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Understanding the various payment models can help physicians navigate potential pitfalls and make sure incentives are aligned.

Fam Pract Manag. 2022;29(5):23-28

This content conforms to AAFP criteria for CME.

Author disclosure: no relevant financial relationships.

The landscape of physician contracting is becoming as complex as health care in general. The challenges to constructing reasonable compensation models (“comp models”) for physicians in group practice or within health systems have increased as the number of different payment models from insurers has increased. More restrictions from the Stark statute have also affected how comp models are constructed. This article will look at some of these issues, including five models of physician payment, the often-backward incentives in these models, potential contract pitfalls, and Stark law compensation restrictions that apply within physician groups.

Although individual physicians may not be able to negotiate significant changes in payment with insurers or their employers, they should be aware of potential pitfalls and incentives. All physicians need to understand how the group is being paid and how their personal performance affects payment. Practices should also take into account how payers are paying them when they design their internal compensation models so that all incentives in the practice are aligned.


  • All physicians need to understand how their group is being paid and how their personal performance affects payment so that incentives can be aligned.

  • Each physician payment model comes with advantages as well as pitfalls and sometimes backward incentives.

  • Restrictions from the Stark statute also affect how physician compensation models are constructed within a group; the two permitted compensation mechanisms are personal productivity and profit sharing.


Five physician payment models are most prevalent today.1

1. Fee for service (FFS). This model rewards productivity and provides a separate payment for each service performed. The value of each service is based on the Resource-Based Relative Value Scale (RBRVS) and is made up of three components: physician work, practice expense, and malpractice. The physician work RVU component is the one most physician comp models use. (See “Calculating RVUs.”)

The advantage of FFS is that it captures work done in the office in a tangible, measurable, billable way. Unfortunately, this also incentivizes providing more services: “do more, get paid more.” This can lead to a competing set of interests between holding down overall cost while maximizing income.

The contractual pitfalls begin with whether the contract specifies where the data will come from to determine the proper physician payment — the medical record, which is closest to the actual performance of the service, or a claim form, which may not represent what was done. For example, you might see a 55-year-old patient for a physical examination and also address their knee pain. You submit a bill to the insurance company for 99396 (physical examination, established patient, age 40 to 64) and 99213-25 (office visit, established patient, level 3, with modifier 25 to indicate a separate E/M service). An insurance company may refuse to pay for the 99213 and instead reimburse only the 99396. So while the medical record reflects 6.35 total RVUs performed, only 3.69 will get paid. To overcome this discrepancy, FFS-based comp models must have a mechanism for capturing the actual work done, independent of what a payer reimburses.

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