Quality over quantity? Changing how doctors get paid presents new complications

Physician pay is top of mind for many health systems struggling under the weight of rising costs and reduced Medicare reimbursement. Organizations want to attract the best doctors, but inflation, staffing shortages and supply chain issues add pressure to their bottom lines, making it difficult to keep compensation competitive.

Questions of parity further complicate the issue. Women doctors and doctors of color face pay gaps compared with their male, white colleagues—and in some cases, those disparities have only gotten worse.

Most health systems base physician pay on productivity, as measured by a predetermined economic value of certain medical procedures. But an increasing number of organizations are incorporating other elements, such as quality and patient experience metrics, into their compensation models. Although these measures may raise consistency issues, they can also address factors contributing to pay inequity and promote value in care delivery.

“It isn’t just about seeing more patients anymore. In this day and age, the patient experience is so critical because patients can vote with their feet, and they’ve got choices,” said Howard Drenth, national leader of population health and the physician enterprise practice at consultancy Deloitte.

Pay equity continues to be an issue for clinicians. In 2022, women physicians earned 79% of what male physicians did in median weekly earnings, according to data released by the Bureau of Labor Statistics in January. That’s compared with 86% in 2021 and 82% in 2020.

Doctors of color face similar pay gaps. Medscape’s 2022 physician compensation report showed white physicians earning 10.5% more annually than their Black counterparts, 5.2% more than Asian Americans and 5.5% more than Latinx physicians.

However, it’s not just a matter of simply giving raises across the board. Physician pay can be a complicated balancing act, shaped by specialty, geography and demand.

Health systems often rely on regional and national market wage data broken down by medical specialty from groups such as the Medical Group Management Association. The information helps organizations offer salaries comparable with other systems, even if they serve communities in multiple states.

“Almost all health systems … have some kind of consistent, objective compensation,” said Dave Hesselink, a principal at consulting firm SullivanCotter. “They’re maybe ahead of other workforces with positions in that regard because the regulatory scrutiny around physician compensation has been in place since the ’80s.”

Location is a key factor, including where a physician is hired and the availability of medical professionals in certain regions. For example, clinicians in rural areas can earn more than those in urban ones if a health system wants to attract expertise to an underserved community.

High-intensity roles, such as surgeons and specialized physicians, typically earn more than office-based primary care providers. Dr. Joseph Kerschner, executive vice president and dean of the medical school at the Medical College of Wisconsin, which employs physicians for Milwaukee-based Froedtert Health, noted the increasingly competitive market for radiologists as one example. Unlike many other doctors, radiologists can work remotely. The flexibility makes it easier for them to change health systems, so organizations need to pay more to retain them.

“Geography is one thing, population density is another thing, but each of these [specialties] has its own economics that you have to think about,” Kerschner said.

These considerations are intertwined with pay parity. Women-dominated specialties, such as pediatrics or obstetrics, tend to be among the lowest-paid. And women may shy away from higher-paying jobs like surgery because of the long hours and lack of time left for family, said Janette Dill, an associate professor in the School of Public Health at the University of Minnesota who focuses on the healthcare workforce.

Lower reimbursement rates from payers for women-dominated specialties also contribute to an overall reduction in the work’s value and subsequent wage erosion, Dill added.

In some cases, social structures like a lack of educational or professional opportunities may push women providers or providers of color into lower-paying settings, such as public hospitals. Dill said an industry shift toward preventive, value-based care focusing more on population health could help mitigate some of the overarching challenges.

Productivity—often measured by relative value units assigning economic weight to certain procedures, such as colonoscopies or X-rays—also plays a major role in the payment calculus, starting with federal reimbursement.

The Centers for Medicare and Medicaid Services annually sets a conversion factor for relative value units and uses it to calculate provider reimbursement rates. Congress approved a 2% cut to Medicare physician rates in 2023, with a bigger decrease expected next year.

Any disconnect between reimbursement and wages can strain healthcare organizations, sometimes for years.

Neal Barker, partner at consulting firm HSG Advisors, pointed to a 2021 decrease in the conversion factor that widened the gap between reimbursement rates and physician compensation nationwide. Some health systems were faced with the possibility of 30% compensation increases for primary care physicians, up against a reimbursement rate percentage increase in the low single digits, he said.

Barker said his team analyzed provider compensation, relative value units and reimbursement data to help those systems better align physician compensation increases with the revenue increases from Medicare.

“Yes, there was an increase in compensation for most providers, but it was a measured and fiscally responsible increase,” Barker said.

