How Spectrum Health Medical Group built a new physician compensation and performance model

Like many healthcare organizations, Spectrum Health Medical Group in Michigan found shortcomings in its model to determine physician compensation and performance.

A fixed-salary approach and a purely volume-based model weren’t working, so the medical group recently redesigned its system for determining physician compensation, according to a case study in NEJM Catalyst. Spectrum, one of the largest multispecialty groups in the Midwest, includes nearly 1,000 employed physicians and 500 advanced practice providers.

“We were determined to overcome these challenges and create an innovative physician-compensation and performance model that would uphold the guiding principles of being patient-centered, simple, equitable, flexible, balanced and sustainable,” wrote Seth Wolk, M.D., system chief medical officer, and Doug Apple, M.D., chief medical officer.

Spectrum designed a system of financial compensation and rewards based on three components: base pay, a department performance incentive and a physician performance incentive.

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The compensation model is centered on physicians' performance of “Job 1 and Job 2,” Wolk and Apple said. Job 1 for every Spectrum physician is to deliver high-quality healthcare services to their patients. Job 2 is to continually improve on Job 1.

The medical group used that simple message as a rallying point during the redesign and implemention process, which is now being phased in, they said.

For other medical groups that want to redesign their compensation model, Wolk and Apple’s advice is to start by engaging physicians early and often in the process. Second, establish clear and documented guiding principles and goals for the new compensation model.

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It’s also important to think beyond the dollars, as traditional financial incentives only go so far in driving value-based performance, they said. You want to recognize physician performance in areas outside individual work relative value unit production.

And don’t expect the process to happen overnight. At Spectrum, more than 30 people from cross-functional groups took part in a 16-month redesign process.