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Medical Group Management Association

Data Mine: What is driving physician compensation?

Insight Article - July 27, 2018

Provider Compensation

Provider Compensation

What drives physician compensation? The answer was a relatively simple equation for years: total practice revenue minus total practice expenses.

This calculation can still be used for a physician-owned medical group, since the practice functions as a closed financial entity and the amount available to pay the physician-owners is limited to the practice’s ability to generate profits. But these traditional market drivers are evolving now that more physicians are employed by hospitals.

Hospital-owned practices function very differently from their physician-owned peers. A practice that is part of a larger health system can draw on the resources of its parent organization for common expenses such as utilities, executive management, contracting or information technology. A hospital-owned practice can also draw on its health system to subsidize unique practice expenses such as physician compensation.

Hospital-owned practices are not constrained by internal financial performance; however, they do have to comply with complex legal and regulatory rules that affect physician pay. In general, hospital-owned practices determine a target amount based on multiple national physician compensation surveys and apply a productivity-based compensation formula aligned with productivity goals to determine target compensation, rewarding high producers with greater compensation while penalizing doctors with lower productivity.

Examining the multiyear data available in MGMA DataDive Provider Compensation, the trends in compensation for physician- and hospital-owned practices vary, depending on the outcome of different economic drivers.

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About the Author

David N. Gans
David N. Gans MSHA, FACMPE, SENIOR FELLOW
Industry Affairs MGMA

David N. Gans, FACMPE, can be reached at dgans@mgma.com. 

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