Report details and key findings

For the report, MGMA collected data from almost 190,000 providers at more than 6,800 organizations to provide a "comprehensive sense of what medical group, health system and hospital leaders should consider in budgeting and building the compensation models that will recruit and retain the physician and [advanced provider practice (APP)] workforce of the future."

From 2021 to 2022, primary care physicians, surgical specialists, and nonsurgical specialists all saw modest gains in their compensation.

However, none of these gains kept up with inflation. According to data from the Bureau of Labor Statistics, the consumer price index (CPI) rose 13.5% from 2020 to 2022. 

"Despite physician and [APP] productivity continuing its post-pandemic recovery, compensation gains are being outstripped by the most severe inflationary growth in decades," the report stated.

When MGMA asked organizations about their biggest productivity roadblocks, 56% named staffing as their top challenge.

While it is difficult to measure the frontline impacts staffing shortages have on productivity and compensation, a November 2022 MGMA poll found that fewer than two-thirds (65%) of medical groups were expected to meet or exceed their 2022 productivity goals.

In 2022, two-thirds of medical groups added or improved patient self-service tools to lighten the workload of their healthcare teams amid the workforce crisis.

Given that the median retirement age for physicians is 65, we're poised to see a significant wave of retirements, with roughly 2 in 5 physicians set to reach retirement age in the next 10 years.

As more physicians age into retirement, organizations will have to plan for their departures while finding ways to recruit talent from a declining supply of physicians.

Compensation models are shifting

Since 2020, MGMA has observed a steady shift toward salary-based compensation models and a shift away from production models. 

"Evidence of growing use of salary-based compensation models aligns with the broader trend of consolidation of medical practice ownership toward hospitals and integrated delivery systems, whereas the receding number of independent groups, in which pure productivity models have historically been more common," the report stated.

5 best practices for compensation model redesign  

While there is no such thing as a perfect provider compensation model, Advisory Board developed five best practices to help organizations increase their chance of successfully creating a new provider compensation model that works for both clinicians and the organization.

Here are five best practices organizations can follow when redesigning their provider compensation models:

1. Create and use a compensation philosophy

If there is one thing that sets an organization up for success when designing a new compensation model, it's whether they have an agreed upon compensation philosophy that can serve as a guide — preventing conversations from becoming arguments.

This philosophy should be transparent within the organization, referenced throughout the process of developing a new model, and used to evaluate new incentives and resolve disputes. Without a philosophy, a medical group lowers its chance of designing a model that accomplishes its goals.

2. Ensure incentives don't have unintended consequences

With physician compensation "you get what you pay for," and medical groups can choose to implement different models and incentives. But this makes it that much more important that physician executives ask, "what happens if we get what we're paying for?" because any incentive can come with unintended consequences.

3. Evaluate incentives at the collective level

Most of a provider's compensation is tied to their individual performance. But as the practice of medicine becomes even more of a team sport, medical groups should consider implementing incentives at the unit level. These collective incentives can be done at the practice, department, service line, or even group or system level.

A significant portion of a physician's compensation should still be based on their individual performance. However, collective level incentives can help drive performance on major strategic initiatives like access, service, quality, and cost. They also foster a "we over me" culture within the unit and broader organization.

4. Give everyone a path to success

No matter how enticing an incentive, it must also be attainable. If providers feel the bar to achieve an incentive is too high, they will prioritize other areas. First, you've got to set attainable targets. But doing that alone isn't enough. Executives also need to pave a way for physicians to achieve those targets.

5. Consider penalizing expected behaviors

Most medical groups rely on incentives and rewards in their compensation model to drive provider behavior. But penalties can work well too, especially for behaviors that are just the expectation.

Creating and rolling out a new compensation model is only half the battle — organizations must align compensation redesign with operational changes that support it. Transforming incentives without a corresponding change in practice fails consistently.

As you're redesigning compensation, consider what providers will need to both execute on and benefit from your updated model. (Cheney, HealthLeaders, 5/25; Wallace, Becker's Hospital Review, 5/25 [1]; Kacik, Modern Healthcare, 5/26; Wallace, Becker's Hospital Review, 5/25 [2]; MGMA data report, 5/24)

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