Aligning incentives in health care: physician practice and health system partnership

The key to successfully aligning hospitals and physicians is financial integration and joint incentives for academic, quality, and clinical productivity. Many physician practices and health systems are moving toward closer integration, but mainly through consolidation and employment strategies.

We describe a fully integrated physician and hospital relationship including an overview of an aligned funds flow process that affords the department support for clinical services and teaching, research, and administrative activity. We also describe a physician compensation model that provides incentive not only for increased clinical performance, but also quality and academic objectives.

The content of this article was acquired through our own experience in managing the Department of Orthopaedic Surgery at the University of Pennsylvania Health System including the health system's funds flow process. Based on input from both health system leaders and the faculty, the department's compensation plan was totally redesigned to create a line-of-sight plan that credits clinical performance and academic productivity.

Our model is multifactorial and provides sustainable support for the department and a compensation plan that is competitive within the local market and nationally. The health system's funds flow process has enhanced alignment of the faculty and hospitals by providing compensation for nonclinical time and assists the department's growth strategies by providing funding for new faculty and gain-sharing of improved hospital margin. The implementation of the compensation plan increased productivity by 8% in its first year with no additional resources. Academic productivity in that same year was arguably at or above any other year in the department's history in terms of accepted publications, national presentations, and research grants awarded.

A model of complete integration between an academic department and a health system is achievable through a systematic process of mission-based support.