Physician compensation trends could face years of uncertainty

Healthcare employers are reevaluating how they compensate physicians, with experts forecasting years of potential uncertainty.

The clinical shutdowns experienced at the onset of the COVID-19 pandemic in 2020 upended traditional productivity-based physician payment models. The same year, the federal government announced significant changes to the physician fee schedule, raising reimbursement for those providing office visits while decreasing reimbursement for others. Patient volume has begun to rebound in the meantime, driving up demand for doctors.

As a result, many employers’ payment structures are in flux.

Some organizations have switched to value-based payment for physicians. Others have recalibrated how they structure productivity-based plans by offering salary floors that protect doctors from unexpected drops in patient numbers. Extra incentives, such as flexible scheduling and remote work opportunities, have also been frequently included in recruiting offers.

“They’ve had to manage their compensation plans so they’re not creating unintended windfalls or creating financial problems for the organization,” said Josh Halverson, partner and division leader of provider financial services at ECG Management Consultants.

“It’s going to be a turbulent period over the next few years. Until that shakes out, organizations are going to have to adjust,” Halverson said.

“They’ve had to manage their compensation plans so they’re not creating unintended windfalls or creating financial problems for the organization.”
Josh Halverson, partner and division leader of provider financial services at ECG Management Consultants

 

The need for clinicians is spiking. New searches for physicians from hospitals and medical groups hit a 34-year record high in the fourth quarter of 2021, said Tom Florence, president of physician permanent placement for staffing firm Merritt Hawkins/AMN Healthcare. The demand continued into the first two quarters of 2022, he said.

“Even during COVID, none of the underlying factors driving the physician shortage went away,” Florence said.

The U.S. population is aging, and patients have delayed care during the pandemic, Florence said. More doctors will be required to handle the increasingly complex cases as a result.

In a 2021 report, the Association of American Medical Colleges predicted a physician shortage of anywhere from 37,800 to 124,000 by 2034.

“The volume is back. We’re adding physicians. We’re not laying anyone off or downsizing. We need to grow,” Florence said.

As demand has increased, so has physician compensation—though not enough to outpace inflation. Average pay was up 3.8% in 2021, according to Doximity’s 2021 Physician Compensation Report, compared with the 6.2% 12-month inflation rate determined by the Consumer Price Index.

Despite economic conditions, doctors can nearly always expect to see at least some increase in base compensation from year to year, Halverson said.

Broad industry averages can be misleading, however. The year-to-year compensation rate by specialty changed anywhere from -13.8% for cardiologists to 20.7% for plastic surgeons, according to Modern Healthcare’s 28th annual Physician Compensation Survey, which analyzes data from eight placement and consulting firm surveys.

“Within geographies and within some specialties, we are seeing supply and demand issues,” Halverson said.

Still, he said, “There’s usually a floor under which people don’t go. Even when there’s a surplus of physicians in the market, compensation usually doesn’t go down, or it goes down much slower than it goes up.”

Experts also noted numbers don’t tell the whole story behind compensation trends—particularly when it comes to shifts in payment structures.

Productivity-based compensation remains the most common form of payment for 80% of primary-care physicians and 90% of specialists, according to a 2022 RAND Corp. study. But more employers are trying to deemphasize the role productivity-driven measures (work relative value units, known as work RVUs) have in their compensation plans, said Dave Hesselink, a principal at workforce consulting group SullivanCotter.

While RVUs likely won’t go away altogether, the volatility of patient volumes during the pandemic caused employers to question if they should be the primary mechanism to determine compensation, he said. Instead, they are incorporating elements of value-based payment, such as tying fee-for-service to quality.

Florence attributes moves away from productivity-driven models to the need for doctors.

Modern Healthcare's Physician Compensation Survey

“The only reason [organizations are] going to a straight salary is to be competitive in the marketplace,” Florence said. “In some of the high-demand specialties, there are bidding wars.”

Regardless of payment structure, Florence said employers have to be competitive about salary and sign-on bonuses as well as what he called “softer” incentives like schedule flexibility, telehealth opportunities, offering scribes to reduce administrative burden and a physician-friendly culture.

“If they feel like their incentives are typically just driven on patient volume only, that might not be as appealing to some folks,” Florence said. “It’s really being more flexible with the physician than in the past.”

Download Modern Healthcare’s app to stay informed when industry news breaks.

To recruit physicians in high-demand areas like primary care, psychiatry and anesthesiology, Danville, Pennsylvania-based health system Geisinger Health “leaves no stone unturned,” said Matt McKinney, director of provider recruitment.

“We really have to have something that differentiates us in the market beyond just compensation,” McKinney said.

Geisinger offers doctors more flexible hours or part-time roles, remote work opportunities through telehealth and activities outside of their clinical work, like research or teaching. The health system has paid all doctors straight salaries since 2017, instead of tying wages to productivity.

Geisinger also revamped its operations four years ago in an effort to better attract doctors in the primary-care space. The system created care teams of advanced practitioners, case managers and behavioral health workers to support primary-care physicians and put a 450-person cap on the number of patients assigned to each doctor. By comparison, a 2016 report in the Journal of the American Board of Family Medicine found an average patient panel size of 1,200 to 1,900.

The organization recruited 30 new doctors last year, giving it a 186-person primary-care physician team.

“It truly is a candidate-driven market,” McKinney said.

Lehigh Valley Health Network, an Allentown, Pennsylvania-based health system, has been taking on more risk. This year, it switched its primary-care physicians to a salary-based model focused on value instead of productivity.

“The RVU model was not getting to the ends that we really wanted it to,” said Dr. Joseph DeFulvio, chief medical officer of regional campuses and integration for Lehigh Valley Physician Group.

Instead, the health system’s decision-makers wanted to reflect the fact that physicians are seeing more complex patients and might need to spend more time with individuals. They also wanted compensation to encompass the administrative burden clinicians manage. In addition, Lehigh Valley employed scribes to assist primary-care doctors.

“We’re trying to take compensation as a barrier off the table to do this more global work,” DeFulvio said. “The compensation structure is designed to pay you well for the primary care-based work you’re going to do with patients that encompasses possibly some nontraditional things.”

Each year, Lehigh Valley assesses whether its compensation structure for each of its specialties is working, looking at measures like clinical outputs to determine how to proceed, DeFulvio said.

Hiring is only the first step to maintaining a robust workforce. Lehigh Valley has focused on making it more seamless for doctors to join the system, said Dr. Jennifer Stephens, chief value and ambulatory care officer for Lehigh Valley Health Network and chief medical officer for Lehigh Valley Physician Group. The revamp includes help with the credentialing process, a dedicated onboarding week and regular check-ins throughout the first year.

“It’s one thing to recruit. It’s another to onboard and retain them,” Stephens said.

Download Modern Healthcare's Physician Compensation Survey.