Changing compensation plans: moving beyond last year's, this year's and next year's - Money

Physician Executive, Jan-Feb, 2004 by Steven B. Pierdon, Brenda Eckrote

The prospect of changing physician compensation plans invariably leads to the classic quip about three compensation plans: last year's, this year's and next year's.

The reality is that changing compensation plans is necessary for a variety of business and strategic reasons. Unfortunately, it is often a difficult and disruptive process.

Most would agree that it isn't changing the plan that is the problem; it is leading the change process that is difficult. There are several key steps to successfully implement change in a physician compensation plan.

At Geisinger Health System, our goal was to change the plan while establishing a process where ongoing evolution would be better understood and accepted.

Organizational circumstances often initiate the need for changes in a compensation plan and are frequently related to health care environment shifts with pressures on revenues, expense increases or altered strategies.

Changing the compensation plan is a key management tool since compensation can effectively modify behavior. However, the risk of changing plans is significant and should not be done without specific reasons and goals.

Even the perceived frequency of changes can be detrimental to morale with tweaking of the compensation criteria interpreted as "changing the plan."

Geisinger's plan

Geisinger is an integrated health system consisting of a 600-physician group practice, a tertiary care center, a secondary acute care hospital, a drug/alcohol facility and a 260,000-member health plan. Geisinger reorganized clinical departments into multidisciplinary service lines in 2000.

The community practice service line (CPSL) was one of the first service lines because of its geographic scope and potential as a "front door" to the system. CPSL is a component of the group practice with nearly 270 physicians and mid-level providers serving 340,000 patients and providing 950,000 outpatient visits annually.

In redesigning the physician compensation plan, a multidisciplinary design team met to develop the concepts and business plan. The vision for CPSL stressed growth, performance and ownership. Compensation changes were recognized as key to physicians' sense of ownership and the plan's success.

Developing guiding principles surrounding physician compensation was a crucial step in establishing a starting point, and a touchstone for future changes. Guiding principles provide the foundation for establishing mutual goals and expectations and create a philosophy and framework for enacting future changes. These principles were developed in advance of the compensation plan's criteria and were a key aspect for establishing trust in the change process.

A focus group process to develop our guiding principles included presenting initial concepts, gathering reactions, generating refinements and then communicating the refined principles. The CPSL developed and adopted the following compensation principles:

* Individual physicians should have the ability to impact their compensation

* Those who contribute more will be compensated more

* Factors other than productivity will also be rewarded

* Factors that impact results rapidly and significantly will be rewarded first

* Parameters and processes will evolve as measurement tools and results improve

Historically, compensation was a market-based salary model. Although there was an annual compensation review, reasons for salary adjustments were often vague and did not appear clearly linked to performance.

Creating an awareness of the need for change and gaining acceptance was an important step, accomplished by educating the physicians on the plan's details. The plan's implementation included constant reinforcement of the goals, processes and timelines through various communication methods.

Progress was monitored, results communicated and issues addressed in a timely fashion. Celebrating successes, a step often overlooked, was critical.

Initially, limited criteria and small rewards were implemented, providing an opportunity for physicians to gain--with minimal risk--as they developed acceptance of the overall plan. Rewards increased in value with subsequent program cycles. Although penalties were introduced, physicians could avoid penalties by taking corrective action.

Satisfaction counts

Patient satisfaction was one of the first criteria to be rewarded since improving patient satisfaction was essential for growth and a focus of the system. This was consistent with the compensation principle: "impacting results rapidly and significantly will be rewarded first."

Geisinger uses a nationally ranked survey to measure and benchmark patient satisfaction. As one can imagine, when measurement rankings are linked to compensation, they are frequently challenged. Therefore, exceptions were addressed (e.g., physicians new to their practice site) in an effort to create an accurate picture of true performance.

Physicians receive a summary of the past 12-months of patient satisfaction scores every six months. This is in advance of compensation adjustments, so an incentive or adjustment does not come as a surprise.