Addressing Provider Compensation in a Healing Ecosystem: A CEO’s Candid Story and Key Lessons Learned
This blog post is somewhat longer than usual but given one of the most difficult challenges for leaders is provider compensation concerns, it is worth the extra space; so read on!
When it comes to money, even outside of work, you think you know someone but the true person is often revealed when it comes to money that pertains to them personally. I have seen it turn what I thought was the nicest person ever into a mean-spirited individual who would stop at nothing to achieve a financial advantage. When it comes to financial discussions, be ready and not surprised by actions and behaviors.
Leaders have a great responsibility in being accountable for everything and everyone. It is hard to describe unless you have been in such a position yourself. You then throw in the natural operational challenges which come with the position and you have the pressures and challenges that come with the job. And then you throw in provider compensation issues on top of it all. These issues can take it to a whole new level of complexity which can seriously threaten system success and sustainability if not addressed effectively.
One of the key factors of successful health care leaders is the ability to work with medical providers. How you manage clinic operations and provider compensation has a direct impact on the success of the organization. Providers are key to an organization’s success and issues with provider compensation can be a serious distraction from patient safety and system growth.
Recall from previous posts that structure is one of the key components of a healing ecosystem. Structure comprises the physical, digital, and regulatory environment in which we do our work. Often, individuals, teams and even units or departments feel apathy or despair as soon as we embark on conversations about structural elements and wellbeing at work. We tend to view these elements as difficult or impossible to change and mostly as sources of annoyance, frustration, and depletion. Despite our tendency to view structures as immovable sources of burnout, they are important components of the ecosystem and they deserve attention. Changing structures can take considerable time and effort, and yet these changes tend to create significant impact on the nature of human interactions and the range of human emotions experienced in daily work. Any leader or organization seeking to create a healing ecosystem therefore must consider how changes in structures can enhance thriving. A great example is the structure a healthcare organization has with providers; which is a key element that comes into play when addressing compensation.
So, here is my story. When I started in my rural organization 40+ years ago, the providers were their own separate corporation and there was limited trust with hospital administration. They shared with me they that they really had no vested interest in the success of the hospital as their revenue primarily came from clinic revenue; and the hospital was just a vehicle for some additional income. Over time, we developed a trusting relationship; which played a crucial role when the providers decided to sell their practice and agree to merge with the hospital. The merger helped address the previous concerns about where income was earned, for example the clinic lab or the hospital lab. Now it did not matter and the focus changed to where was the best service for the patient. Also, now the success of the merged clinic and hospital, or system as we called it, was extremely important to the providers as their compensation and benefits were directly tied to the success of the system. Another key component of the new compensation structure was it was a compensation model based on production and not salary unless they were in a position that required a salary. It rewarded effort and covered compensation risks that were beyond their control like working at a satellite clinic. Yet even with a vested interest in the success of the system and a fair compensation model, how much they got paid and negotiating annual adjustments was always a very challenging endeavor.
When we first merged, we developed a medical services agreement which spelled out how compensation would work. However, market changes and organizational growth quickly made the initial compensation model obsolete. Each annual negotiation became more challenging, often stalling and going into the next fiscal year requiring retroactive pay when everything was settled. It was not a sustainable model and created undue significant stress for everyone. It was starting to undermine our excellent working relationship and something had to change!
The first change we made was to form a system compensation committee consisting of four vice presidents and myself as CEO. We asked the providers to form three compensation committees; one for family practice, one for specialists and one for allied health providers. We then worked with each group to develop a compensation philosophy and mutually agreed upon the sources for comparative market compensation data. We agreed to focus on total compensation which would include salary and benefits. We then agreed that all compensation arrangements be in compliance with fair market value and all IRS and Medicare regulations. To ensure compliance, it was agreed to annually have an outside agency conduct a compliance assessment.
We mutually agreed on an out of state firm recommended by the providers’ attorney to complete our first assessment. The assessment was a disaster! The firm did not understand rural healthcare and the initial report indicated our compensation agreements were not in compliance. The report was filled with numerous incorrect assumptions and the firm was unwilling to address the errors, claiming their report was correct. This created significant consternation by the medical staff to have even an initial document inferring noncompliance. The providers were so upset that both the medical director and chief of staff stated they knew nothing about the report being completed and blamed the system. Well I had kept track of the minutes of all the meetings involving the assessment which showed all the physicians had been made aware of what was being done. Once I shared this information and took full responsibility for this action being pursued for the protection of all the providers, the energy switched from blame to resolution. We worked together to not accept the report and issued to the firm explanations of the incorrect assumptions and errors in the report. We had our attorneys send a letter to the firm sharing our disagreement with their decision and that we had not and would not accept any final report from the firm. We then mutually interviewed other firms and since then, have been working with an excellent firm which has guided us well with all our compensation negotiations and assessments.
A key learning from our initial assessment is that medical directors are in a very difficult position to represent both the system and the providers. They cannot serve two masters; and we clarified that with any compensation negotiations, the medical directors will serve on the provider compensation committees and not the system committee. This protected the medical directors and enhanced the trust and working relationship with the system.
Each fall, the benefit renewal costs are submitted to the compliance firm who then takes market data and submits a total compensation market comparison which is used to begin annual negotiations; and we can finalize the next year’s contract on schedule for both contractual and budgeting purposes.
This does not mean that challenges and questions don’t arise in regards to the negotiations but that is where trust in our relationship, the process to allow voices to be heard, and the use of a mutual agreed upon resource allow these challenges and questions to be addressed in a timely manner. It does not mean everyone is happy when these are done but we all know it is fair. And best of all we can offer competitive compensation arrangements which help recruit and retain medical providers. The fact that as a rural facility, we have more providers interested in joining our organization than we have work reflects on the healing ecosystem that has been created.
Provider compensation issues can be one of the biggest challenges for health care leaders. However, it also provides the opportunity to develop relationships based on trust. For example, early on in our merged relationship, the annual compensation agreement forgot to include matching FICA. Even though the agreement stated the system would not have to reimburse the providers, we knew it was the right thing to do and we made the doctors whole. It was the start of the journey to develop trust by being fair and doing what is right regardless of what is on a piece of paper. This trusting relationship has seen us grow from two providers to 55 and we continue to grow. The organization has recouped the investment many times over but the most important thing has not been financial. The trusting relationship has allowed us to focus on the needs of our patients and we have improved access and quality of care to this region. That is what we are most proud of; and it is our patients who have won.
