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Productivity-Based Compensations Versus Incentive Plans

Abouleish, Amr E., MD, MBA

doi: 10.1213/ane.0b013e31818af7dc
Editorial: Editorial

From the Department of Anesthesiology, University of Texas Medical Branch, Galveston, Texas.

Accepted for publication August 8, 2008.

Address correspondence and reprint request reprints to Amr E. Abouleish, MD, MBA, Department of Anesthesiology, Rt 0591, UTMB, Galveston, TX 77555-0591. Address e-mail to

Because many factors can affect anesthesiologists’ billings and productivity, but are not necessarily under the individual anesthesiologist’s control,1,2 many anesthesiology groups, both academic and private-practice, have chosen to use shifts-worked (i.e., availability) as a measure of clinical work done.3 Many private-practice groups simply assume all the partners work the same number shifts, calls, and take the same amount of time off and, hence, split the revenue equally. External pressures (e.g., hospital contracts requiring incentives, medical school requiring a productivity system) and internal pressures (e.g., older partners reducing workload, merging of two groups, covering several facilities) drive groups to develop productivity measurement systems.4 For private-practice groups, these systems are almost all clinical-productivity based. But for academic departments, the clinical productivity payments should be balanced with nonclinical (teaching, research, administrative) productivity payments.

For academic departments, there has not been much published on how to create a system and the impact of the system.5–7 Unfortunately, in this area, there will never be a definitive study because of the nature of the issue. One groups’ compensation plan cannot be said to be better or worse than another groups’. The real issue is if the compensation plan makes the group successful. Therefore, when it comes to studies about one’s individual productivity compensation plan, the n will always equal 1 and reports will always be case reports. When talking about individual productivity, one does not compare two individuals from different groups, but only compares individuals within the group. However, this does not mean that case reports cannot be helpful. In contrast, these reports will be very helpful in educating on the process of developing the system, implementing, and impact on the department and individuals. They also help us learn about unexpected consequences. In this month’s issue of Anesthesia & Analgesia, Reich et al. reports on their productivity-based compensation plan.8

Before proceeding, I must address why I have referred to the case report as a report on “productivity-based compensation plan” and not as an “incentive plan.” It is important to understand the difference between these terms. Accompanying our survey study on incentive plans,3 two very different editorials by Dr. Ronald Miller and Dr. David Lubarsky were also published.9,10 Dr. Miller championed systems where compensation was based on productivity measurements and that these systems would increase productivity, while Dr. Lubarsky cautioned that if one incentivized all activities, one would not incentivize anything. In reflection, both are correct. An essential element of an incentive plan is that one does not incentivize all activities being done, but only activities that one would not normally do. Hence, the incentive should be less than the majority of the compensation (e.g., 20%), with the rest of the compensation being a base salary. Hence, the variable payments in an incentive plan are focused only on activities that would not be done without an extra payment. In contrast, a productivity-based compensation plan focuses a majority of compensation to be variable and encompasses a larger amount of activities. In developing a new productivity-based system, all activities being done that align with the department’s mission would be included, valued, measured, and ultimately compensated. This includes many activities that may not be considered hardship items as well as items included in an incentive plan. For example, providing clinical care during regular hours (e.g., 7 am to 3 pm) is not a major hardship for an anesthesiologist. However, covering cases in the evening and working on-call are more painful to do. Under an incentive system, the focus of variable payments would be on late rooms and call-coverage. However, a productivity-based system would include all the clinical work: regular hours and after-hours. (For more on this topic, please see the two editorials Miller and Lubarsky.9,10)

With this understanding, there are several lessons that one can learn from the case report by Reich et al. A productivity-based system is more complex than an incentive plan. One of the reasons their system works is the existence of an anesthesiology information management system that is accurate and allows for timely reporting of clinical work. Without an anesthesiology information management system, timeliness and accuracy is much more difficult and relies on billing databases which may not have all the necessary information. Further, the inclusion of nonclinical activities in the system helped avoid the negative impact of clinical productivity payments on academic work. The ability to report in a timely fashion made the feedback and communication understandable to the individual and affect behavior. A group without the information systems or information technology support should be cautioned in proceeding to a productivity-based system and would be better-off focusing on an incentive system.

