PODCAST | Compensation Considerations for Health System Innovation Activities
We’re featured in a special episode of McDermott Will & Schulte’s Governing Health podcast
What are health systems doing to increase financial stability, sustain growth and advance their missions in a complex operating environment?
Health system innovation is a must to stay ahead in an evolving healthcare landscape. Many are developing centralized innovation centers and launching new subsidiary business ventures to diversify revenue streams.
In this special series, SullivanCotter’s Bruce Greenblatt, Kathy Hastings, and John Collins join McDermott Will & Schulte to explore how these new, forward-thinking organizational structures are evolving and what compensation models should be in place to support the executives leading these new businesses.
If you’re a health care executive, board member or strategic legal advisor – you won’t want to miss this!
Listen now for greater insight into:
- Diversifying revenue sources and expanding income streams
- Innovation and venture businesses being pursued by non-profit healthcare organizations
- Strategies for structuring businesses by non-profits
- Differentiating compensation programs for leaders
- Risks of creating for-profit businesses while generating income from alternative non-patient care revenue sources
- Considerations for the design of the compensation program
- Key differences in payment for new and parent companies executives
- Performance metrics for new businesses
- Critical attributes of incentive programs
INFOGRAPHIC | Physician Compensation Trends
Physician compensation remains a critical lever for recruitment, retention, and sustainability…
…especially as organizations navigate urgent workforce challenges.
Our 2025 Physician Compensation and Productivity Survey reveals the most significant shifts in total cash compensation (TCC) this decade, highlighting specialty-specific market pressures, evolving workload expectations, and increasing utilization of recruitment incentives. These key insights can inform competitive strategies in today’s dynamic marketplace.
Get started with the latest benchmarks from our Physician Compensation and Productivity Survey – which features data from 500 organizations on nearly 231,300 physicians and 232 specialties.
Need a quick summary?
COMPENSATION INCREASES
- The 2025 survey reflects the largest average increase in median total cash compensation (TCC) seen this decade.
- These are primarily the result of supply and demand dynamics rather than increases in productivity.
- Adult medical specialties saw the greatest year-over-year increase at 7.5%.
- Over the past five years, however, primary care specialties have grown the most at 21.8%.
HOSPITAL-BASED MARKET PRESSURES
- Employers in anesthesiology, critical care and hospital medicine have reduced required annual work hours year-over-year.
- This has effectively resulted in an increase in compensation, s physicians may earn the same TCC while being required to work fewer hours or shifts.
RECRUITMENT INCENTIVE TRENDS
- As physician supply continues to be challenged across most specialty areas, organizations are utilizing a wide range of recruitment incentives for new recruits.
- 90% of organizations now receive sign-on bonuses, up 2.5% from 2024.
- 52% of organizations offer student loan repayment.
- Some additional practices include malpractice tail coverage (38%), resident recruitment stipends (27%), dependent tuition assistance (7%) and low-interest student loan refinancing (2%).
Learn more about our Physician Compensation and Productivity Survey!
This survey represents the largest and most comprehensive physician compensation benchmarking resource for health systems and hospitals nationwide. This year’s report includes data from more than 500 health care organizations representing approximately 231,300 physicians across 232 specialties.
- Base salary and total cash compensation data as well as cost of benefits
- Productivity data and ratios, including work RVUs, collections, patient visits and panel sizes
- Value-based compensation approaches and amounts paid
- Data for multiple position levels from staff physicians to chairs
- National data reported by region, organization type, position level and specialty group
- Other data, including sign-on bonuses, retention bonuses, relocation assistance and other perquisites
Press Release | Physician Total Cash Compensation Seeing Highest Increase This Decade
Clinician supply and demand imbalances continue to place upward pressure on physician total cash compensation
October 15, 2025 – CHICAGO – SullivanCotter, the nation’s leading independent consulting firm in the assessment and development of total rewards programs, workforce solutions, and data products for health care and not-for-profits, has released new data and benchmarks from the 2025 Physician Compensation and Productivity Survey.
This year, median physician total cash compensation (TCC, equal to base salary plus incentives) rose more sharply than it has for a decade, driven primarily by clinician supply and demand imbalances. While TCC grew year-over-year across all major specialty categories, adult medical specialties experienced the largest increase from 2024 to 2025 at 7.5%. Over the past 5 years, however, primary care specialties have led the charge with an overall increase of 21.8%.