Systems that didn’t adjust are likely seeing financial losses or facing sustainability concerns, he noted.

Most healthcare organizations also rely on productivity measures to set overall compensation, in addition to the market factors such as geography or medical specialty. Under this framework, doctors can often earn higher pay if they perform more procedures and work longer hours. Some payers consider certain procedures and types of care to be more valuable than others, further inflating the compensation those physicians receive.

Davenport, Iowa-based Genesis Health Group views productivity measures as a way to keep pay equitable, said Beau Dexter, executive director. The organization pays the same rate within each specialty, no matter the location.

“You’re not only trying to incentivize and keep the ones you have … but you also are trying to attract and recruit more,” Dexter said.

But some industry analysts believe relying on productivity can magnify problems with
pay equity.

Women are less likely to compromise the quality of their work to increase production, said Colleen Stuart, associate professor at the Johns Hopkins Carey Business School. The potential mismatch could create pay gaps in industries such as healthcare that focus heavily on productivity. She said it can also result in a lack of advancement to leadership positions.

More health systems are incorporating non-productivity metrics into physician pay, particularly in primary care. Some are trying to align their compensation plans with an industry moving toward value-based care, said Deloitte’s Drenth.

“The pressure to diversify revenue under a value-based model is driving, in many cases, some of these shifts to non-productivity-based compensation elements,” he said.

Organizations might consider patient experience scores, chart completion and quality measures—such as readmission rates, infections or cost per case—to capture a more comprehensive view of a physician’s performance.

But measuring non-productivity accurately can present a hurdle for health systems using it for physician pay. For example, patient care in hospitals is typically provided by a team of people, making it challenging to determine who is responsible for readmission rates—and who should be rewarded.

Outliers in scoring could also skew the metrics, another factor systems should consider when crafting compensation plans, Barker said. A patient might give a low experience score if the physician declined to provide the desired procedure out of safety concerns. Some physicians of color may also face lower experience scores due to patient biases.

Health systems using more non-productivity measurements for payment are finding ways to mitigate some of the possible adverse impacts.

Dr. Suzanna Fox, deputy chief physician executive at Charlotte, North Carolina-based Atrium Health, part of the newly formed Advocate Health, estimated that with exceptions for salaried physicians and faculty, 7.5% of a part-time or full-time physician’s compensation plan at Atrium’s Charlotte-area operations is based on quality metrics.

Atrium sticks to measurable quality indicators, such as cesarean section rates in obstetrics, to avoid subjectivity and personal biases, she said.

“We do not pick things that potentially take into account someone’s decision like, ‘I think [this person] did a great job last year, but I think [that person] did a bad one.’ It has nothing to do with that,” Fox said.

Deloitte’s Drenth said systems could also score non-productivity metrics based on improvement over time, which may help cancel out any biases from repeat patients.

Regardless of the payment model, health systems say they’re striving to ensure fair pay across demographics.

Fox co-chairs a physician compensation committee for the greater Charlotte region that includes legal representatives, compliance experts and about 35 physicians from different service lines. She recommends health systems find a so-called North Star to guide pay practices: At Atrium, the compensation committee strives to be internally equitable and externally competitive, she said.

Atrium is also cognizant of ensuring racial, ethnic and gender diversity in the applications for its physician leadership positions, Fox said. When asked for further details about the strategy, a spokesperson said Atrium uses diverse interviewers with different skill sets and tracks hires’ ethnicity and gender, but did not provide more information about specific goals.

Health systems need to take a holistic approach to negotiating and administering compensation plans that use productivity and non-productivity measures, said Emma Miller, managing director of health solutions at FTI Consulting. She recommends using an outline of approved metric benchmarks and documenting well-defined policies and procedures, which can increase transparency and reduce regulatory risk.

The Medical College of Wisconsin, which uses productivity measures, has a team on the lookout for internal pay disparities and examines compensation for faculty members, including those working at Froedtert, every year, Kerschner said. He said the college’s attention to equity serves as a competitive advantage for recruiting and retaining talent.

Drawing up third-party studies periodically is the wrong approach, Kerschner said. Instead, the work needs to be ongoing and endorsed by leadership. He said building the appropriate team infrastructure is expensive up front—potentially six-figure investments over multiple years to hire the right people—but the long-term returns for recruiting and retention are worth it.

“The only way to really achieve pay equity across a variety of demographics is to make it a priority for your institution,” Kerschner said. “It’s hard work to do. You have to have a team to do it, and you have to be committed as an organization to do it.” 

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