The evolution of data analytics has created the potential for a more streamlined process for organizations, and specifically in the physician compensation design space.

Two areas that have had significant impacts on compensation models and created a need to reevaluate current physician models include changes in value-based care compensation and the recent updates to the Medicare Physician Fee Schedule.

The Need for New Physician Compensation Models

Is your organization struggling to recruit and retain top physician talent? If so, you are not alone. According to the Association of American Medical Colleges, the United States is projected to reach a shortage of between 37,800 to 124,000 physicians by 2034. As competition for medical providers intensifies, hospital administrators are leaving no stone unturned as they reevaluate all aspects of their physician compensation packages. However, creating dynamic compensation models for physicians that avoids major pitfalls and allows an organization to recruit and retain top talent, while being financially sustainable, easy to understand, and compliant with regulatory standards can be difficult, without the right tools in an ever-changing healthcare environment.

The Impact of Value-Based Care Compensation Implementation


Over the years LBMC has watched many organizations move away from more straight-forward guaranteed base compensation models or volume-based compensation models to base salary plus productivity bonus compensation models. Recently, value-based care compensation models have become increasingly popular adding additional complexity. Value-based care is a healthcare delivery model under which providers are paid based on the health outcomes of their patients and the quality of services rendered. In 2019 and 2020, approximately 40% of total healthcare payments to providers and organizations were paid based on a value-based arrangement. As payors incentivize value-based care arrangements through increased reimbursement, organizations are implementing at-risk compensation components based on the provider’s achievement of specific value-based care metrics to include quality and compliance KPIs. The actual implementation steps and items to consider when developing value-based contracts can be complicated, so if you have questions, please contact us and we can help.

Medicare Physician Fee Schedule Compensation Model Impact

Because of the popularity of productivity-based physician compensation models, work relative value unit (wRVU) changes continue to have a significant impact on physician compensation. In recent years, the Medicare Physician Fee Schedule has had significant changes, which has created material compensation increase/decrease for healthcare leaders to figure out.

For example, from 2020 through 2023 wRVU values increased, for the same level of work, by 9.7%, 18.3%, and 20.5% for hospital medicine, internal medicine, internal medicine – hematology, respectively, to name a few. Therefore, if an internal medicine physician received $50 per wRVU generated, as a productivity bonus, and a patient visit for a certain specialty in 2019 generated 1.50 wRVUs, the physician would receive $75. However, after the Medicare Physician Fee Schedule changes mentioned above, the provider would now receive approximately 1.77 wRVUs or approximately $88.50 for the same visit. Depending on how each physician’s contract is written, and without tracking mechanisms in place to review possible impacts, these wRVU changes can have a significant financial impact on organizations.

The Impact of Data Analytics and Physician Compensation Reports

The sophistication used to test old and/or develop new physician compensation models can vary greatly. While the key focus areas during the review and design process have historically included professional collections, wRVUs, and compensation, the introduction of data analytics and interactive dashboards has revolutionized the compensation design process, especially as reviewing these models is becoming increasingly difficulty with the introduction of value-based care compensation and the continues Medicare Physician Fee Schedule changes.

Professional collections, wRVUs, and compensation continue to play a critical role in evaluating and designing compensation models. However, data analytics can now provide greater clarity for healthcare leadership with the ability to perform a more comprehensive review of the overall financial impact of their compensation models. The analytics also allow practice and hospital administrators to gain a more thorough understanding of individual provider revenue generation, by Current Procedural Terminology code, and provide the data needed to monitor various compliance details (e.g., provider-specific coding patterns) in addition to various quality measures (e.g., Merit-based Incentive Payment System).

Providing a more robust and comprehensive compilation of operational, financial, and practice data allows clients to have physician compensation reports with the information they need to make the best decision. While all the data needed from a practice or hospital is available on their IT Solution (e.g., Centricity, Athena, etc.) the format in which the data is reported and exported, from these systems, can be difficult to analyze.

To better serve our clients looking to re-evaluate or create a brand-new compensation model, LBMC has developed a proprietary Dashboard (customized to each client), a physician compensation SaaS (software as a service), that includes over 50 visuals, key-practice indictors, calculations, and tables. The Dashboard provides a comprehensive review by reporting certain key metrics including, but not limited to, Non-Contractual Adjustment Type Detail by Payor, E/M Key Financial Stats by Month, Total Charges, Total Payments, Total Adjustments, Gross Collection Ratio, Net Collections Ratio, Charges as a Percentage of Medicare, Payments as a Percentage of Medicare, Production by Month, wRVU Collaborative Breakdown, Clinical Service Hours Comparison, Calculated Clinical Full-Time Equivalent status by Center, Historical Compensation and Productivity Benchmarking, Proposed Compensation and Productivity Benchmarking, Medicare Physician Fee Schedule Revenue and Compensation Impact Analysis, and Bad Debt by Service Type. Through these visuals, clients can easily review and track the complexities of the ever-changing environment, including value-based care arrangements and Medicare Physician Fee Schedule changes.

Consultants for Physician Compensation Plan Design

LBMC’s Healthcare Consulting team combines our understanding of complex financial and regulatory matters with our ability to analyze voluminous financial and operational information to deliver comprehensive compensation design services. We also offer innovative solutions including LBMC’s Cloud-Based Compensation Design Dashboard, which provides a robust review of our clients’ data, allowing them to make an informative decision during these complicated times.

Content provided by LBMC’s Justin Conant.

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