At CHCBC, we’ve spent over 30 years helping physician private practices align their business strategies with real-world results. One area where even seasoned leaders stumble? Physician compensation models. When these models are rushed, outdated, or misaligned with practice goals, the impact ripples through operations, culture, and finances. The bottom line is that the compensation model should be structured to drive desired physician behavior and engagement.
Whether you’re in the early phases of a healthcare practice startup or navigating growth in a mature clinic, your compensation structure should reflect both strategic goals and financial realities. Ignoring compensation analysis at least every 3 years, relying on cookie-cutter templates, or failing to adapt to evolving reimbursement, costs and provider specialties or services are just a few of the private practice mistakes that can quietly undermine your success.
Below, we outline five of the most common errors—and how to correct them before they become costly.
Mistake 1: Overlooking Fair Market Value, Stark and Anti-kickback
When physician compensation isn’t aligned with fair market value (FMV), start or antitrust regulations, the consequences extend far beyond individual paychecks. This is one of the most frequent—and costly—private practice mistakes, particularly for healthcare practice startups.
FMV defines the compensation range a physician should earn based on specialty, and volume, using region, land/or national surveys. Disregarding these standards can expose your practice or your hospital contract to compliance risk, especially if compensation appears excessive or arbitrary to regulators. On the other hand, undercompensating providers—due to budget constraints or outdated data—can lead to turnover, burnout, recruitment and partnership difficulties.
Many practices either borrow models from peers without proper vetting stark and anti-kickback regulations and safe harbor regulations or base salaries on assumptions that no longer reflect these regulations or the financial soundness. Without a current, data-backed physician compensation analysis, you’re building on unstable ground.
Establishing a compliant and fair compensation arrangement from the outset—and reviewing it regularly—ensures your compensation model is both competitive and defensible.
Mistake 2: Tying All Incentives to Production Only
Many physicians private practices default to production-based models—compensating strictly on work RVUs, encounters, or collections. While these methods are the most used and straightforward methods, it can create narrow and short-sighted incentives that overlook your broader goals.
Models focused only on productivity can discourage collaboration, reduce attention to patient-centered care, value-based agreement, payor incentives, and weaken provider engagement. They may also promote volume over quality—leading to misalignment, lower morale, and declining patient satisfaction.
This issue is especially common among healthcare practice startups, where the pressure to drive early revenue can overshadow thoughtful compensation planning. Without integrating metrics like patient retention, care quality, or leadership roles, compensation plans often miss the mark.
Compensation should reward more than productivity—it should reflect the full scope of value each provider brings to the practice.
Mistake 3: Ignoring Overhead Allocation
Calculating physician compensation based on revenue alone—without factoring in overhead—is budgeting without accounting for expenses. Many practices fall into this trap in an effort to be “fair” or simple but overlooking cost distribution can spark conflict and erode trust.
Every practice has Direct (Provider), Variable (items utilized based on patient volume), and Fixed costs: (rent, staff, equipment, and administrative infrastructure). If one physician appears more productive on paper but relies more heavily on shared resources, a compensation model that ignores overhead creates imbalance.
This issue is particularly important for group and multi-specialty practices, as well as healthcare practice startups navigating early-stage resource distribution.
Compensation structures that account for overhead help ensure financial transparency and operational fairness.
Mistake 4: Not Revisiting Compensation Terms Regularly
The healthcare industry is dynamic. Payer contracts change, service offerings evolve, and provider roles shift. Yet many compensation models remain unchanged for years—becoming outdated and misaligned with current business goals.
What may have worked during the early days within your practice can become a barrier to a growing practice. We often see physician private practices that fail to adjust models based on shifts in payer mix, staffing, or market rates—leading to dissatisfaction and underperformance.
Routine physician compensation analysis and annual reviews are essential. They help ensure your compensation plan remains relevant, competitive, and tied to measurable performance. Happy providers, Happy practice.
Regular evaluations of your compensation model keep it aligned with your practice’s current needs and future direction.
The compensation model should be codified in the practice operating agreement and updated as the compensation model is updated.
Mistake 5: One-Size-Fits-All Approaches
No two physician private practices are the same—yet many still use generic compensation models that fail to reflect their actual structure or goals.
Copying peers’ structure may save time upfront, but it rarely accounts for unique variables like part-time roles, leadership responsibilities, care coordination, or specialty services. Some models often over-reward some contributions while undervaluing others, leading to resentment and misaligned incentives.
Tailored, data-informed models create fairness, transparency, and strategic alignment—ensuring that compensation supports both individual and practice-wide success.
Build a Model That Works for Your Practice—Not Against It
Physician compensation models directly influence culture, team performance, and the financial health of your practice. Whether you’re launching a new practice or reevaluating an existing one, avoiding these five practice mistakes helps ensure long-term success. The compensation model should always be designed to drive the desired behavior and engagement of physicians.
If your current model doesn’t reflect fair market value or compliant with various laws or regulations, overemphasizes volume, ignores overhead, stays static, or uses a one-size-fits-all template, it may be limiting your growth more than you realize.
At CHCBC, we work with physician practices to develop compensation frameworks that align with their goals, support sustainable operations, and help retain top talent. Through deep industry expertise and data-informed physician compensation analysis, we guide you toward a more strategic and effective compensation structure.
Schedule a consultation with CHCBC today and take the next step in building a compensation model that supports your practice’s future.
Compensation Model Mistake FAQs
CHCBC brings over 30 years of healthcare business expertise to assess your current compensation structure and identify areas of misalignment. We provide data-driven compensation analysis to ensure your model is fair, competitive, and compliant. Our team customizes solutions to reflect your practice’s unique goals, roles, and financial realities. The result is a sustainable model that supports growth, retention, and operational clarity.
Compensation models based only on production can undermine collaboration and financial distress. Focus on leadership, quality improvement, and team contributions. Over time, this can lead to burnout, dissatisfaction, and turnover.
Compensation models should be reviewed at least every three years unless there are major changes in providers, payer contracts, staffing, financial hardships, or business goals. Regular reviews help maintain fairness, compliance, and profitability. Regular reviews also demonstrate your commitment to a transparent and evolving workplace culture. It is critical to document the compensation model, including calculations, in the operating agreement is critical.
Generic models rarely account for the nuances of your practice—such as specialty mix, part-time roles, or leadership duties. They can overvalue some contributions while undervaluing others, leading to internal friction and financial imbalance. Templated plans also tend to overlook strategic goals and real-world overhead. A one-size-fits-all approach often limits growth.
