The impact of financial incentives on physician productivity in medical groups

Objective. To estimate the effect of financial incentives in medical groups-both at the level of individual physician and collectively-on individual physician productivity. Data Sources/Study Setting. Secondary data from 1997 on individual physician and group characteristics from two surveys: Medical Group Management Association (MGMA) Physician Compensation and Production Survey and the Cost Survey; Area Resource File data on market characteristics, and various sources of state regulatory data. Study Design. Cross-sectional estimation of individual physician production function models, using ordinary least squares and two-stage least squares regression. Data Collection. Data from respondents completing all items required for the two stages of production function estimation on both MGMA surveys (with RBRVS units as production measure: 102 groups, 2,237 physicians; and with charges as the production measure: 383 groups, 6,129 physicians). The 102 groups with complete data represent 1.8 percent of the 5,725 MGMA member groups. Principal Findings. Individual production-based physician compensation leads to increased productivity, as expected (elasticity = .07, p < .05). The productivity effects of compensation methods based on equal shares of group net income and incentive bonuses are significantly positive (p < .05) and smaller in magnitude. The group-level financial incentive does not appear to be significantly related to physician productivity. Conclusions. Individual physician incentives based on own production do increase physician productivity.