Structuring Compensation for Nurse Practitioners: Pros & Cons

Do you struggle with structuring compensation for the nurse practitioners and physician assistants in your practice? There’s a general lack of consistency related to advance practice provider compensation and opinions vary as to what should be best practice. Some employers pay a flat hourly rate or salary and may or may not give the opportunity for an additional bonus. Other employers structure pay based on productivity either with RVUs or some other revenue-linked metric. The way compensation is structured can have a number of unintended consequences for your practice. What are the pros and cons of these compensation models?

Hourly Compensation Structure

Hourly comp is pretty straightforward – you show up, you get paid. But, what does this setup mean for the advance practice provider and your practice?

Pro: Straightforward. No one likes surprises in their paycheck (okay, no one likes surprises that result in a lower than expected paycheck). Here, hourly compensation delivers. The model is straightforward, easy to understand and track, and generally leads to fewer questions about pay expectations from the nurse practitioner.

Pro: Flexibility with staffing structure and scheduling. Given the pleasant straightforwardness of the hourly compensation model, you can move NPs and PAs around to different departments, clinics etc. without affecting pay. Or, you can slightly change NP/PA’s job responsibilities without disrupting compensation expectations or structure. This allows you to try new staffing models without as much pushback.

Con: Rewards time spent above efficiency, quality and productivity. Ultimately, paying on an hourly basis rewards time spent at work rather than the quality, efficiency or productivity of that work. Employers who pay on an hourly basis may struggle with issues like nurse practitioners chronically staying late to wrap up charting and little motivation to reform their workflow to get things done during traditional work hours to name one example.

Con: You are subject to varied efficiencies among providers. The NPs and PAs in your practice inevitably work at different speeds. In contrast to a salary model, with hourly comp your slower, less efficient providers may end up earning more than those who are most efficient and have a “get things done” attitude. This can create a rift among providers and simply may not make sense from an employment perspective.

Con: Compensation may be unpredictable. One source of anxiety and career frustration among nurse practitioners is an employer who changes or cuts hours as patient volume ebbs and flows. The temptation with hourly employees is to cut back their time when patient volume doesn’t necessitate as many providers. For the NP, however, unpredictable comp means your practice is on the fast-track to high turnover.

Salaried Compensation Structure 

Pro: Consistent. Salaried compensation is predictable and if there’s one thing the nurse practitioners and physician assistants like predictability around, it’s their paycheck. Not only is this structure stable for NPs and PAs, it also eliminates surprises in your staffing budget as an employer.

Pro: Promotes efficiency. Salaried compensation structures encourage nurse practitioners and physician assistant to complete work in a timely manner. They aren’t paid to stay after hours.

Con: Perceived uncompensated job responsibilities. The flip-side of the advantage above is that NPs and PAs who do see high patient volumes, excel in certain parts of their practice or do end up working late may feel like they aren’t being paid for some of the time spent at work or certain job responsibilities. Asking salaried providers to increase patient volume, adhere to certain quality measures etc. may be met with resistance as they feel this adds to their workload without additional compensation.

Con: Fails to reward result-getting activities. A salaried comp structure may not incentivize nurse practitioners to practice in the manner your clinic or department wants. It doesn’t incentivize meeting certain metrics or milestones. Compensation is decoupled from actual job performance which can mean less influence over the way providers in your practice get things done.

Flat Hourly or Salary + Bonus Structure

Many employers mitigate some of the disadvantages of hourly and salaried compensation by offering a bonus incentive. While bonuses can be a performance incentive, the way in which they are administered is critical to their efficacy.

Pro: Rewards the activities you value. A bonus structure allows you to reward the activities you want to see in your facility. Whether a bonus is tied to patient satisfaction or revenue generated, tying comp to a specific result-getting activity sends a clear message to the NPs and PAs in your practice. This can mitigate some of the negatives of a flat hourly or salaried comp structure.

Con: Miscommunication. Many facilities neglect to communicate bonus structures clearly or leave the bonus amount and qualifications vague. This is a mistake. If nurse practitioners and physician assistants don’t understand the bonus structure or the terms are left open-ended this sets the stage for mistrust and anger if the bonus amount isn’t what providers think it should be.

Productivity-Based Compensation Structure 

Pro: Rewards the activities you value. Productivity-based compensation structures reward providers who generate higher revenue for the practice, usually through seeing higher patient volumes. Rewarding high performers sends a strong message about what’s important in your workplace and incentivizes these revenue-generating activities.

Con: Less flexibility with staffing and management. What if your facility is mismanaged? What if you want to move a competent provider with leadership capabilities to a lower volume facility that’s struggling? These scenarios are just two examples of when a high performer could take a hit to their paycheck related to circumstances out of their control. Productivity-based compensation structures limit your flexibility as an employer and also potentially drive away high performers when outside circumstances limit patient volumes.

Con: Mistrust between employee and employer. If there’s one thing we can all agree on, it’s that the RVU system is complex. Compensating your nurse practitioners and physician assistants based on this often misunderstood and difficult to track system can lead to mistrust between the healthcare provider and the employer. It leads to keeping score and a focus on fairness rather than the actual work at hand.

Con: Dictates workplace culture. Workplace culture is critical for retaining employees. While hiring driven nurse practitioners and physician assistants is certainly an asset, creating a competitive workplace culture can be a disadvantage. Productivity-based compensation discourages teamwork and positions providers against each other which can limit the growth and utility of providers in your practice. Taking the time to train a new provider, for example, means a hit to the mentor’s paycheck.

Levels-Based Compensation Structure 

An innovative levels-based compensation structure transparently outlines your expectations as an employer and pairs these expectations with a specific compensation.

Pro: Greater flexibility. No longer are you tied to reinforcing productivity-based metrics alone, with a compensation levels document you have complete control to name the result-getting activities you want to focus on in your facility. Who doesn’t want greater control over reward for performance?

Pro: Transparent expectations. Transparent expectations also increase employee-employer trust creating a more positive workplace culture and decreasing tension about compensation (not to mention improving recruitment and retention efforts). Job dissatisfaction almost always starts out with lack of clarity about expectations and a levels-based compensation structure eliminates this uncertainty.

Pro: Gives career direction. Finally, a levels-based comp structure gives nurse practitioners and physician assistants a path for upward mobility in an often stagnant role. Direction in one’s career is helpful and motivating. Why not give providers more to strive for than just the patient-after-patient cycle?

Con: You’ll need to customize the structure to fit your practice’s needs. To implement the levels comp structure, you’ll need to decide what is most important to you as a an employer. Ideally this document should change very little over time and will serve as a standing guide for the providers in your practice. Once you do your homework, however, you can look forward to fewer conversations about compensation moving forward.