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President, AMGA Consulting
Emphasizing best practices and a healthy culture rather than focusing narrowly on compensation will help medical groups thrive.
For healthcare organizations, 2020 has been a challenging year on many fronts. Margins have become razor thin; patient care has been interrupted; revenue is at a historic low; COVID has disrupted our organizations; and our sociopolitical climate has become a powder keg. This tangle of challenges is not only disruptive to the normal flow of business, it’s also mentally and emotionally taxing. Now more than ever, we are recognizing how important our organizational culture is to our ability to survive in this environment.
While I cannot speak for every sector of this industry, I do believe the culture created by the coordinated care model puts medical groups and health systems in a position to triumph over adversity. However, the mere existence of the model is not enough to insulate groups from adversity. For the model to reach its maximum utility, it must be molded and hewn to meet an organization’s goals.
As a former healthcare executive and now a consultant, I’ve observed that most organizations rely on the promise of sustainable compensation as their main selling point when recruiting physician talent. This is a perfectly understandable strategy, given that many physicians, themselves, would tell you sustainable compensation is what they hope to gain out of employment.
However, maintaining sustainability as the status quo poses two major problems. First, as AMGA’s Medical Group Compensation and Productivity Survey has shown, with the exception of 2018, physician compensation has steadily increased each year for the past decade, yet net revenue has not matched these compensatory gains. There is nothing inherently wrong with physician pay increasing year over year. However, when revenue gains cannot keep up with compensation gains, organizations are forced to reroute money from other areas in order to maintain the promise of sustainability.
Ironically, this type of sustainability is simply unsustainable. Given its fundamental financial impact, organizations will find it necessary to reduce operational expenses and capital spending. If this trend persists, at some point these organizations will run out of money. And when they do, they’ll have two options: declare bankruptcy or merge for financial security.
The other problem with focusing on sustainable compensation is that it does not typically lead to increased satisfaction or engagement. Compensation is an extrinsic reward. It’s what Herzberg, Mausner, and Snyderman would call a “hygiene need.” That is to say, it prevents dissatisfaction, but does not necessarily lead to satisfaction. When you consider how much an organization must bend over backwards in order to uphold the promise of sustainability, it’s easy to see why sustainable compensation is not satisfying. To ensure sustainability, organizations must operate in a very inflexible manner. No stone can be left unturned, no penny can be left unaccounted for, and rank and file physicians are largely excluded from decision making that could be aligned with risk and reward. This approach creates a culture where physicians are seen as little more than a means of production.
Understandably, after years of being immersed in such a culture, physicians begin to feel disengaged and disenfranchised. Many organizations believe satisfaction can be restored through higher pay. While this may be true to some extent, it’s not a viable strategy in the long run, as the satisfaction is only temporary. As long as a deficient culture exists, feelings of disengagement and disenfranchisement will inevitably return. I would even go so far as to say that increasing physician pay without increasing engagement only serves to further erode an organization’s culture.
I believe we must stop clinging to the term “sustainability” and instead focus on building a culture of resiliency. While it may be a controversial proposition, it’s clearly time to start aligning at least a portion of compensation plans with organizational performance on both the basis of risk and reward.
There are many reasons to include organizational performance as a component of compensation. As found in our 2019 and 2020 Medical Group Finance and Operations Survey, one of these reasons is that on average, many integrated groups experience an investment (or loss) per physician of nearly $250,000, while independent practices only manage to break even. Neither model is able to build the reserves necessary to hedge against unforeseeable events like COVID-19.
I believe if we endeavor to create resiliency, organizations won’t have to merge or sell to remain viable. They won’t have to deplete reserves to fulfill the promise of sustainable compensation. They will instead work to make solid decisions and utilize solid processes. Rather than offering special deals or focusing solely on compensation, they will offer transparency and a healthy culture. If done properly, this approach will allow organizations, together with their physicians, to chart a course that will lead to resiliency and from that, success, regardless of the challenges.
At the negotiation table, sustainability-focused organizations will promise to offer physicians stable and sustainable income. However, I challenge you to instead offer a promise like this:
“We will utilize the best processes and practices to create an environment that you can be engaged in, one which will have a culture that is rich and positive and that will ultimately offer a more necessary and complete promise of resiliency, so that our organization will be here for the long term and you will always have a place to practice.”
We must strive to truly include physicians in decision making. I cut my teeth in healthcare administration while working at a large, integrated, multispecialty medical group in the dynamic Minneapolis/St. Paul marketplace. I learned firsthand that when properly supported, physicians are exceptional partners, decision makers, and leaders. Let's utilize their full skill sets, both clinically and administratively, so together we can meet the challenges facing our organizations.
Will physicians be in favor of shared risk and reward? I believe they will in organizations that truly have the proper philosophy and culture, but not in those that stymie their involvement. When excluded, they will naturally cling to the promise of sustained compensation. When engaged and included, they will offer their support and leadership, while working toward shared risk and reward and a new focus on resiliency.
I realize many medical groups already emphasize resiliency. However, there is still so much more that can be done to create a truly resilient organization. Take this time at year end to pause and assess your organization’s culture. Will it lead you to long-term success?
Fred Horton, M.H.A., is president of AMGA Consulting.