By David Kruse, Vice President, Physician Enterprise, Hallmark
This article was originally published in the June 2026 AAPCP newsletter and was written by David Kruse, Hallmark’s Vice President of Physician Enterprise. If your organization is navigating similar questions around physician compensation strategy and compliance, Hallmark is here to help.
Most health systems have not materially redesigned their physician compensation programs in the past decade, even as the workforce, care delivery models, and regulatory environment have shifted. The underlying assumptions, that wRVU productivity is the right primary metric, that benchmark surveys alone constitute adequate governance, that Advanced Practice Provider (APP) compensation can be thought of independently of physician compensation, are not built for today’s clinical, regulatory, and financial state.
The cost of inaction is real. Physician turnover. Access deficits that suppress revenue. Staffing decisions made with incomplete data. Regulatory exposure from compensation arrangements that cannot withstand fair market value (FMV) or commercial reasonableness (CR) scrutiny. The organizations getting this right are making deliberate choices: what they measure and pay for, how they govern those decisions, and whether their data infrastructure can support the model they are running.
wRVU Productivity Is Necessary but Not Enough
wRVU-based compensation became the dominant model for good reasons: it is auditable, externally benchmarkable, and manageable to administer. It also optimizes for individual physician volume, potentially undermining health system performance.
Under a pure productivity model, physicians are incentivized to maximize personal wRVU production. This can lead to limited panel size, minimized APP collaboration, and declining care coordination responsibilities. The system, meanwhile, absorbs the downstream consequences of reduced access, underutilized APPs, and misalignment with value-based contract performance. The incentive works as designed but the outcomes aren’t sustainable.
Organizations shifting toward team-based care, including mandatory participation in CMS programs (e.g., TEAM or ASM) or APP-driven access expansion, cannot rely on a compensation model that rewards individual volume above all else.
Leading organizations are redesigning compensation to incentivize what matters for their care model. The dimensions vary by market and specialty, but the pattern is consistent:
The design discipline is in keeping it simple. Plans with more than three or four metrics lose incentive clarity. Pick what matters most for your organization’s care models and pay for it. Remember, complexity does not produce alignment; clarity supported by data and system infrastructure does.
APPs and Collaborative Care
The most consequential workforce shift in most health systems has been the growth and broadened scope of APPs. The compensation models governing that workforce have not kept pace. In high-performing systems, APPs are not supplemental capacity. They are primary drivers of access and throughput as an integral part of the care team. Compensation has not caught up to facilitate a care model that encourages APPs to practice at the top of their license. Instead, APP pay is often determined separately and distinctly from physician compensation design, productivity attribution in collaborative practice arrangements remains poorly defined, and supervisory or mentorship structures are inconsistently designed. The result: inaccurate productivity comparisons, unintended competitive dynamics between APPs and physicians, and pay inequities that create retention risk in the roles most critical to access.
Building an effective APP compensation framework requires its own methodology that considers the whole care team. This means clearly defined productivity or panel attribution between clinicians, explicit supervision or collaboration structures that reflect state and facility scope-of-practice requirements, and incentive components that reward collaborative outcomes. Organizations participating in performance-based reimbursement models have particular urgency here. APP performance is critical to shared savings and quality outcomes. Compensation models that don’t recognize their contributions can create retention risk and strategic misalignment.
Leaders need visibility into workforce metrics and operational tradeoffs to inform and enable the design of structured incentives that recognize the realities of an evolving care team and drive toward access and performance.
Governance and Standardization
Health systems that have grown through mergers and acquisitions typically inherit a collection of legacy compensation models with their own structures, benchmarking, and one-off exceptions. Over time, this becomes unmanageable. The patchwork creates friction, perceived or real inequity, and financial opacity. Legal and compliance cannot efficiently defend compensation decisions under FMV or CR scrutiny. Operations cannot assess whether incentive programs are working because there is no common baseline. Finance cannot accurately model the implications of compensation decisions made at the department level without enterprise visibility.
This is a governance failure necessitating change through standardization and accountability.
Organizations that have done this well have taken a few consistent steps:
Exceptions still happen, but they require documented justification and committee approval.
Organizations that have successfully standardized and consolidated models have treated this as a change management solution with executive sponsorship, clear timelines, and a defined transition process.
Key Considerations for the Future
Compensation is not a back-office function. It is one of the most direct tools a health system has for shaping workforce retention, clinical behavior, and care delivery performance. Systems running fragmented, outdated models are paying a real price in turnover, access deficits, and margin erosion, often without a clear line of sight to the cause. Organizations that address it will have a durable advantage that compounds over time. The question for leadership is not whether to act, but how long can they afford not to.
