of what quality is and how it’s measured has been a huge issue,” he says.

Physicians resent being financially at risk for quality measures that, while important, might not be pertinent to their specialty or their interaction with a given patient. They worry that their performance will be hurt by the inability or unwillingness of patients to follow treatment guidelines. And they sometimes get irritated if patient satisfaction scores are considered quality measures.

“We don’t need any more studies to tell us that patient satisfaction doesn’t always equal high-quality outcomes for that patient,” Singleton says. “In fact, more often than not, they don’t correlate.”

The incentives are not strong enough to change behavior. In its 2015-16 review, Merritt Hawkins found that quality performance influenced only 4 to 8 percent of total compensation, Singleton says.

“And most economists would argue that, with anything less than 10 percent, you are probably not altering daily behavior through compensation,” he says.

Of course, many health systems are improving patient outcomes and performance on the quality measures they consider important. But Singleton suspects that cultural or management changes are the real cause.

“Is the quality incentive something physicians are going to think about on a quarterly basis when they turn in their reports? Sure,” he says. “Is it something they’re going to think about on an annual basis when they’re reviewing their total production bonus? Sure. Is it something they’re going to think about before they talk to a patient during that 15-minute visit? Probably not.”

Designing and implementing a quality measurement program that physicians embrace is challenging. As employed physician groups continue to expand, getting everyone to agree on how a program should work becomes more difficult. And a lack of physician buy-in will sabotage even the best-laid plan. “It you don’t have it, anything you try to implement—a compensation plan included—is going to be very difficult,” Singleton says.

He encourages employers to develop simple compensation plans that can be described to job candidates in about two minutes, including details about any incentives. Hires should be physicians who are committed to the organization’s goals, and leadership should create a culture and management infrastructure that supports their pursuit of those goals.

“Why are we messing around with all these death-by-a-thousand-pinpricks changes to compensation, which we can’t really say is giving us better quality anyway?” Singleton says.

Geisinger’s Social Compact

For 13 years, Geisinger’s physician compensation program linked 40 percent of incentive compensation—which equated to approximately 8 percent of total cash compensation—to quality measures.

In its new program, Geisinger’s relationship with its employed physicians is based on a social compact that includes five core tenets:

  • Take great care of patients
  • Optimize access for patients
  • Help recruit, develop, and retain talented individuals
  • Teach and participate in research
  • Be a good citizen

No financial incentives are tied to performance, but the compact is envisioned to guide discussions around performance reviews, Ryu says. For example, the patient care tenet may include a review of physician-level data on prevention screenings, HEDIS measures, patient satisfaction scores, or other appropriate metrics.

The citizenship tenet, meanwhile, can be evaluated by whether a physician takes call duty, responds promptly to requests for help or information, and completes and shares patient notes with other clinicians in a timely manner. “If you're a hospitalist, are you helping us get patients out earlier in the day so that it improves our hospital flow? If you're a specialist, are you responding to ‘curbside’ consults from primary care physicians seeking guidance on how to manage a particular case? We still want our physicians to be productive with their time, but RVU is just one reflection of that,” Ryu says.

The goal of the compensation strategy is to create an environment that lets physicians make good decisions about patient care and use of resources—that gives physicians freedom, for example, to spend time addressing multiple issues presented by a complex patient instead of worrying about keeping the visit short to hit an RVU target.

“Our expectation is that you take care of the patient so that they don't need to turn right around and go to the ER or have to come back for a repeat visit because issues did not get addressed, which creates a terrible patient experience—and, by the way, increases the total cost of care,” Ryu says.

In conjunction with the new social compact, Geisinger increased compensation levels, generally paying physicians at the 50th percentile nationally or above. Together, the emphasis on a social compact and the higher compensation level have helped Geisinger recruit approximately 250 new physicians and 130 advanced practitioners since the new plan was implemented.

Ryu expects the increase in Geisinger’s budget for physician compensation to be offset by the impact of physician decisions that support the organization’s big-picture goals.

“This is built on our priority of population health—taking better care of people and driving down the total cost of care,” Ryu says. “Sometimes we need physicians to do things that may not be ‘RVU-rich’ but generate tremendous value for the organization and the patients we serve.”

Getting Started

Ryu suggests three tactics to consider when developing and implementing a new physician compensation plan.

  • Conduct physician focus groups, led by the system’s CEO and CMO, to hear physicians’ concerns, what they like about the current pay program, and what they want to be improved.
  • Establish a physician-led oversight committee to support the transition to a new pay system.
  • Ensure that a strong management structure is in place to help manage the message when the new pay system is implemented.

He is not ready to suggest that straight salary is the right approach for all organizations to use.

“We are still new to this, so we are learning,” he says. “By no means do we think this is perfect, but there has been a nice engagement around some of the things we're trying to drive, including quality, patient experience, and population health. We do like this model better than what we had before.”


Lola Butcher writes about healthcare business and policy topics for several HFMA publications.

Quoted in this article:  Jaewon Ryu, MD, JD, executive vice president and chief medical officer, Geisinger Health System, Danville, Pa.; Travis Singleton, senior vice president, Merritt Hawkins, Dallas.

Publication Date: Friday, June 09, 2017