Author: Aaron Starr
Developing effective compensation programs for employed advanced practice providers (APPs) has never been more important for healthcare organizations across the country. As hospital margins continue to struggle, healthcare organizations face immense pressure to function efficiently.1 In pursuit of this goal, organizations have identified their APPs (including nurse practitioners, physician assistants, certified nurse midwives and certified registered nurse anesthetists) as a cost-effective staffing opportunity.
Increased APP practice authority leads to increased use of incentives
In recent years, many organizations concluded that APPs provide the opportunity to increase patient access while simultaneously reducing the overall cost of care. However to realize this opportunity, organizations must build the right practice environments to allow their APPs to function as efficiently as possible. Year in and year out, healthcare organizations have expanded their APPs' independent practice authority as states have increasingly liberalized their APP practice licensure regulations. In just the last four years, five additional states — bringing the total to 27 — have allowed full practice authority for nurse practitioners and physician assistants.2
Such full practice authority means APPs are allowed to evaluate and diagnose patients, order and interpret diagnostic tests, and initiate and manage treatments. Only 11 states continue to restrict at least one element of an APPs' professional practice. This expansion means that the majority of APPs around the country hypothetically have the ability to see patients independently, or with minimal oversight from a collaborating physician.
In those states that allow full APP practice authority, many healthcare organizations followed suit, revising their medical staff bylaws to allow APPs to care for patients independently. Yet despite this change, employers found that they needed additional changes to their APP programs to fully realize the benefits that an independently practicing APP could provide.
See trend data at a glance
While many APPs had the ability and authority to function autonomously and efficiently, they lacked the financial incentives to alter their practice patterns to generate higher levels of clinical productivity and thereby increase patient access. APP compensation has long been salary based, with incentive plans limited in both size and scope. This model meant APPs saw little financial reward in growing their patient panels and taking on larger patient care responsibilities.
However, over recent years, healthcare organizations increased their use of APP incentive plans. Seventy-five percent of organizations in Gallagher's 2023 National Advanced Practice Provider Compensation Survey Report used incentive programs for their APPs, with another 9% of organizations considering implementing one.
APP compensation diverges with greater at-risk compensation
Of those organizations that offer a formal incentive program, 82% provide an incentive program based partially or entirely on clinical productivity. The increased use of incentives in APP compensation models has led to expanding the range of cash compensation for APPs within any given specialty. Since the inception of Gallagher's National Advanced Practice Provider Compensation Survey Report, the average percent difference between the reported 10th and 90th percentile levels of total cash compensation for all clinical specialties has hovered around 50%. However, in the last three years this range has expanded.
We see one explanation for the growing range of APP total cash compensation in the increased use of APP incentive programs. As organizations increasingly ask their APPs to expand their practice scope, those employers concurrently expand both the at-risk portion of compensation and the compensation upside available to APPs through the incentive program. Many APPs remain on base-salary-only models, particularly those practicing in more restrictive care models; however, others have been allowed to practice independently and carry their own patient panels. Those providers managing their own patient panels are far more likely to receive productivity-based compensation and have in turn raised the upper end of the market for APPs.
Complexity follows organizations as they seek better ways to reward APPs
Gone are the days when all APPs received solely a base salary tied to years of experience. To meet the evolving demands of the healthcare industry, organizations must be dynamic in the way they use and incentivize APPs. Organizations must look for new ways to reward these providers for performance. At the same time, as compensation grows in absolute terms, it also grows in complexity and variability.
Gallagher's Physician Compensation and Valuation consulting team can help your organization navigate the increasingly complex landscape of APP compensation and align your provider compensation program with the latest market trends. Let our industry-leading data help to drive your decisions to face the future with confidence.