SullivanCotter’s data represents the largest and most comprehensive physician compensation benchmarking resource for health systems and hospitals nationwide. This year’s report includes data from more than 500 health care organizations representing approximately 231,300 physicians across 232 specialties. This reflects a 7.5% increase in the number of physician records reported from the 2024 survey.
While several market forces continue to influence physician compensation in 2025, perhaps the most significant and long-lasting is the evolving expectations of the physician workforce. “In the last five years, we’ve seen a demonstrable change in the impact of generational preferences,” said Mark Ryberg, Physician Workforce Practice Leader, SullivanCotter. “Often, younger physicians don’t want to be at risk relative to the production or the amount of volume they can generate. They’re prioritizing security in the form of base salaries. With physician shortages, generational workforce expectations, and regulatory pressures converging, health care organizations will need to adopt creative workforce strategies while closely monitoring compensation design to stay competitive.”
This year’s survey report shows that work RVU (wRVU) productivity remained relatively consistent overall, with year-over-year changes averaging around 1.5%. From 2024 to 2025, reported median wRVU productivity for adult medical (3.0%), pediatric surgical (2.4%), and adult surgical (2.0%) specialties saw the greatest increases. Aligning with last year’s survey results, adult medical specialties again experienced the highest growth in both physician total cash compensation and productivity. “Following the large swings in the 2021 and 2022 surveys due to the pandemic and the subsequent recovery period, wRVU productivity and the ratio of TCC per wRVU have remained more consistent in the past two years,” said Dave Hesselink, Managing Principal, SullivanCotter.
The 2025 report also shows that base salary and wRVU productivity continue to be the most prevalent compensation plan components in primary care, medical, and surgical specialty compensation plans. As for physician incentive pay, individual productivity and patient experience continue to be the most common measures, with nearly 75% of responding organizations incorporating these into their compensation plans. Additionally, the use of outcomes-based measures has increased by 4.6% from 2024 to 2025.
Other incentives like sign-on bonuses (90%) and student loan repayment (52%) are being deployed more frequently by survey participants to aid in recruitment efforts. For many physicians, financial security and work-life balance outweigh the risks and variability of incentive-heavy models. This shift is prompting organizations to redesign plans that balance guaranteed income with performance-based components to ensure they remain competitive in recruiting and retaining early-career physicians.
Many health systems view patient access as their greatest challenge and are looking for creative compensation solutions that enable them to take on new patients. This includes an increased focus on working at top-of-license across all clinical roles.
For more information on SullivanCotter’s surveys, visit www.sullivancotter.com or contact us at 888.739.7039.
VIDEO | Trends in Employed Physician Time Off and Leave Practices
Your physicians are mission critical – so is their well-being.
Make sure you have the right PTO and leave benefits in place to support them!
We have brand new data from our 2025 Employed Physician Time Off and Leave Practices Survey!
Balancing equitable paid leave with the financial implications of a physician’s absence is a complex issue.
This new survey is focused on the interplay between different compensation models – including salary, productivity, and shift-based – and effective paid time off benefits, short-term disability programs, and other leave practices.
Watch our video for a summary of this year’s benchmarks!
Get your hands on the full survey report!
Modern Healthcare | Physician Compensation Trends: Sign-On Bonuses and Top Technology
The race for physicians is heating up as workforce shortages loom large.
What does your organization need to know about the latest physician compensation trends?
The latest data from Modern Healthcare’s Physician Compensation Survey shows that the competition to recruit and retain physicians is intensifying as shortages run deep.
While compensation continues to rise, particularly through widespread use of sign-on bonuses, physicians are also seeking a broader set of benefits — including technology upgrades, flexibility, and work-life balance — as part of their employment decisions.
Featuring data and insights from SullivanCotter, Modern Healthcare recently outlined 5 key workforce and physician compensation trends that organizations must pay close attention to:
- Compensation ticks up, mainly through sign-on bonuses
- Industry pressure makes it hard to keep up with compensation trends
- On-call requirements almost nonnegotiable
- Tech ranks above compensation for some physicians
- Physicians opt for money over location – unless it’s rural
See what our experts have to say!
