Thought leadership

Advanced Practice Provider Investment

Advanced Practice Provider Investment

As provider care models evolve in response to challenges with access, population health, and value-based payments, healthcare organizations are investing more in their advanced practice provider ("APP”) cohorts and developing their compensation models to better align with their network strategy and care models.  Many organizations are embracing APPs as independent practitioners, a model which can vary based on state oversight regulations, organizational bylaws, and practice setting, as well as expanding the use of APPs and practice scope within specialty service lines and acute care settings.  APPs cohorts are growing significantly within healthcare organizations which presents new challenges in the leadership and governance of these providers and the compensation models of the past that may not align with this new strategy or the models used to compensate their physician partners.

Organizations are asking themselves how to best implement an APP compensation plan that aligns with its organizational goals and existing physician models, as well as the evolution in the care models being used within their organization.  In order to develop a successful compensation plan for APPs in this newly complex environment, organizations much approach the process with a strong foundation of four very important elements: 1) Network Strategy, 2) Governance Structure, 3) Care Models, and 4) Compensation Philosophy


Starting with the network strategy identifies how an organization plans to provide healthcare services in order to meet its organizational and community needs.  They must then define the care model(s) they will use to fulfill those identified needs.  The care model(s) define the philosophy of care, staffing, documentation, and professional approach to patient care.  Specifically for APPs, the care model(s) identify how APPs will work with their physician partners in either a collaborative approach or as independent practitioners. 

The governance structure should also be in place prior to APP compensation plan development.  The governance structure should include a compensation committee whose role it is to drive the process for the development of an APP compensation philosophy as well as compensation review and oversight functions. 

Once the care model and governance structure are in place, the compensation committee, with guidance from the medical staff, human resources, nursing, finance, compliance and other key stakeholders, can define its APP compensation philosophy and approach to developing the APP compensation model. Many organizations begin this process with a provider engagement survey to understand the overall engagement, challenges, and needs as voiced by the providers themselves. It is in this important foundational work where the goals of the compensation plan are defined.

The compensation philosophy should identify how the APP compensation plan aligns with the physician compensation plan, considering the relationship between the APPs and their physician partners.  Organizations must identify how to best reward providers for achieving the goals of the incentive plans while also balancing priorities of experience, tenure, productivity, and performance.  Our 2016 Gallagher Integrated Advanced Practice Clinician Survey identified that approximately 56% of organizations reported using an incentive plan within their APP compensation plan, 83% of whom have metrics based on quality outcomes, whereas only 28% reported utilizing productivity metrics in order to determine APP compensation. Based on our work in this area, we are expecting the prevalence of performance-based incentive plans to grow within APP cohorts over the next several years.

As we continue to work with our clients on the development of relevant and meaningful incentive plans, we continue to see increased interest in the inclusion of a productivity component for APPs in independent practices.  As the market dynamics continue to shift and the provider shortage puts pressure on healthcare organizations to further leverage APPs as an important part of their network strategy, the importance of appropriately rewarding providers with meaningful incentives which align with organizational strategies intensifies.

Aurora F. Young

Aurora Young is a National Managing Director and the Service Line Leader in the Physician & Advanced Practice Provider Services practice, a part of Gallagher's Human Resources & Compensation Consulting practice.  Ms. Young has worked in the healthcare consulting field for over 20 years.

Ms. Young’s consulting is dedicated to helping clients better align their physician and advanced practice provider compensation systems, improve the performance of the practice, and ensure regulatory compliance.  Her areas of focus ...

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