Short answer: Provider compensation is usually a practice's largest expense and its most sensitive conversation. Salary offers stability, productivity plans reward volume, and hybrid models try to balance both. The right plan aligns pay with the practice's goals and stays affordable at different volumes, which means modeling it before you roll it out.
The three common models
| Model | How it works | Trade-off |
|---|---|---|
| Salary | Fixed pay regardless of volume | Predictable, but weak link to productivity |
| Productivity | Pay tied to output, often work RVUs or collections | Rewards volume, but can create uneven workloads |
| Hybrid | Base salary plus productivity or quality incentives | Balances stability and incentive, but more complex to administer |
What to model before you change a plan
- Total compensation cost at low, expected and high volumes
- The effect on each provider, not just the average
- Whether the practice still covers overhead and earns a margin at every level
- How quality, patient experience or citizenship goals are measured and weighted
- Transition rules so providers are not surprised mid-year
Signs your current plan needs attention
- Provider pay is rising faster than collections
- High performers feel under-rewarded and are considering leaving
- Overhead allocations are disputed or unclear
- The plan is so complex no one can explain their own pay
How Capstone CFO helps
- Model compensation scenarios against realistic volume and collection forecasts
- Allocate overhead transparently by provider and location
- Build provider-level profitability reporting
- Support partners and leadership through plan redesign discussions
- Prepare financial analysis for your healthcare attorney and compensation advisors
Frequently asked questions
What is a work RVU?
A relative value unit that measures the work involved in a service. Many productivity plans pay a rate per work RVU produced.
Should compensation be based on collections or production?
Collections tie pay to cash received; production metrics like work RVUs remove payer mix and billing issues from the provider's pay. Many practices use one or a blend.
Do compensation plans have legal requirements?
Yes. Healthcare compensation can be subject to federal and state rules, including physician self-referral and anti-kickback laws. Always involve qualified healthcare counsel.
This article is general information, not legal or tax advice. Provider compensation arrangements should be reviewed by qualified healthcare counsel.
Want to model a compensation plan before you commit to it? See how we support healthcare practices or book a call with our CFO team.