“We see almost a 25-percentage-point bump from 2023 to 2025 in the utilization of sign-on bonuses. It’s not that the overall median value of sign-on bonuses has really changed demonstrably, but the utilization sure has, which suggests that virtually every new deal is coming with a sign-on bonus attached to it, almost as if it’s a standard expectation.” – Mark Ryberg, Physician Workforce Practice Leader
“We have seen that rural market positions have a consistently higher median compensation level than their urban or suburban counterparts.” – Dave Hesselink, Managing Principal
Want to dive deeper into emerging physician compensation trends?
Our longstanding Physician Compensation and Productivity Survey is one of the largest and most comprehensive of its kind! It collects data on nearly 240 physician specialties across multiple position levels.
Report Highlights
- Data from more than 500 organizations on more than 231,000 individual physicians
- Includes 232 different specialties
- Base salary and total cash compensation data as well as cost of benefits
- Productivity data and ratios, including work RVUs, collections, patient visits and panel sizes
- Value-based compensation approaches and amounts paid
- Data for multiple position levels from staff physicians to chairs
- National data reported by region, organization type, position level and specialty group
- Other data, including sign-on bonuses, retention bonuses, relocation assistance and other perquisites
FORBES | How Health Care Leaders Can Respond to the OBBBA
We know the One Big Beautiful Bill Act (OBBBA) will significantly alter the US health care environment.
What happens next is critical…
With changes to Medicare work requirements, more rigid eligibility checks, and ACA marketplace subsidies, this legislation is expected to affect care access nationwide – regardless of a hospital’s location, setting, or tax-exempt status.
It’s important for organizations to understand what’s next and how to prepare.
In his recent article for Forbes, SullivanCotter’s President and CEO, Ted Chien, highlights the importance of the community benefit mandate, the widespread impact that limiting access to care will have, and how closures and restrictions on care in rural hospitals may impact labor challenges in other settings.
He also outlines steps that health care leaders can take as they look to protect patient access and continue to serve their communities:
- Reimagine organizational structures and consider new approaches to administrative and support functions. Greater efficiency and cost control can help to preserve resources for direct patient care.
- Review care delivery protocols to ensure they are tailored to the needs of local populations and that resource deployment supports the most critical services.
- Focus on population health strategies to help improve long-term outcomes, lessen reliance on expensive acute care, and inform smarter investment and resource decisions.
- Determine the efficacy of telehealth services to close care gaps, especially in rural areas where hard infrastructure can be limited.
- Harness AI to drive efficiency and improve patient engagement and outreach.
INFOGRAPHIC | Building the Health Care Workforce of the Future
The health care industry continues to grapple with ongoing workforce challenges…
Current health care workforce challenges are causing organizations to reassess the size and shape of their employee population in an effort to address staffing challenges, meet evolving care needs, and drive greater efficiency.
Leverage data from SullivanCotter’s Workforce Metrics Benchmarks Survey to see how the size and shape of your employee population compares to other hospitals and health systems nationwide. The data is reported across four different career stages with insight into changes based on the number of full-time equivalents.
What are some of these challenges that organizations are experiencing?
WORKFORCE TRENDS
- Limited availability of qualified talent
- Increasing turnover rates and industry departures
- Competition for talent outside of health care
- Employee upskilling, re-skilling, and career shifts
- Use of analytics for decision-making
INDUSTRY TRENDS
- Shortages of health care professionals
- Pressure on financial performance
- Increased workload and burnout
- Changing workforce skill requirements
- Access to health care services
Need a quick summary?
From 2023 to 2024, the industry observed slightly higher growth for Executives and Individual Contributors compared to the prior year, while Leaders and Managers showed lower growth.
The average change in workforce structure from 2023-2024 consisted of:
- 2.9% for Executives
- 1.2% for Leaders
- 2.1% for Managers
- 3.6% for Individual Contributors
- 3.4% for the Total Workforce
Workforce structure varies notably by organization size. This reflects an ongoing trend where health care organizations, particularly larger ones, reassess leadership layers to drive efficiency and adaptability.
