Compensation Clarity: Designing Physician Pay Models That Work
Episode 111: Compensation Clarity: Designing Physician Pay Models That Work
“Compensation isn’t just about money—it’s about value, recognition, and culture. It’s no wonder it’s one of the most emotionally charged topics in any medical group.”
Welcome to the Medical Money Matters Podcast, where we unpack the financial and operational complexities of running a medical practice. Today’s topic is one that often stirs strong emotions: physician compensation. Designing an effective pay model is one of the most challenging tasks for any practice leader. Why? Because pay isn’t just a number on a paycheck—it’s deeply tied to how we view our contributions, our worth, and our role within the group.
For administrators and CEOs, tinkering with compensation plans can feel like stepping into a minefield. It’s no exaggeration to say that changing pay structures is often a career-limiting move. The stakes are high, and missteps can alienate staff, create resentment, or even lead to turnover. Yet, despite the challenges, compensation is one of the most powerful tools a group has to align behavior with its goals, build a cohesive culture, and drive growth.
In this episode, we’ll explore why compensation is such a sensitive issue, how leaders can thoughtfully approach changes, and what it means to design a plan that reflects your group’s culture and values. This is a follow on from our discussion in Episode 35 with physician compensation expert, Steve Franey. We’ll also dive into four different compensation models, examine their pros and cons, and share real-world case studies to illustrate how each works in practice.
Compensation is inherently personal. For many, it feels like a reflection of their worth—both as professionals and as people. This emotional tie can make any change to a pay structure feel like a personal affront, even when the intention is to improve fairness or better align incentives.
For leaders, navigating these emotions is no small feat. Stories abound of administrators and CEOs whose careers were derailed by compensation changes that didn’t land well. Whether it’s a poorly communicated transition, unintended consequences of a new model, or perceived inequities, the fallout can be significant.
But compensation isn’t just personal—it’s also cultural. If you want to understand a group’s priorities and values, just follow the dollars. Pay models reveal what’s rewarded and valued, whether it’s individual productivity, collaboration, quality outcomes, or something else entirely. For example, a practice that uses an eat-what-you-kill model places a high value on personal productivity, while a group that divides revenue evenly among partners may emphasize equality and teamwork.
The challenge for leaders is to design compensation plans that reflect and reinforce the group’s culture while also aligning with strategic goals. When done thoughtfully, pay models can be a powerful driver of engagement, satisfaction, and success. But how do you make those changes without creating chaos?
The first step is engaging stakeholders early in the process. Change is always easier when people feel like they’ve had a voice in the decision-making. Explain the “why” behind the changes and how they align with the group’s goals. For example, if the goal is to improve patient satisfaction, tie that to the compensation plan by rewarding metrics like patient surveys or care coordination.
One group we worked with, a multispecialty practice, wanted to reduce burnout and improve patient outcomes. They shifted from a productivity-based model to a team-based incentive structure, where bonuses were tied to quality metrics and collaborative care. By engaging physicians in the process and clearly communicating the goals, they were able to implement the change with minimal resistance—and the results spoke for themselves.
Let’s now look at some of the most common compensation models and how they shape behavior within a group.
The first model is eat-what-you-kill, also known as eat-what-you-treat. In this model, physicians are paid based on the revenue they generate, often through collected receipts. It’s a straightforward approach that rewards productivity and personal accountability.
The pros of this model are clear. Physicians have a direct incentive to maximize their output, which can drive revenue for the practice. It’s also easy to understand and calculate, making it a popular choice for high-volume specialties like surgery or dermatology.
But there are drawbacks. Eat-what-you-kill can discourage collaboration, as physicians may be less willing to share patients or resources if it doesn’t benefit their bottom line. It can also create tension over resource allocation—for example, disagreements about operating room time or access to support staff.
One surgical practice we consulted with used an eat-what-you-kill model. While it worked well for incentivizing productivity, it created significant tension among partners who felt they were competing for resources rather than working as a team. Over time, this eroded trust and made it difficult for the group to tackle shared challenges.
The second model is RVU-based compensation, where pay is tied to the relative value units (RVUs) associated with the services a physician provides. Unlike eat-what-you-kill, RVU models decouple compensation from collections, reducing the impact of payer mix or patient non-payment.
The benefits of this model include a focus on patient care rather than collections. Physicians are rewarded for the volume and complexity of their work, regardless of a patient’s insurance status. However, RVU models can be complex to administer and track, and they may inadvertently incentivize high-volume, low-value services if not designed carefully.
We worked with a family medicine group I worked with transitioned to RVU-based pay to promote preventive care and chronic disease management. By aligning compensation with services that improved long-term outcomes, they were able to shift the focus from short-term visits to meaningful patient engagement.
The third model is base salary with incentives. In this structure, physicians receive a guaranteed salary with performance-based bonuses tied to metrics like patient satisfaction, quality outcomes, or financial targets.
This model offers stability and predictability, which can be especially appealing for physicians early in their careers or in high-stress specialties. It also allows practices to align incentives with broader organizational goals, such as improving care coordination or achieving value-based metrics.
However, salary-plus-incentive models can reduce motivation to exceed minimum expectations if the base salary is too generous. Selecting the right metrics for bonuses is also critical—poorly chosen incentives can lead to unintended consequences.
A hospital-employed group I worked with adopted this model to improve care coordination. By tying bonuses to team-based metrics, they saw improvements in both patient outcomes and staff retention. The key to their success was choosing metrics that reflected their values and priorities.
The fourth model is dividing the pie evenly among FTE physician owners. In this approach, revenue or profit is shared equally, regardless of individual productivity.
This model fosters equality and teamwork, as everyone shares in the practice’s success. It’s particularly effective in small, close-knit groups where trust and collaboration are paramount.
But there are significant risks. High performers may feel demotivated if they believe they’re subsidizing lower-producing colleagues. Over time, this can lead to resentment or attrition among top contributors.
One independent practice I consulted with used this model to promote a unified culture. While it initially worked well, over time, the group struggled to retain its most productive physicians, who felt their efforts weren’t adequately rewarded.
When comparing these models, there’s no one-size-fits-all solution. The right choice depends on your group’s size, specialty mix, and goals. For example, eat-what-you-kill may work for entrepreneurial, high-volume practices, while RVU models strike a balance between productivity and quality care. Salary-plus-incentive models provide stability and align with value-based goals, and dividing the pie evenly can work for small groups with aligned values.
Ultimately, many practices find success with hybrid models that incorporate elements of multiple structures. For example, combining a base salary with RVU incentives can provide stability while still rewarding productivity.
Compensation is more than just a paycheck. It’s a tool for shaping culture, driving behavior, and achieving strategic goals. But making changes requires thoughtful leadership, clear communication, and a commitment to aligning pay with values.
As you evaluate your own compensation model, ask yourself: Does it reflect your group’s culture and priorities? Are there unintended consequences that need to be addressed? And most importantly, is it helping your team and your patients thrive?
Thank you for joining me on the Medical Money Matters Podcast. If you found this discussion helpful, please share it with your colleagues and follow or subscribe for more insights. Remember, compensation clarity isn’t just about dollars—it’s about creating a culture where everyone can succeed. Until next time, stay focused and fiscally fit.
