Aiming Primary Care Physician Compensation At Health Goals


The drive to hire primary care doctors presents health systems with an opportunity to recalibrate their physician compensation models.

Ran Strul

6 min read

Physician employment is one of the biggest trends reshaping the healthcare landscape. The migration from private practice to employment is happening across all specialties, especially primary care where 74% of primary care physicians worked for a hospital, health system, or other corporate entity in 2022. Breaking that down further, more than 50% of PCPs were employed by a hospital or health system.

There are several reasons why health systems are employing more primary care doctors. The most often-stated goal is to provide comprehensive preventative care. Other factors at play include trying to minimize competition for PCPs who are in short supply and having a tighter referral network. On paper, the financial rationale makes sense. Since they have long-term and trusted relationships with patients, employed PCPs can act as a referral pipeline when higher-margin diagnostics and specialty care is needed. While it’s assumed that those services will offset the cost of employing PCPs, most health systems lose money on their primary care operations — up to $200,000 or more per primary care physician.

The drive to hire PCPs presents health systems with an opportunity to recalibrate their physician compensation models. This is especially true as reimbursement increasingly rewards outcomes where the number of patients cared for matters more than the volume of visits. We’ve identified a handful of ways health systems can update physician compensation without adding undue stress to their organizations.

Productivity still drives compensation

Compensation models used in health system settings can include a fixed salary or a performance-based compensation. Performance-based models are most frequently used, with the leading performance characteristics being production, measured as relative value units. There are three types of RVUs — work, practice expense, and professional liability insurance. The three are combined to determine payment. This article zeros in on work RVU — wRVU — which essentially tracks physician productivity. It measures the amount of time, skill, training, and services required to treat a patient. Secondary factors like clinical quality, safety, patient satisfaction, and participation in group meetings are also a factor. Lower intensity visits like a follow-up generally get lower ratings and thus lower pay. And as the graphic below illustrates, volume is by far the most prevalent and highest weighted compensation component in use.

Factors influencing compensation models
Frequency of use and weighting of different primary care compensation components in 31 health system affiliated physician organizations, 2017-2019
Note: 1. The average percentage of total primary care physician compensation contributed by each incentive for physician organizations where that incentive is included 2. The percentage of surveyed physician organizations that included each incentive in their compensation model
Source: Physician compensation arrangements and financial performance incentives in US Health Systems, JAMA Health Forum; Oliver Wyman analysis

Why do health systems continue to rely on compensation models that encourage higher production, especially when the industry is trying to move to value-based care? A couple of factors are at play. First, people are familiar with wRVUs. They’ve been around for years, resulting in decades of data from which health systems can benchmark against. Although physicians say they want to spend more time with individual patients and to shift from a volume-driven model, wRVU-based approaches offer consistency. It is relatively straightforward to design a compensation centered on productivity metrics and to benchmark that compensation with peer organizations.

Additionally, anti-kickback and Stark Law regulations require health systems to set compensation based on the General Market Value, which federal agencies define as “bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party.” Again, the straightforward nature of wRVU-based compensation makes it easier to analyze and justify.

Creating a different kind of compensation model

Health system leaders and physicians do not need to feel trapped in old compensation models simply due to prevalence and familiarity. Opportunities exist to pivot and still adhere to a compensation approach that is easy to understand, complies with regulations, and, critically, supports population health and financial goals. For this article, we considered a traditional volume-based reimbursement model from payers. We note that compensation for PCPs caring for patients in significant downside risk model is often tied to total cost of care outcomes, aligning to the way the organization is being measured.

For starters, health system leaders need to identify behaviors they want PCPs to exhibit. These should be simple and tied to broader organizational goals. For instance, participation in department meetings, on-time patient encounter documentation, and adoption of virtual visits. Health systems can bolster these behaviors by providing training, improving workflows, and sharing comparative performance data. Not all behavior must have a compensation model component. Expectation-setting, communication and culture can support appropriate behaviors as well.

As a set of behaviors to be compensated for are identified, health systems need to incorporate these four key elements:

  • Although production-based metrics will remain in the model, likely in the form wRVUs billed or collected, they should carry less overall weight. The intent is to ensure that PCPs are productive and do not rely on care team members — other physicians or advanced practice providers — for their own compensation.
  • A panel size component should be added and carry as much, if not more, weight than production. This measure will track the number of patients a care team treated over a period, typically 18 or 24 months. Panel sizes can be measured for different care team types such as an individual physician, a physician and one or more advanced practice providers, or an APP working autonomously. Health systems can use this component to incentivize team-based care, encouraging collaboration between physicians and APPs to manage a large panel of patients and provide coverage for each other. The panel size metric will ensure providers are focused on serving as large number of patients as possible, thus allowing the health system to provide specialty care when clinically necessary. Critically, adjusting for a patient’s health or risk factors is required to allow comparison of heterogenous panel sizes across physicians and to incent providers to accept and care for sicker patients, using open-source or proprietary models. These models must be implemented carefully and validated for local applicability. Physician education will also be essential.
  • Including quality and patient experience components in the compensation model is a must. These are critical components that balance the productivity and panel size elements and create incentives to consistently provide high-quality and patient-centric care. The weighting of these components should be meaningful enough to ensure providers adjust their behavior accordingly.
  • Once productivity, panel size, quality and patient experience components are included, health systems should consider whether other elements should be introduced. As noted earlier, it is tempting to try and incentivize other behaviors but keeping the compensation model simple and focused on select few behaviors is key to clinician adoption.

Physician employment by health systems is going to become more prominent in the coming years. If healthcare is going to move the needle on value, compensation models need to place a greater emphasis on behaviors the support community health goals. Right sizing the production mindset is an important place to start.

  • Ran Strul