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Development of Comprehensive Physician Compensation Plan Helps Community Hospital


A community hospital affiliated with a large academic medical system serves tens of thousands of patients annually at its main hospital facility and at numerous locations throughout the area. The region is home to many top-tier medical institutions, making the market for physician services highly competitive. The hospital’s newly hired CEO reached out to Katz, Sapper & Miller’s healthcare consulting team to help develop a comprehensive physician compensation plan on a very tight deadline.

The Challenges

The CEO realized early on that a critical threat to the hospital’s viability was that several employed physicians were unhappy with the existing and outdated physician compensation plan, which would lead to additional resignations if not corrected. Previous leadership had created a very uneven system of physician salary and benefits by handling some compensation complaints on an ad hoc basis, often addressing concerns raised by individual physicians with one-off solutions.

To retain the talent already on staff and recruit new doctors to the system, the CEO needed a new physician compensation plan that promised fair benefits to all of its doctors. Unfortunately, the hospital’s fiscal calendar necessitated that this plan be developed and approved within an eight-week period so that the first stages could be implemented at the beginning of the next fiscal year.

The Solution

KSM’s healthcare consultants quickly identified the obstacles that needed to be overcome to implement such a sweeping and mission-critical change to the medical group’s physician compensation model on such a short timeline. The consulting team included those with deep expertise in physician compensation and valuations as well as seasoned consultants with backgrounds in developing and implementing physician compensation plans at academic medical centers and large integrated health systems. Because of this extensive expertise, the KSM team was able to develop and propose a multi-faceted compensation plan that would address the physicians’ concerns and one that could be supported by the leadership and boards of both the hospital and the system.

The recommended model contained the following governing principles:

  1. Market competitive for physician recruitment and retention
  2. Legally defensible and compliant
  3. Equitable among physicians
  4. Transparent and easy to understand and administer
  5. Appropriate transition to at-risk production for new physicians

With a workable plan in hand, the group then provided the operational support necessary for the hospital executives to get the plan approved and implemented.

Unlike most consultants, KSM’s healthcare consulting team didn’t just hand the model off to the CEO. The healthcare consulting team presented the proposal to a variety of stakeholders, including legal, human resources, and finance, as well as a series of provider advisory committees, compensation committees, and boards.

KSM also conducted two physician town halls and supported the CEO and other executives as they met individually with every affected doctor (over 60 in total) to educate them on the new plan and to develop trust in it. These sessions generated still more feedback and questions that KSM helped to answer. The acceptance of this plan and its rapid implementation was the result of a highly coordinated and effective joint effort between KSM and the client.

The Result

The KSM team and the client worked collaboratively to create a customized fair market compensation plan in just eight weeks. The deliverable to the client also included tools to forecast results and analyze performance against the forecasts, empowering the client to manage the plan in-house without reaching out to KSM every quarter or year to get this vital information. While the initial eight-week deadline was met to establish the new model, the compensation plan included incremental modifications in each of the next several fiscal years and a long-term implementation strategy to address unintended consequences that may be identified as the plan is used. This successful result could not have been achieved without KSM’s decades of experience navigating these complex issues and delivering solutions to clients in markets across the country.

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