Tools & Tips | Value-Based Payment

Employment of Physicians

Sponsored by Healthcare Strategy Group
Tools & Tips | Value-Based Payment

Employment of Physicians

As noted in the Strategies for Physician Engagement and Alignment report, many health systems are focused on physician practice acquisition and direct employment of physicians (or use of a foundation model in states that ban direct physician employment), which have several implications.

As noted in the Strategies for Physician Engagement and Alignment report, many health systems are focused on physician practice acquisition and direct employment of physicians (or use of a foundation model in states that ban direct physician employment).
The trend toward physician employment has several implications:

  • Specialists’ referral bases are increasingly comprised of employed physicians. Referrals are also increasingly made by other healthcare professionals (e.g., physician assistants and care coordinators) who are also employed by health systems.
  • The percentage of physicians in clinically integrated networks (CINs) is also climbing. As a result, these two processes are becoming more coordinated, with many common issues and approaches, and a significant overlap in key decision-makers. Some CINs carefully balance the number of board members from independent practices, employed practices, and faculty practice plans based on the make-up of the CIN.
  • Recruiting for employed physician groups often emphasizes the ability and inclination of a physician to collaborate. 

Employment is not alignment

A common refrain among systems that are pursuing physician employment is the caution that employment is not equivalent to alignment. Healthcare Strategy Group, which is sponsoring this Value Project topic, has identified eight functional areas, identified in the graphic below, that together define a high-performing employed physician network. Based on these eight areas, Healthcare Strategy Group has developed 67 Tips for Developing a High-Performing Physician Network.

Compensating employed physicians

Physician compensation will need to adjust in sync with changes in payment models and other strategies. As a system accepts more risk-based payment, for example, incentivizing physicians based on quality and cost-efficiency goals will become more important. If a system accepts capitated or global payments for managing the health of a population, the size of the patient panel a physician and his or her team is able to manage can become a significant factor in determining the physician’s compensation.

Shown below is an example compensation approach, provided courtesy of the Healthcare Strategy Group, for a health system with a growing number of employed physicians in a market that is still mostly fee-for-service. The example is for employment of a primary care physician; in practice, the terms of compensation agreements will vary according to market conditions and physician specialty and in all instances must be vetted for fair market value and commercial reasonableness.

Tool: Example of a Physician Compensation Agreement 

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