Thought leadership

Governing Physician Compensation Programs

Governing Physician Compensation Programs

Written by Jim Rice, Tony Kouba and Kathy Buell of Providence.

Healthcare organizations are mobilizing their physician and administrative leaders to expand their focus beyond service volume to include access, consumer experience, cost, quality, and outcomes for the patients they exist to serve. While it is not difficult to energize healthcare professionals in these discussions, they appropriately struggle with how to move from a system based on volume (number of units and unit costs) to one based on value (the efficiency and effectiveness of care). This new reality suggests certain factors must be considered in the design of new provider compensation models:

  • Contemporary physician compensation systems need to balance productivity- and non-productivity-based incentives.
  • As team-based care gains more traction, site- or specialty-specific performance is likely to play an increasing role in individual physician pay.
  • Although external forces are driving reactive change, internal strategy must guide the governance of the organization’s physician compensation arrangements.
  • Physician models established today, and their funding levels, may need to flex to meet a changing reimbursement mix tomorrow

While these factors help design modern physician compensation programs, Integrated Health Systems too often are often complex and/or lack a clear philosophy and rigorous infrastructure needed for the effective and efficient implementation and management of their provider compensation arrangements. This can be quite unfortunate as the providers represent one of the largest costs and are essential resources to achieve the mission and strategic imperatives of the system.

The “Physician Compensation Governance Model” is a carefully defined set of structures and process in which all parties understand the goals and their roles; as well as secure the staff and infrastructure needed to successfully manage seven essential practices of a well governed comp model:

  1. Orientation
  2. Engagement
  3. Performance Metrics
  4. Performance Review
  5. Recognition
  6. Coaching
  7. Evaluation

Key features for these seven practices are found to be:

  1. Orientation: All leaders use multi-media resources and programs to help ensure that the philosophy, structure and components of the new Provider Compensation Plan are well explained to all providers. This explanation enables understanding The Plan, including  how it is to work, how it will impact them, where they can go for information, and how their leaders can help them thrive within The Comp Plan.
  2. Engagement: Responsible leaders for each provider engage with their providers not only to further explain The Plan, but to actively invite questions and feedback regarding The Plan and how it is to work and be enhanced in the future.
  3. Performance Metrics: The Plan defines: what is measured; why; how (especially with respect to key sources, quality and processes for gathering, storing, and reporting data for the metrics); access to and reports for each person-specialty-service or department.  While the organization may measure a variety of metrics, compensable metrics are kept to a minimum – no more than 3-5 – and are aligned with key strategies and behaviors
  4. Performance Review: Responsible leaders for each provider need to follow carefully designed, and regulatory compliant, processes to review, at least annually, the quantity and quality of each provider’s work and behavior as a mean to enhance the patient and provider experience within the health system
  5. Recognition: Within the system’s talent development philosophy and processes, providers are supported to understand their performance within a culture that celebrates progress to personal and organizational goals; and they are to participate as appropriate in various recognition and incentive compensation opportunities.
  6. Coaching: Providers are encouraged and supported quarterly by their leaders to understand and follow best practices for: clinical care, productivity, patient experience, citizenship, collegiality, and professional growth within the health system.  Regular follow ups and “check ins” outside of the performance review process can serve to reinforce organizational culture and behaviors.
  7. Evaluation: All facets of the Provider Compensation Plan and its processes are to be assessed for continuous enhancement, at least once per year, by each organizational unit.

Common obstacles that are too often found are:

  1. Providers lack understanding of The Plan’s goals and processes; and their leaders are weak in explaining and managing The Plan:
    • Lack multi-media education kit/materials for rollout
    • Ineffective web portal for 24/7 orientation and reference to The Plan’s many features
    • Lack consensus on what is valued and measured in The Design
    • Leaders are not supported to provide a good explanation of The Plan
    • New hires are inadequately oriented to The Plan
    • Plan complexity can also be an issue with highly complex and/or detailed plans present barriers to simple and transparent communication and understanding.
  2. Interaction of CART (Clinical, Administrative, Research Teaching) performance metrics and pay is not well linked, understood or explained
  3. Reporting to track: quality, productivity, time and patient experiences are not well understood or managed:
    • Lack data tagged by specialty and demographics
    • Lack system/IT infrastructure
    • Lack staff to secure data and reporting
    • Lack trusted comparative data profiles
    • Leaders lack skills in mentoring to enhance performance
  4. Organizational distractions and disruptions frustrate providers’ compensation:
    • Lack of support staff and infrastructure to help providers accomplish their work and related time allocations.
    • Lack experience in rewarding teams (now also with APPs), population health, and new innovations in programs or processes
  5. Culture not geared to recognition & celebration:
    • Physicians and APPs are often supported outside a modern focus on talent development and talent performance reviews.
    • Challenges to achieve internal equity across demographic segments are not well understood or managed.
    • Physician leaders are not effective in assessing or recognizing colleague or self-performance.

In addition to resolving these five common obstacles, the Boards and Senior Leadership of health systems will find it valuable to embrace these five actions to improve the probability that the comp plan will be successfully administered:

  • Keep plan design as simple and straightforward as possible.
  • Establish a clear summary of the compensation design’s goals and rationale that connects with busy physicians short attention span
  • Invest in a multi-media communications strategy to roll the comp plan out to all physicians and their dyad partners and supervisors
  • Coach and mentor physician leaders to explain the comp plan carefully to all front line providers (physicians and APPs)
  • Establish easy to use and manage time reporting system to account for provider time allocations that will drive comp base and incentive arrangements
  • Invest in a web based portal that facilitates 24/7 explanation of the goals, processes, and rationale for the comp design and how it works.


Modern governing of a modern physician comp model is essential for an integrated health systems that balance productivity, quality, patient delight and cost effectiveness.  Boards and senior leadership will need to invest as much on the implementation and administration of the comp model as on the design. This article explores key building blocks for wise comp model governance.


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Tony Kouba

Tony Kouba is a Managing Director with the Physician and Advanced Practice Provider Services service line of Gallagher’s Human Resources & Compensation Consulting practice. Mr. Kouba has over ten years of experience in physician compensation, acquisition, and integration. 

Mr. Kouba’s uniquely balanced perspective of drawing conceptual conclusions from detailed analysis has helped many clients realize their strategic vision and accomplish corresponding objectives. Mr. Kouba’s consulting is dedicated to helping clients ensure that their existing compensation programs ...

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James A. Rice

Jim Rice, PhD, FACHE is the Managing Director & Practice Leader with the Governance & Leadership service line of Gallagher’s Human Resources & Compensation Consulting practice. He focuses his consulting work on strategic governance structures and systems for high performing, tax-exempt nonprofit, credit union and health sector organizations and integrated care systems; visioning for large and small not-for-profit organizations; and leadership development for Boards and C-Suite Senior Leaders. 

Dr. Rice holds masters and doctoral degrees in ...

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