The alignment and blending of payment incentives within physician organizations

To analyze the blend of retrospective (fee-for-service, productivity-based salary) and prospective (capitation, nonproductivity-based salary) methods for compensating individual physicians within medical groups and independent practice associations (IPAs) and the influence of managed care on the compensation blend used by these physician organizations.

Of the 1,587 medical groups and IPAs with 20 or more physicians in the United States, 1,104 responded to a one-hour telephone survey, with 627 providing detailed information on physician payment methods.

We calculated the distribution of compensation methods for primary care and specialty physicians, separately, in both medical groups and IPAs. Multivariate regression methods were used to analyze the influence of market and organizational factors on the payment method developed by physician organizations for individual physicians.

Within physician organizations, approximately one-quarter of physicians are paid on a purely retrospective (fee-for-service) basis, approximately one-quarter are paid on a purely prospective (capitation, nonproductivity-based salary) basis, and approximately one-half on blends of retrospective and prospective methods. Medical groups and IPAs in heavily penetrated managed care markets are significantly less likely to pay their individual physicians based on fee-for-service than are organizations in less heavily penetrated markets.

Physician organizations rely on a wide range of prospective, retrospective, and blended payment methods and seek to align the incentives faced by individual physicians with the market incentives faced by the physician organization.