Post COVID Insight into Provider Compensation

The COVID-19 pandemic has hit the healthcare industry hard, and it’s not just an issue of overwhelmed emergency rooms and provider burnout. It has also depressed provider compensation in ways that could affect future provider recruitment and engagement.

After COVID-19 first hit, demand for providers declined by over 30%, according to the Medical Group Management Association (MGMA). That, in turn, led to a 55% decline in provider-practice revenue. After all, while COVID-19 may have sent increasing numbers of people to the ER, fear of contracting it in a healthcare setting led many non-COVID patients to stay home instead. Patient volume early in the pandemic fell by a staggering 60% overall.

These secondary effects of the pandemic have unavoidably impacted provider pay.

Although the industry has been strongly trending toward value-based compensation, productivity-based compensation models are still commonplace. Those productivity requirements often depend on outpatient visits and elective procedures. Less demand limits production potential, and that hits providers right where it hurts: their pay.

Further, demand for providers began to drop after the pandemic hit. “Over our 33-year history, most physicians had little difficulty finding a job opportunity, with multiple offers to choose from,” said Travis Singleton, executive vice president with Merritt Hawkins/AMN Healthcare, last year. “[W]e are seeing a growing number who are unemployed with a limited number of roles available. This is unprecedented. COVID-19 essentially flipped the physician job market in a matter of 60 days.”

Less demand for providers means less pressure to offer higher compensation packages.

What makes this whole situation doubly sticky is that provider compensation is intimately tied to provider recruitment and engagement as well as productivity. Negative impacts to compensation could potentially hurt those other areas as well.

The good news: COVID-19’s negative impact on provider compensation is likely temporary

The good news: demand for providers was rising fast before COVID-19. From 2014 to 2019, the MGMA reports that total compensation for all providers had increased at rates as high as 9%.

So, once the pandemic is past or has been sufficiently controlled, demand is likely to rebound to pre-COVID levels. That’s because the underlying forces driving increased demand – an aging population, a worsening shortage of providers, etc. – haven’t themselves changed. So, COVID-19 likely represents an aberration rather than a permanent alteration in the healthcare provider landscape. In turn, that means impacts to provider compensation are also likely temporary.

But this situation highlights some of the complexities in dealing with provider compensation in the modern world 

Provider compensation is a domain rife with complexity and innumerable variables that have to be considered. It’s also one that makes both individual providers and the organizations that pay them potentially vulnerable to certain forms of disruption and uncertainty.

Healthcare organization need to better protect themselves against unforeseen events around provider compensation – and all the issues and questions related to it, from recruitment to retention and performance to productivity. Specifically:

• Organizations that employ providers need to develop new, longer-term models.
• These models need to align with both provider group and health care system performance requirements, while also introducing more standardization, transparency, and resilience against unforeseen events.
• Then, they need to be administered and managed strategically so they can be used to help to drive robust alignment.

Even before the COVID-19 pandemic, there was a strong perception that compensation models based on productivity and net collections were progressively misaligned with health care system goals and becoming unmanageable. In the aftermath of the pandemic, more than ever provider compensation needs a fresh look and new methodologies that ensure synergy, orientation, and accountability.