Industrywide, the physician enterprise is an underperforming strategic asset. In the Mindsets 2024 Healthcare Executive Leadership Report from Forvis Mazars, executives identified rising physician compensation as one of the biggest challenges to healthcare organizations’ financial stability.
Demand for services is growing. However, increasing compensation due to physician shortfalls coupled with inadequate payment from commercial health plans, Medicare, and Medicaid is exacerbating the annual losses experienced by most healthcare organizations’ physician enterprise. Efforts to address these losses are frequently frustrated by misaligned physician compensation models and support structures.
As healthcare organizations look to improve the performance of their physician enterprise, they need to align physician compensation models to a sustainable target operating model, work to become an employer of choice, and unlock profitable growth by taking advantage of scale opportunities. Healthcare organizations should ask the following questions to better align physician compensation and support systems to help improve the performance of the physician enterprise and the healthcare organization overall.
Physician Compensation Model & Organizational Value
Physician compensation models typically reward volume, coverage, and advanced practice provider oversight (not leadership) and include a token amount of money at risk for quality. These outputs are frequently inadequate to address the challenges facing the larger health system. Key questions to “level up” under this umbrella include:
- How does the organization define value?
- What changes need to be made to the compensation model to align it with the organization’s goals related to this definition of value?
- What is the plan to modify the compensation model as the organization’s definition of value and related goals evolves?
Based on the answers to these questions, some organizations are adjusting their compensation models, leveraging recent changes in the Stark regulations that allow hospitals to remunerate physicians for improving triple-aim/quadruple-aim outcomes. Using hospitalists as an example, an improved outcome, i.e., value, for the patient is defined as a “great discharge.” This includes a timely discharge, medications in hand, placement to the right post-acute care (PAC) setting, with a primary care physician (PCP) follow-up appointment, and similar makes-sense clinical protocols. Some level of compensation for hospitalists under a “value-based model” is tied to the number or percentage of “great” discharges.
Service Line Rationalization
Not all referrals are good referrals. While that was largely true pre-COVID-19, the pandemic forced many organizations to fully confront the reality that some service lines will never be financially self-sustaining. Unfortunately, most service line leaders lack line of sight into net profitability. Key questions under this mode of analysis include:
- Does your organization track and make business decisions around service line profitability?
- How strong are the incentives in the physician compensation model to help the service line(s) they are associated with achieve financial and strategic goals?
Workforce Strategy
Many organizations are experiencing access challenges due to physician shortages. These shortages also are hampering the realization of growth strategies in some instances. The structural issues in the supply of physicians will not improve in the near term. The American Association of Medical Colleges projects the U.S. will face a shortfall of up to 86,000 physicians by 2036.1 Therefore, competition for a limited supply of physicians will only accelerate already rising compensation costs. Healthcare organizations can help mitigate this trend by becoming an employer of choice; key questions related to elevating to employer-of-choice status include:
- Does your organization understand the key attributes of being an employer of choice for physicians and advanced practice providers?
- What is the plan to meet these physician requirements?
- What are the polarizing features of working for our organization?
Obviously, physicians are not a homogeneous block, so it is important to understand the value key segments of the provider community place on the attributes ascribed to being an employer of choice. These include:
- Group Identity: Physicians typically want to be part of highly regarded organizations that deliver innovative care. Academic medical centers often have an edge in this attribute.
- Lifestyle Flexibility: This includes allowing providers to practice on nontraditional schedules, e.g., four-day workweek, or part time to support work-life balance.
- Whole-Person Support: This includes concierge-type services and other convenience offerings that help time-strapped talent make the most of their time away from the clinic and/or hospital.
- Practice Platform & Support Functions: This includes people, processes, and technology that allow a provider to efficiently and effectively deliver care while reducing the volume of tasks that don’t require clinical training or a physician’s expertise. Typically, an effective platform also reduces “pajama time”—administrative work that physicians often perform at home after hours—which helps increase job satisfaction and work-life balance.
Team-Based Care
The practical challenges of increasing provider compensation, declining payment, and a limited pool for physicians necessitate deploying advanced practice providers as a critical part of the provider workforce. Team-based care is an operating and alignment model that expands access to care while matching the patient with the appropriate provider based on anticipated visit complexity—if structured and deployed appropriately.
In this model, the physician’s role evolves from individual player to player-coach—a position physicians were not classically trained to undertake. They are not only delivering care to patients, but also leading a larger care team. In the typical employment arrangement, physicians are often paid a stipend for nurse practitioner supervision, such as $500 or $1,000 per month. Typically, this stipend is for the chart oversight necessary to satisfy a licensure requirement. Beyond this stipend, few healthcare organizations provide physicians with the incentives, administrative time, or leadership tools to successfully assume the player-coach role. Important questions to consider for team-based care include:
- Is your organization deploying an operational approach to team-based care to address access or other needs?
- How is your organization supporting physicians in team-based care models?
Advanced Practice Providers
Nurse practitioners now render more than 1 billion visits of care annually. The pipeline of talent for advanced practice providers (APPs) has expanded significantly in the last 10 years, including more specialized training than ever before. In rural settings, APPs already deliver more primary care services than physicians. Given the anticipated shortages of primary care physicians, it is projected that the lion’s share of primary care nationally will be delivered by APPs by the end of the decade. As APPs increase as a percentage of the employed provider workforce, their contribution to the leadership of the physician enterprise needs to evolve so they are engaged and ultimately have a sense of ownership for key strategic and tactical decisions.
Unlike physicians, APPs present as new employees with a broad mix of training, skill levels, confidence, and resourcefulness. Therefore, organizations need a skills-based approach to hiring and a career matrix to organize, assess, train, and, ultimately, appropriately compensate these APPs to deploy them effectively and efficiently. Questions to consider include:
- Does this employee cohort have a champion at your organization?
- Are they a respected block of employees?
- How are the physician enterprise’s leadership structure and decision-making processes evolving to reflect APPs’ increased role in care delivery?
- How does the organization evaluate APPs for the purposes of determining their capabilities and compensation?
The answers to these questions can help healthcare organizations identify and develop a plan to address shortcomings in the compensation model and support structures they provide their physicians and APPs. Addressing identified deficiencies can help improve the physician enterprise’s performance and contribute to the healthcare organization’s overall success.
How Forvis Mazars Can Help
Our team has extensive experience helping healthcare organizations navigate a wide range of physician alignment and compensation questions and challenges. If you have questions or need assistance with the performance of your organization’s physician enterprise, please reach out to a professional at Forvis Mazars.
- 1“New AAMC Report Shows Continuing Projected Physician Shortage,” aamc.org, March 21, 2024.