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Provider Compensation Management: 4 Takeaways from 2024 Outlook Report

Managing and using provider compensation to successfully incentivize and facilitate desired clinical and business outcomes has long been a challenge. Current trends—worsening provider shortages, reductions in revenue due to CMS fee schedule adjustments, and more—are making it harder. In today’s environment, how can healthcare organizations overcome present difficulties and identify opportunities to prosper and gain a competitive edge? 

To address this question, Hallmark Health Care Solutions surveyed a panel of healthcare industry and provider compensation experts. We have collected their input into the 2024 edition of our annual Outlook on Provider Compensation Management report. This publication delivers an in-depth, expert-driven analysis of the challenges, trends, and opportunities for hospitals and medical groups. It also offers a roadmap for solutions to existing and emerging challenges.  

Here are four key takeaways from Hallmark’s 2024 Outlook Report: 

1: The adoption of value-based arrangements is rising, with big implications for the provider compensation function. 

Once described as a $1 trillion prize” by McKinsey and Co., value-based care (VBC) has seen uneven but undeniable growth over the past decade, a trend likely to accelerate. Indeed, our experts expect that VBC (and, consequently, value-based compensation arrangements) may have hit an inflection point. “It is my personal opinion that value-based arrangements will become a dominant compensation methodology in the future,” Bob Wade, a partner at Nelson Mullins Riley & Scarborough LLP, told us.  

The rise of value-based compensation arrangements will affect how health systems and medical groups design and plan compensation models. Meanwhile, the Stark Law and Anti-Kickback Statute mean healthcare organizations must be attending to related compliance questions now. 

2: Flexibility in compensation is needed more than ever. 

Outside of value-based care, volume-based fee-for-service reimbursement models remain dominant. However, frequent changes that effectively reduce reimbursement put more pressure on health systems to keep up by implementing well-designed compensation plans. Flexibility and adaptability are key, but the real question is how to make compensation models that can straightforwardly accommodate and keep pace with an evolving reimbursement environment. 

For example, JPS Health Network, a Texas-based public health system, described how they have formulated comp plans that allow for easy adjustments to move past outdated benchmarks and compensation models. That speedy adaptability is necessary to ensure organizations don’t fall into the trap of an ever-widening revenue-to-expense gap. 

3: It is time to move away from exception-based compensation. 

Consistency and standardization are increasingly drivers of success in modern provider compensation. As Texas Health Resources, a nonprofit health system in North Texas puts it: “Compensation can no longer function on an exception basis.” 

For one thing, compensation programs that rely on frequent exceptions impose an undue labor burden that modern administrative teams struggle to accommodate, especially as organizations add more providers. Worse, frequent exceptions dramatically increase the risk of compliance lapses and compensation errors. The solution is to “increase the push towards standardization of processes and governance to drive flexibility and responsiveness,” argues James Hoag and Jason Welch of New York-based Rochester Regional Health. 

4: Investing in smarter compensation technology will be key. 

One thing expert after expert reiterated: technology will be pivotal in meeting current and emerging challenges. “The need to have high-performing technology and resources is a must,” INTEGRIS Health, Oklahoma’s largest not-for-profit healthcare system, told us. 

Specifically, antiquated tools and overreliance on spreadsheets will leave modern organizations ill-equipped to handle the intricacies, complexities, and variability of today's compensation modeling and management needs. If nothing else, growth in the compensation function will make it increasingly important to automate the elements of the compensation function that are simultaneously labor-intensive and error-prone.  

These takeaways are only the start.

The full Hallmark Health Care Solutions 2024 Outlook for Provider Compensation Management report also addresses questions like: 

  • How the ongoing provider shortage will impact compensation, with implications for provider recruitment and retention. 
  • How and why to ensure compensation is not determined based on volume or value of referrals. 
  • How to successfully navigate constantly changing fee schedules. 
  • How automation, consolidation, and standardization are becoming pivotal to successful provider compensation moving forward. 
  • How more sophisticated data analysis is playing an increasingly vital role in driving successful compensation programs. 

Explore these topics and more. Download the full report.