Even with this complex system, aspects of an incentive plan were seen. In particular, Reich et al. report the need to increase the value of call. The reality is that a high percentage of billed units will be generated during regular hours. Hence, using strictly billings, call-hours will be under-valued. In Reich et al. ’s system, the call system, was voluntary. It quickly became evident that using billings would not value the calls enough and a supplemental value was needed. Similarly, the nonoperating room (OR) assignments were also under-valued by simple billings and hence additional value was added.

The above examples remind one that implementing a system requires a trial period when no compensation is affected, but the system is used to measure work to determine unexpected consequences. This trial period also allows the faculty to understand better what the plan will do to their compensation and allows the faculty to more readily embrace it. In Reich et al. ’s report, the trial period allowed for corrections of the plan. In addition, Reich et al. described the reluctance by some (mostly senior) faculty to the new plan. The trial period allowed for faculty to see the plan in action without anxiety of lost income.

Another lesson learned from this report is that, before developing a system, a group must determine what activities will make the group successful and value those activities. In the case of an academic group, a mission-based system incorporating both clinical and nonclinical activities is essential. Furthermore, the determination of relative value is also important. In Reich’s group, valuing academic pursuit was important and the value of academic activities (Appendix Reich et al.9) reflects this finding. For instance, publishing a paper in a high-impact journal is equivalent to working 1 day a week in the OR for 1 yr. In reflection, I agree with this valuation, but how many academic departments would credit a faculty member this time (unsponsored) or pay a clinical faculty a bonus? This valuation is probably why Reich did not find a decrease in academic production.

However, having one value for a published paper does not take into consideration that a junior faculty will have a much harder time writing his/her first paper as compared to a senior, much-published colleague. Unfortunately, it is difficult to incorporate different values for the same activity in a productivity-based system. One way to address this issue is an incentive system in which each faculty member earns an incentive for meeting goals. These goals are set by the faculty member and the chair and individualized for that faculty member. For example, a first-year faculty member might have as his goal to present two different abstracts in the next year, but a senior member would have the goal of having a manuscript accepted.

In Reich et al. ’s system, an attempt to measure subjective traits, e.g., teamwork and quality of care, is done using peer evaluations. This component is often overlooked, but I believe is necessary. For example, the anesthesia board-runner knows who he/she can call on to take care of the emergency case in an ASA III patient and who they should not call! A peer-evaluation is one way to address these day-to-day differences among the faculty. Remember, any payment system, productivity-based or incentive, is a behavior modification system. In my opinion, if there is a behavior issue, an incentive system is more effective in affecting behavior because less activities are being measured and, hence, an individual is very focused on only a few activities in contrast to the complex and extensive list in a productivity-payment system. In other words, I support the KISS (Keep It Simple …) philosophy.

One final note on developing a productivity-based system: in business, a good rule of thumb is the 80–20 rule. That is, 80% of your business comes from 20% of your customers. The same will be true for anesthesiology productivity-based systems. As a quick guide, 80% of the activities will be measured by 20% of the measurements! In other words, the complexity of a system often comes from trying to measure the other varied and less frequent activities. An alternative to complexity is to realize that the chair needs some leeway to address these less frequent activities.

After developing and implementing, Reich et al. measured the impact on productivity, i.e., behavior. As noted above, the academic productivity was not adversely impacted. However, since almost all academic departments must supplement their revenue with payments from the hospital or the medical school (for administrative work and uncompensated staffing costs4), the hospital has an interest in what they are getting for the money. Often, the hospital feels the additional payments will increase work done. Hence, looking at productivity is important. Reich et al. found that the overall work done by the department (as measured by ASA units billed per OR site) was unchanged. In contrast to the hospital perspective, this finding is consistent with the belief held by many anesthesiologists: that anesthesiologists cannot significantly increase cases done in an OR. However, Reich et al. also found with the productivity-based system that the same overall work was being done by less faculty (resulting in an increase in ASA units per full-time equivalent). That is, the faculty were working more days or more hours and being paid for it. This is consistent with previous reports.5,6,11

I close this editorial with a caution. Remember, the Reich et al. report is a case report. What works for one group may not work well for another group. Each group must determine what activities must be incentivized to make a group successful. If your current system is allowing for faculty to be happy and the group successful, then remember “the enemy of good is better.”

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