Themes seem to emerge each season in our medical practice management consulting business; in 2014, one of the most striking has been the connection between physician productivity and physician compensation.  It’s an issue we’ve seen play out in nearly all our engagements, in both start-ups and established practices, in both private practices and hospital-owned groups.

As many practices face big organizational changes and others launch new strategies to adapt in the changing healthcare environment, it’s natural that physician compensation needs to evolve, too.  But what’s more surprising is that this particular issue seems so resistant to the clarity and structured decision-making that guide so much else in the medical world. Instead, too many practice owners view the idea of a productivity structure or clear goals as “insulting” or even unnecessary with “professionals.” This idea seems to take root in private groups in particular – the physician owners are especially leery of offending their employed colleagues.

Sometimes I wonder if a misperception of business compensation contributes to the resistance physician owners and practice administrators have to tying physician compensation to productivity (or even discussing it!).  Perhaps there is a sense that other professionals don’t have the burden of having their performance measured.  But nothing could be further from the truth.  In business, even executives who don’t generate revenue directly typically have objective goals.  Marketers may be measured on unique visitors to a website, inbound calls, awareness or other objective criteria besides revenue.  CIOs may be measured on uptime or the response time of systems, or cost containment, or some combination of results.  Customer service professionals may need to demonstrate that their teams beat benchmarks on hold times and call length.

Sales executives are always measured on sales performance — even when they’re not.  Even when an organization sets a compensation plan for sales executives that doesn’t directly tie weekly or monthly sales to regular compensation, the connection is in there somewhere.  Perhaps a big part of compensation is a bonus that depends on annual performance.  Or perhaps a sales executive collects all her compensation from day one, but she knows her goals — and knows that keeping her job depends on meeting them.

Sales people have to meet goals because the entire organization depends on the revenue they bring in. Same is true for physicians.  In most practices, physician billing provides the overwhelming majority of revenue (if not all of it).  Tying physician compensation to productivity only makes sense; if every oar in the water is not displacing the same amount of water, the boat won’t move forward.  In a medical practice, overhead expenses per provider tend to be fairly similar — so profitability depends on everyone making a similar contribution on the revenue side. If any members of the provider team generate significantly more revenue, the entire team benefits.  What is wrong with rewarding this?  And, on the flip side, what is wrong with openly discussing what productivity is required for the practice to be profitable (and continue to survive and fulfill its higher goals of serving patients)?

Being clear about what kind of patient load is expected is also only fair.  What happens when a physician takes the “no productivity goals” message to heart, and spends time that could be invested in seeing patients in, say, writing articles, or volunteering at a nearby clinic?  With no guidelines for profitability, the physician could easily assume that these other activities are just as valuable to the practice.  But while that physician crafts his ideal schedule, unwittingly jeopardizing practice profitability, his peers could be feeling resentment over the perceived unfairness of a colleague  making little effort to build or maintain his patient schedule. Morale then suffers — exactly the opposite outcome that was expected when avoiding the “dirty” talk about money and productivity.

In several cases we saw this year, something even worse resulted from employed physicians working without clear productivity targets: Physician owners raiding their personal savings, taking out a personal loan or second mortgage, and/or working significantly harder to keep the practice afloat.

This is unfortunately not uncommon, and we have a few choice words to describe it: Wrong. Scary. Unfair. Avoidable.

Unwillingness to set productivity goals and tie them to compensation is rooted in false assumptions.  Let’s reclaim productivity as a positive by busting a few:

1. Productivity goals are “insulting”

Your providers are grown-ups — and, even if they’re not owners, they want to see the practice succeed.  You know what’s insulting?  Treating physicians like they’re unable to handle the bare facts of the practice’s business.  It’s wrong to keep important details — such as the level of productivity required to be profitable — from the very employees your practice depends on for it.  And it’s really wrong to assume that your employed providers don’t care enough about the practice to want to bring in enough revenue to sustain it.

2. Employed physicians don’t have productivity goals

Some physicians and organizations we’ve worked with assume that larger systems that employ many physicians don’t measure productivity — they just set physician salaries based on market rates.  But large organizations have many tools to manage physician productivity, even when it’s not discussed directly (as it typically is).  For example, they can use technology to optimize the patient schedule, and use the physician schedule to redistribute workload.

3. Productivity goals won’t change behavior

Another assumption is that many physicians are not motivated by money — so, tying compensation to productivity goals makes no sense.  But the idea and intent behind specific productivity goals is less about encouraging your providers to jam in as many extra patient visits as possible — nor is that likely to happen.  Connecting productivity and compensation is much more about keeping providers informed about what is expected and what is required to maintain practice financial health. Unless you’re clear about these things, how can you expect physicians to hit the target?  (That’s not all that likely when they’re working in the dark, is it?)

4. Productivity goals interfere with flexibility

This assumption is actually the opposite of what productivity goals can do.  If compensation structures are clear about minimum productivity levels and spell out how providers can earn more money by exceeding goals, then everyone understands how they can trade off more free time in exchange for earning less (and vice versa). The opportunity for those with greater financial needs or goals to earn more by working more might be really appreciated by younger doctors looking to pay off loans — and the opportunity to earn a little less in exchange for less compensation might similarly be appealing to older physicians.  The key is that everyone knows how the system works — and that it works fairly for everyone.


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