Physician compensation based on performance appraisal

Physician compensation in a group practice setting has long been a subject of discussion and time investment, both on the part of managers and physicians. With a changing external environment, including Medicare fee freeze, capitation, and other forms of discounted, contractual medicine, former income distribution plans may not serve group practices well anymore. The ability of group practices to attract, retain, and develop physicians is at least partially dependent upon physician compensation structure. Taking into consideration marketplace characteristics for different specialties and offering equity in the compensation process are important features of any income distribution plan. This paper emphasizes a longstanding business tool, performance appraisal, which may be a key future determinant of physician compensation. The utilization of performance appraisal in establishing physician compensation is discussed and a sample performance appraisal instrument is included as a model.