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

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.

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Scores are arrayed with a standard deviation (SD) ranking methodology to identify outliers. Physicians whose scores were greater than one SD above the norm (the 87th percentile) were rewarded with a small lump sum incentive. Initially, there was no penalty for poor performance.

Rewards increased during the second six-month cycle. There was also further differentiation, with a larger reward going to the physicians two SD above the norm (98th percentile). The payout transitioned from a fixed dollar reward to a percent of salary in the following cycle. Patient satisfaction financial incentives were also expanded to mid-level providers and support staff.

Penalties were introduced in the third six-month cycle. However, if the penalized physician participated in patient communication training, they would "escape" any downside risk. In the next cycle, the upside potential was kept relatively the same, but with less downside protection. The escape option remained in place.

After two years, the number of CPSL physicians with survey scores greater than one SD above the mean increased from 15 percent to 33 percent. Likewise, physicians who had scores less than one SD below the mean decreased from 35 percent to 15 percent. This clearly demonstrated that an organized approach to compensation could significantly change performance.

A similar sequencing approach was used with other criteria including progressing to productivity-driven, market-based, salary adjustments. Physicians understand that they are being ranked against peers in like organizations. Our benchmark productivity is derived from the McGladrey survey of large group practices.

Communication,

Communication,

Communication

Perhaps the most important elements in successfully implementing compensation plan changes are communication methods. Providing clear, consistent communication is crucial to the change process. The human side of change needs to be managed with sensitivity.

Guiding principles were introduced through small group presentations. With each compensation cycle, a communication precedes the actual adjustment. Talking points are developed to help leadership teams deliver a consistent message and reinforce the guiding principles. Multiple formats reinforce the groups' understanding of the plan.

Two regularly distributed communication tools were developed.

1. The first is an individualized productivity report that includes key statistics, trending, benchmarks and ranking within the peer groups. This report is posted monthly on the Intranet and providers are notified of its availability. The identity of the physician is protected with a confidential numbering scheme.

2. The second communication tool is a personal scorecard issued with each compensation change cycle documenting the physician's results by each criterion. The medical director reviews this with the physician, discussing the criteria, resulting compensation changes and future expectations. For each criteria, personal scores (current and prior) and the resulting salary change and/or incentive amount is identified. Our productivity-driven model also links work effort with market salary.

After two years, follow-up focus groups provided the following feedback:

* Improvements in productivity and performance should be rewarded more rapidly even if that results in less downside protection.

* Physicians need a clearer idea of productivity levels needed to generate compensation changes.

* Criteria other than productivity and patient satisfaction are important (but there was no consensus about which criteria should be initiated first).

* Most importantly, the overall process seemed clearer and less arbitrary than the previous system.

Results and successes

Patient satisfaction improved significantly by aligning incentives and rewarding positive results. Our overall network ranking for patient satisfaction scores rose by 55 percentiles from June 1999 to December 2001. We also celebrated our improvement success through awards, newsletters and site posters.

The business case for this change in compensation plans was also evident with improvements in productivity. Productivity increases resulted in an 18 percent increase in fee-for-service revenue between July 1, 2001 and June 30, 2002.

Attention to productivity also improved access and new patient growth. Productivity ramp-up of new physicians has been quicker. An 11 percent improvement in established physician productivity and a 23 percent improvement for new physician productivity was recognized over a two-year timeframe.

We measure primary care access by the percent of total appointments available over the upcoming two weeks, as well as the length of time for which a third available appointment can be booked. Our overall network access reflects an increase in the percentage of open appointments within two weeks from 40 percent to 50 percent, while the average time to a third appointment choice decreased from four days to less than three days.

Currently, more than 60 percent of our primary care physicians are exceeding our benchmark of having more than 40 percent open schedules; 80 percent have third available appointments in less than 72 hours; 50 percent have the third available choice within 24 hours. As access and patient satisfaction increased, so did the rate of new patient visits, up approximately one-third.

In spite of successes, there continue to be a number of challenges. Leadership needs to constantly reinforce that evolution of the criteria and rewards is not "changing the plan."

Anticipating priorities and maintaining the communication lead-time is an ongoing issue. Gradual implementation of upside rewards before downside penalties are assessed may not always be possible.

Another challenge is funding new incentives with the focus on revenue growth and productivity improvements. If not handled appropriately, rewarding utilization management may create risks and possibly invoke ethical questions. Addressing specialty-specific issues fairly is also difficult in a formuladriven model.

Ongoing evolution of our compensation plan continues to effectively recognize and reward physicians. We plan to shift from a semi-annual process to a quarterly compensation process to tighten the linkage between productivity and performance.

Implementation of budget achievement criteria to motivate site performance is in process, as is the establishment of site leadership performance incentives. Patient safety and care process improvement criteria and incentives are also under consideration.

Overall, we are pleased with the results of our change process. It reinforced that change management principles can be successfully applied to the process of evolving a physician compensation plan.

The specific communication processes and tools did facilitate physician understanding, acceptance and behavior change. Most importantly, performance and productivity compensation models can be designed to effectively support system strategy and drive organizational change.

IN THIS ARTICLE ...

Find out how a large health system successfully implemented a new physician compensation plan that rewards productivity, performance and patient satisfaction.

Recommended Reading

Berkowitz, SM. "The Development of a Successful Physician Compensation Plan." J Ambulatory Care Management. Oct. 2002, 25(4) 10-25.

Stern, JM. "Successfully Implementing a Performance-based Compensation Plan." MGM Journal. Sept-Oct. 2000, 147(5) 67-9.

Sussman, AJ., Fairchild, DG., Coblyn, J., Brennan, TA. "Primary Care Compensation at an Academic Medical Center: A model for the mixed-payor environment." Acad Med. Jul. 2001, 76(7) 693-9.

Walker, DL. "Physician Compensation: rewarding the productivity of the knowledge worker." J Ambulatory Care Management Oct. 2000, 23(4) 48-59.

Steven B. Pierdon, MD, MMM is associate chief medical officer in charge of clinical operations at Geisinger Health System in Danville, Pa. He can be reached by phone at 570-271-6755 or by e-mail at [e-mail]

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Brenda Eckrote is is associate vice president of finance at Geisinger Health System. She can be reached by phone at 814-235-3384 or by e-mail at [e-mail]

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By Steven B. Pierdon, MD, MMM, CPE and Brenda Eckrote