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Provider Compensation in a Highly Effective FQHC — Part of a Series


I’ve spent more time dealing with provider compensation in the last three years than I did in my first seventeen years working with FQHCs.  There is much more interest now in provider compensation, and there are many people out there advocating for one or another “best practice” approach.  Our FQHC clients take very different approaches to provider compensation.  Some pay their providers primarily on a salaried basis, with little or no incentive compensation.  Others pay primarily on productivity.  Still others have a mix of two, or three, or four compensation elements.  Despite being radically different, many are perfectly satisfied with how they do things.  So which method is the best, and why?

The answer is that an optimal provider compensation model is not that difficult to create — as long as you get and keep your philosophy, your business model, your people, and your data in line.  There’s also one more key to making the model work — you have to manage your people and compensate them accordingly, not try to have your compensation program manage them.  There’s nothing fundamentally wrong with using FQHC compensation survey data.  There’s also nothing fundamentally wrong with MGMA survey data, or any one of several other surveys of physician compensation.  What’s wrong is when you try to use a source of data that is based on one business model, in a different business model, with individuals performing in a third business model (or not performing well in any).

This post deals more with an exception than the rule when it comes to FQHCs.  The approach I describe here simply won’t work for most FQHCs until they change their approach to managing providers.  But the discussion should point out why you have to think through exactly what you are, before experimenting with how you want to pay.

I recently spent some time talking to the CEO of a very well run FQHC.  It’s not just that it’s well run for an FQHC — it’s well run for a private practice, or for that matter, any business.  In addition to the typical services provided to the underserved, it provides a broad range of additional services, many that return much more revenue to the health center than they cost, and makes them available to the general public.  What does this mean?  It means they bring in a lot more money from much more reliable sources.  It means they have resources beyond grants to provide additional services that other FQHCs can’t.  It also means that they can reach out and attract, retain and motivate highly productive, highly skilled providers in all their specialty areas.  Their overall productivity standards look much more like highly effective private practices, rather than what is typical of an FQHC.  It means that when they look at MGMA data or other private practice data, they can line up productivity and resources with their compensation program, and actually compare apples to apples.  With compensation opportunities that are much more competitive, they are also able to something that many FQHCs are unable or unwilling to do — demand high levels of performance and dedication to the mission from their providers.

So how would an FQHC run like this set up a compensation program?  Start with a very important philosophy — be determined to focus your efforts and rewards on your best people.  Don’t design around fruitless attempts to prod your less effective employees into making more effort — design around supporting and rewarding what your best people do.  Use your FQHC data as a baseline for salaries, and look at other sources of data for total cash compensation (insert standard warnings about making sure you know what’s included in survey total cash compensation, and what your providers don’t have to do or pay for out of pocket because they are employed by an FQHC) .

Pay a salary that’s competitive in the FQHC world, but require that providers meet appropriate productivity standards.  Increases shouldn’t be given in a way that allow fixed base pay to drift up and out of line with performance.  Long service providers with low to moderate productivity and performance should not be paid a base salary more than highly productive providers who may have fewer years of service, or fewer years in practice.  If providers consistently do not meet standards, don’t accommodate the problem, and don’t switch to a 100% productivity plan to save some money — find providers that will meet your standards.

Once the base pay program is in place, and once you are managing it correctly, you can look at ways to reward those that exceed your already competitive standards.  How much incentive you can provide is something for your finance folks to look into, but remember something very important — all encounters are not equal when it comes to revenue and compensation cost.  To oversimplify… take your base employment cost for a provider (including salary, taxes, benefits, etc.) and divide it by your standard number of encounters (or visits, or RVUs or whatever works for you, we’ll just call them “units”), and you get a “per unit” cost for that provider.  If you pay a salary that is comparable to other FQHCs, that should be a cost that most FQHCs can afford (at least based on data from sources such as NACHC), even if you don’t have significant additional sources of revenue.  However, once you’ve paid that “fixed” cost, the base pay and benefits costs drop off, and the provider cost per unit measured drops.  That gives you an opportunity to provide incentive payments that are funded by those units themselves, and return much more net revenue to the health center per encounter.

WARNING — Okay, I know… you’ve found the flaw.  When won’t this work?  When you allow some providers to not meet their standards.  If I have three family practice physicians, I set my base pay standard at 4,000 encounters, and they each maintain at least 4,000 encounters, all my encounters over 12,000 will be “gravy” and I can easily afford to pay an incentive for exceeding those numbers.  However, if I allow one of my providers to receive their full salary and benefits at 3,000 encounters, but I still have 12,000 encounters in total, my other two providers are going to need to pick up those 1,000 encounters before I reach that higher margin encounter.  Basically, I can’t “afford” to pay an incentive on those 1,000 extra encounters, even though my more productive providers have gone beyond expectations.  How do I make it work?  Don’t allow providers to consistently fail to meet standards.  If you are going to allow less productive providers to remain employed, you need to have “fixed” costs aligned to their productivity.

As I said, not for everyone.  Probably not for most FQHCs.  But paying a highly productive physician $300,000 or more in total compensation isn’t “excessive,” even if the average is $150,000, if you’re operating an effective organization in the right business model.