Physician compensation has become increasingly complex, with four forces pulling pay in competing directions. According to Tynan Kugler, a principal in PYA’s consulting practice, getting the underlying compensation model wrong can be expensive and legally complicated to undo.
Medical groups and health systems face workforce shortages, flat or declining reimbursement, rising operating costs, and regulatory limits, making it challenging to determine fair compensation. The current setting is especially fraught, with a competitive offer no longer being enough to close the deal due to the various factors at play.
Competing Forces in Physician Pay
Kugler identifies the supply-and-demand imbalance, the shift to employment and affiliation, reimbursement pressure, and the productivity-versus-value tension as the four forces affecting physician pay.
These forces pull physician pay in different directions, with the 2026 Medicare conversion factor and the upcoming 2027 unbundling of global obstetric codes adding to the complexity. The interplay between these forces requires medical groups and health systems to carefully consider their compensation models to avoid costly mistakes.
Redesigning Compensation Models
To avoid runaway costs, strong medical groups are redesigning their compensation models instead of raising salaries each year. This includes implementing hybrid base-plus-incentive structures, quality and access measures, and shorter guarantee periods. By taking a more subtle approach to compensation, medical groups can better manage costs and ensure fair pay for physicians.
A well-planned advanced practice provider strategy is essential in managing costs and ensuring fair compensation. It helps medical groups make informed decisions about physician pay and productivity, allowing them to optimize their workforce and improve patient care.
Once compensation is set, it creates a floor that is difficult to lower, making it essential to get the model right from the start. Medical groups must consider all factors, including regulatory limits and market trends, to avoid costly mistakes that can have long-term consequences.
Evaluating Compensation Offers
Most health systems work from a board-approved compensation philosophy, which is then applied to each physician’s facts to determine a fair offer. The company uses this philosophy to guide its decision-making process, taking into account factors such as market data, physician experience, and practice needs.
Kugler explains that benchmarking plays a significant role in deciding whether an offer is supportable, using examples of a physician new to a market, a resident coming out of training, and an owner leaving private practice. He notes that it is essential to understand the factors that influence an offer, including the physician’s individual circumstances and the health system’s overall compensation strategy.
The give in compensation tends to live in quality incentives and recruitment tools like signing bonuses and forgivable loans, rather than in base pay and productivity metrics. This approach helps health systems attract and retain top talent, while also managing costs and ensuring fair compensation.
Understanding how an offer is evaluated and what factors influence it is essential for physicians and organizations. Kugler emphasizes that alignment matters as much as the number, and compensation is complicated, making it essential to know what you need going in. By taking a thoughtful and informed approach to compensation, medical groups and health systems can build strong, sustainable relationships with their physicians.
The complexity of physician compensation is further exacerbated by the need to balance competing priorities, such as providing fair pay, managing costs, and ensuring regulatory compliance. Medical groups and health systems must handle these challenges carefully, using data-driven approaches and expert guidance to inform their compensation decisions.
By recognizing the interplay between the four forces affecting physician pay and taking a subtle approach to compensation, medical groups and health systems can create fair, sustainable, and effective compensation models that support their physicians and drive success.
The importance of getting compensation right cannot be overstated, as it has a direct impact on physician satisfaction, retention, and overall performance. By prioritizing fair and effective compensation, medical groups and health systems can build a strong foundation for success, driving better patient outcomes and improving the overall quality of care.