The prevalence of workforce size change in 2024 includes:
- 44.4% of organizations have increased the size of their Executive workforce, 20.6% hold steady, and 33.3% saw a decrease.
- 41.3% of organizations have increased the size of their Leader workforce, 20.6% hold steady, and 46.0% saw a decrease.
- 55.6% of organizations have increased the size of their Manager workforce, 12.7% hold steady, and 31.7% saw a decrease.
- 79.4% of organizations have increased the size of their Individual Contributor workforce, 1.6% hold steady, and 19.0% saw a decrease.
Learn more about our Workforce Metrics Benchmark Database!
Address health care staffing challenges with unique insight into the size, shape, cost, and demographic representation of your workforce.
The survey includes workforce data across 10 job families, six career-level categories and three demographic groupings to provide comprehensive insight into the following metrics:
- SIZE: Number of full-time equivalent head count
- SHAPE: Career stage distribution of full-time head count
- COST: Annualized base payroll expense of the full-time equivalent head count
- DEMOGRAPHICS: Gender, ethnicity and generational representation
- OVERSIGHT: Management direct span of control
The above workforce metrics are reported for each of the job families and career stages listed below. The survey report includes quantitative market positioning statistics, including the 25th, 50th and 75th percentiles. Data are reported for all organizations and by employee size groupings.
- SUPPORT JOB FAMILIES: Facilities, finance, human resources, legal and compliance and information technology
- CLINICAL FAMILIES: Ancillary services, care management, emergency medical services, nursing and technical medical services
- CAREER STAGES: Executive, leader, manager, exempt and nonexempt individual contributors
Press Release | Executive Pay is Growing as Demand for Leadership Talent Increases
With leadership roles shifting, competencies changing, and other demographic challenges, the current market for executives is limited.
October 1, 2025 – CHICAGO – SullivanCotter, the nation’s leading independent consulting firm in the assessment and development of total rewards programs, workforce solutions, and data products for health care and not-for-profit organizations, has released results from its 2025 Health Care Management and Executive Compensation Survey.
Now in its 33rd year, this industry-leading benchmarking resource includes compensation data from more than 3,320 health care organizations on nearly 48,000 incumbent managers and executives.
This year’s report found that the median base salary for all health care executives increased by 4.7%, a slight increase from 4.6% the previous year. At the system level, executives saw higher median increases (5.2%) than those at subsidiary hospitals (4.7%), consistent with prior years.
The most significant gains (7.0% or higher) in median base salary were seen in executive roles tied to core business and clinical operations, IT and digital strategy, patient and workforce experience, and regulatory/compliance:
- Business/Operating Roles: Chief Operating Officer, Top Ambulatory Care Executive, Top Pharmacy Executive
- Information/Digital Technology and Strategy Roles: Chief Information and Digital Officer, Chief Strategy Officer, Top Managed Care Executive
- Workforce/Patient Experience Roles: Chief Learning/Organization Development Officer, Chief Patient Experience Officer, Top Quality Executive (MD)
- Regulatory/Compliance Roles: Top Legal Services Executive, Top Risk Management Executive
More organizations are also reporting new or expanded leadership roles in areas such as artificial intelligence (AI), analytics, digital innovation, population health, and community access, signaling a shift in strategic priorities and talent requirements.
The current operating environment is also impacting annual incentives, resulting in total direct compensation (TDC, equal to base salary plus annual and long-term incentives) rising faster than base salaries for the second consecutive year. While median TDC rose by 8.4% across all executives, growth is higher for health system leaders (8.9%) than it is for subsidiary hospital executives (5.5%). This reflects a moderately improved operating environment and above-target incentive payouts tied to 2024 performance.
While incentive plan structures and target award opportunities remained stable, a SullivanCotter pulse survey in April found that nearly half (46%) of health systems reported making design changes to their 2025 annual incentive plans. These included recalibrating goals, increasing financial weighting, and placing greater emphasis on system-wide performance.
“Organizations are still navigating uncertainty and volatility,” said Renee Stolis, Managing Principal, SullivanCotter. “Even with moderate performance gains, incentive programs are being adapted to support financial sustainability and long-term transformation goals.”
