Bonus pointers: The new models

Paying physicians and staff a little more for extra work or extra effort can be a great way to boost morale. Determining bonus compensation, however, can be a complicated matter.

By Larry Stevens, AMNews correspondent. Oct. 2, 2006.

Compensation used to be very straightforward. Owners and partners received their fair share of revenue, and employed physicians and staff earned a specific annual salary.

Then came the 1990s, with capitation experiments sweeping through many regions and hospital and physician practice management buyouts looking like an unstoppable trend. Suddenly dozens of different compensation schemes emerged. Besides straight salary and straight productivity plans, compensation was often based on quantitative and qualitative factors such as number of referrals received, results of patient satisfaction surveys, use of generics, and even in a few cases lower patient utilization rates. Bonuses were used as a strategy to change physician behavior and in some cases represented a major portion of physician incomes. As physicians' pay got more bonus-based, staff pay echoed the trend.

But physicians were not fans of this model.

"I have never met a doctor who likes being paid that way," said Mark Smith, executive vice president of physician recruiting company Merritt, Hawkins & Associates in Irving, Texas. The plans were often too complex for physicians to completely understand, and the uncertain income hindered doctors from making personal financial decisions. "Like most people, doctors want to know at least approximately how much they can count on earning in any given year," said Smith.

Compensation experiments of the 1990s have been for the most part abandoned. Formulas have become more normalized. But many groups have not discarded the bonus models altogether. "We're seeing a third wave of bonus models. It's less complex and usually represents a smaller portion of the doctor's overall compensation," said Ron Vance, a consultant in the Norcross, Ga., office of national health care consultancy Healthcare Evolutions Inc. This simpler form is used strategically by groups both as an incentive that encourages doctors to work harder and as a recognition for individual and group accomplishments. "Used judiciously, a bonus can advance the group's goals," said Vance.