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.