The executive compensation landscape remains in flux as health systems respond to shifting payer dynamics, federal policy changes, regulatory scrutiny, and ongoing inflation and labor shortages. Against this backdrop, SullivanCotter’s pulse survey found that just 42% of health systems expected improved financial performance in 2025, down from 51% in late 2024. At the same time, nearly 90% of survey respondents indicated that their executive recruiting efforts will hold steady or increase – signaling an extremely competitive talent market.
“The competition for senior leadership talent remains intense, particularly as organizations look ahead to new strategic priorities in areas like digital transformation, workforce strategy, and patient access,” said Bruce Greenblatt, Managing Director and Executive Workforce Practice Leader, SullivanCotter. “As boards and executive teams plan for 2026 and beyond, compensation programs must evolve to reflect these shifting requirements while helping to retain high-performing leaders.”
In response, advisors and leadership teams are focusing on workforce strategy, succession planning, and compensation optimization to support performance, retention, and resilience.
SullivanCotter recommends that organizations:
- Align incentive plans with strategy: Revisit goals and performance assumptions regularly. Incorporate appropriate performance expectations given the uncertain environment and ensure incentive metrics balance short- and long-term priorities.
- Invest in internal talent: Define succession plans, assess critical roles, and tailor development and retention strategies to secure high-potential and at-risk leaders.
- Assess leadership structure and spend: Evaluate spans of control, titles, and leveling to support strategic goals. Consider total leadership cost in relation to performance and efficiency.
For more information on SullivanCotter’s surveys, visit www.sullivancotter.com or contact us at 888.739.7039.
Adapting Executive Incentive Plans to Meet Today's Performance Imperatives
How Health Systems are Evolving Their Approach Amidst an Uncertain Financial Environment
By Jeff Softcheck, Principal, SullivanCotter
After four years of heightened financial volatility, 2024 brought a moment of respite for many not-for-profit health care organizations. The path forward remains challenging, however. Despite modest improvements, the industry continues to face strong financial headwinds – including expense categories that are outpacing revenue growth, regional variation in financial recovery, the negative impact that the One Big Beautiful Bill Act is likely to have on health system revenues in 2027 and beyond, and the softening of the broader US economy.
While there are common performance themes throughout the industry, we have observed significant variability in focus depending on each system’s circumstances. To assess how organizations are evolving incentive plans to account for financial market dynamics, SullivanCotter recently examined financial statements covering 2019 to 2024 for 133 health systems with greater than $1 billion in total net revenue. This included a review of short-term incentive plan (STIP) and long-term incentive plan (LTIP) market practices. Based on these analyses, we provide considerations for incentive performance measure selection and goal setting in 2026 and beyond to reflect each organization’s financial circumstances and priorities.
Regional Variation in Operating Margins and Incentive Plan Design
While the national median operating margin for health systems grew incrementally from 0.3% in 2022 to 1.6% in 2024, a closer examination of the past 5 years reveals significant regional differences. In 2019, health systems in the Southeast posted a median operating margin of 2.5%. This was only 86% of the national median of 2.9%. By 2024, these systems achieved a median operating margin of 4.2% – an impressive 263% of the new national median of 1.6%. This growth is largely due to recent double-digit revenue increases in this region, resulting in a 3.3% margin improvement from 2023 to 2024 alone.
In contrast, a very different story is unfolding in the West. These systems have seen a sharp decline as their median operating margin dropped from 5.0% in 2019 (172% of the national median) to 0.9% in 2024 (56% of the national median). For the past three consecutive years, margins have hovered below 1% as revenue growth lagged rising expenses.
Health systems in the Northeast have historically operated on slim margins, which have been further compressed relative to national statistics, while those in the North Central and South Central have generally maintained margin positioning relative to national statistics compared to 2019. See the image below for a full breakdown of operating margin by region.
Across the country, financial sustainability performance measures (i.e., margin/income) continue to represent the single most prevalent and highest weighted incentive plan domain in both STIPs and LTIPs. However, non-financial performance categories carry most of the overall weighting. In STIPs, non-financial measures often comprise 70% of the plan weight and are most commonly focused on quality, safety, patient experience, access, and people objectives such as reducing turnover and enhancing engagement.
