Physician Compensation

Getting Physicians’ Input on Compensation

October 17, 2012 5:00 pm

By Laura Ramos Hegwer 

Physician compensation advisory committees establish principles that help hospitals and their employed medical groups build compensation models-but they do have limitations.

Physician compensation can be tricky terrain for CFOs and other administrators. To help dodge potential landmines, some finance leaders have implemented physician compensation advisory committees. The primary role of these committees is to develop specific guidelines that hospitals and medical groups can use to draft physician compensation models.

Picking the Right MDs

“There is no single way to design a physician compensation advisory committee,” says Todd Sagin, MD, JD, national medical director of Sagin Healthcare Consulting, LLC, Laverock, Pa. That said, he generally advises hospitals and their employed medical groups to select five to 10 physician leaders to comprise a committee. Typically, the executive committee for employed physicians and the chief medical officer appoint these individuals.

Sagin cautions against tapping physicians who put their own names in the hat. “They may put their own needs ahead of the organization’s,” he warns. Instead, Sagin recommends selecting committee members who:

  • Are opinion leaders and respected by their peers
  • Are able to devote the time and energy necessary
  • Represent primary care and a variety of specialties
  • Represent diversity across genders and generations since physicians may have varying priorities at different times of their lives

The hospital’s or group’s CFO may also serve on the physician compensation advisory committee, along with a vice president of human resources. Ideally, the committee leader should be a physician, Sagin advises. However, in some organizations, the CFO or another administrator may head the committee.

Creating a Charter

Once the physician compensation advisory committee members have been selected, it is their responsibility to develop a charter that clearly explains the role of the committee. This charter should spell out the guiding principles that will help shape the organization’s compensation models. For example, the charter may state that physician compensation models should:

  • Use methodologies that physicians understand
  • Reward organizational objectives, such as patient safety and quality
  • Reflect the market and be competitive enough to help recruit physicians
  • Be fair across specialties
  • Be based on drivers such as productivity, expense management, etc.
  • Reward physicians who take on leadership or administrative roles
  • Comply with current anti-kickback and antifraud regulations
  • Be financially sustainable by the organization
  • Adapt to changes in the future

The CFO and the Committee

CFOs will likely interact with the physician compensation advisory committee, regardless of whether they serve on the committee itself. In particular, CFOs can help the committee understand how compensation impacts the organization’s bottom line.

“The CFO can provide details on the compensation arrangements in place, the financial impact of those arrangements on the organization, and what it will mean for the organization if those arrangements are modified in the future,” Sagin says.

Not a “Rubber Stamp”

Many physician compensation advisory committees meet quarterly, and occasionally, organizations offer physicians a stipend for their time. What’s more critical than offering a stipend, though, is keeping the agenda tight and relevant so physicians are able to participate in a meaningful way, says Sagin.

“It is important that physicians feel like their time is being used well. Otherwise, the committee may be seen as a rubber stamp for management to provide cover for whatever changes they want to make to physician compensation. This is exactly the opposite of what hospitals are trying to achieve,” says Sagin. “In an ideal world, the advisory committee should help protect management from the charge that it is making arbitrary decisions for how it pays physicians and unfairly favors some physicians over others.”

Reporting structures varie by organization, although Sagin believes committees that report to the board have a credibility advantage with the employed physician staff. “Physicians want to know that both the board and management are being informed about their wishes and advice,” he says.

What Physicians Think Is Fair

Having a physician compensation advisory committee can help organizations dodge potential landmines with some of their most valued employees. One potential battleground is metrics. “Physicians want to be held accountable for what they truly can control,” says Sagin. “But when pay is tied to metrics that physicians can’t influence or are in the sole control of the hospital, it undermines the legitimacy of the compensation model.”

Sagin offers one example of a hospital that wanted to put its employed emergency department (ED) physicians on a bonus system that heavily weighted satisfaction. But a shortage of beds often forced patients to board in the ED, which drove down patient satisfaction. The ED physicians felt the bonus system was unfair because the access problem was the hospital’s fault.

In such cases, a physician compensation advisory committee can alert management when its incentive metrics might spark hostility and suggest more appropriate metrics-namely, measures that physicians can actually control. For example, it is more appropriate to tie a bonus or incentive to whether a physician ordered the right antibiotic than to whether that antibiotic was administered in a timely way. The former is under the control of the physician while the latter is under the control of pharmacy and nursing.

Some Limitations

Although the physician compensation advisory committee can make suggestions to management concerning models and metrics, it does not have decision-making authority. Nor can it implement compensation models. Instead, its role is to provide input that will help compensation specialists, the CFO, and other administrators develop effective models for paying physicians. The committee should also serve as a “study group” for best practices in compensation and help the CFO and other administrators assess the adequacy of current models in the face of changing reimbursement models, says Sagin.

Laura Ramos Hegwer is a freelance writer and editor based north of Chicago.

Interviewed for this article:
Todd Sagin, MD, JD, is national medical director, Sagin Healthcare Consulting, LLC ([email protected]).

Discussion Starters:

Forum members: Please add your insights, questions, and comments about this article on the CFO Forum’s LinkedIn discussion board.  

  • What has been your experience working with a physician compensation advisory committee?
  • What suggestions do you have for other administrators looking to establish a committee?

Or perhaps you have another discussion starter?


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