LTIPs have evolved to focus on a limited set of measures – financial sustainability, growth and transformational performance priorities — with no notable regional differences. Financial measures remain focused on overall sustainability (e.g., income/margin, expenses, cash), while growth measures span a continuum from broad-based financial growth to targeted growth achieved, for example, via geographic expansion or service line development. Transformational goals, as their name suggests, continue to evolve and adapt to strategic priorities and the market landscape. They emphasize improvement in stubborn performance areas such as quality outcomes and workforce engagement and quantify the expected impact of digital and care delivery objectives on financials and patient outcomes.
While many incentive plan elements are consistent across health systems, select regional differences in incentive plan design have evolved over the last few years, particularly in STIPs, to account for local market dynamics within a one-year horizon.
These changes span a few common areas related to financial performance measurement:
Use and design of a financial circuit breaker that ‘opens’ the STIP
- Organizations in the West have increased the use of circuit breakers over time. This has increased from 69% in 2022 to 82% in 2025.
- Other regions have seen a slight decrease (6%) in the use of circuit breakers from 2022 to 2025.
- Systems in the West and Northeast are more likely to have flexible circuit breakers. In the event that minimum financial performance objectives are not met, these circuit breakers reduce rewards for non-financial goal achievement. Reduction is determined at the discretion of the committee that governs the plan, or payouts are incrementally reduced by a set formula depending on the degree of the ‘miss’ against the financial goal.
Tailored changes to emphasize system versus entity performance:
- Some organizations have increased emphasis on system-wide financial performance. This is particularly common for systems operating within a distinct region/market where the service redistribution that may be required to see financial improvements may be incompatible with incentivizing by entity. System measurement represents the most common approach to financial measurement – and other goal areas – to reinforce the success of the enterprise over individual operating units.
- Others have increased emphasis on system-wide goals to drive a pay-for-performance culture and stress accountability against distinct budgets or expense reduction targets. This approach is most often blended with some level of system performance recognition.
Careful consideration of the appropriate financial measure selection:
- Organizations in the North Central and Southeast are generally aligned with overall market prevalence. The data shows that 94% of STIPs include income/margin measures, 42% of STIPs include growth measures, and 23% of STIPs include cost efficiency measures.
- Those in the West are twice as likely to include cost efficiency measures than the broader market and are less likely to include margin/income measures. This likely reflects the ongoing margin pressure in the West and the need to align costs.
- Systems in the South Central region are half as likely to include cost efficiency measures, which reflects their relatively strong margins.
- Organizations in the Northeast are 20% more likely to include growth measures.
Isolated changes to weighting of financial performance measures:
- Organizations in the South Central and Southeast decreased weighting on financial, growth, and cost efficiency measures by 5-10% from 2022 to 2025.
- While other regions have seen little change overall across financial measure weightings, these weightings vary widely (from 20%-50%) at the organization-level and change year-over-year depending on unique performance circumstances.
Framework to Ensure Incentive Plan Effectiveness
Many executive leadership teams and compensation committees have begun adjusting the design of STIP and LTIP incentive plans for 2026 and beyond. By taking intentional steps to restructure or reaffirm incentive plan elements, organizations can ensure the most critical financial and non-financial performance priorities – as well as appropriate measurable and reasonable performance standards – are developed and communicated to participants. The regional differences in incentive plans that have evolved over the last 5 years combined with the future outlook will help inform future decision-making.
Using the following framework can help organizations as they move forward:
Review the plan design:
- Is the use of a financial circuit breaker desired? What is the circuit breaker impact?
- Does the plan have the right emphasis of system versus entity performance?
- What is the role of financial performance in the incentive plan?
Define the performance philosophy:
- What are the guiding principles of the plan?
- What is the intended degree of stretch in the performance standards?
- How should the plan account for ongoing uncertainty in the performance environment?
Select meaningful performance measures:
- What measures will have the greatest impact on the strategy?
- What are appropriate financial measures to include in the plan based on the outlook and strategy?
- Do non-financial performance areas have sufficient investment to see sustained improvement?
Follow a robust goal calibration process:
- Do the selected measures have reliable internal and market data?
- What are the expected headwinds and tailwinds? Can these be quantified?
- How do the goals align with the performance philosophy?
Cascade and communicate goals and associated action plans:
- Are the appropriate change management and action planning processes in place to ensure the entire organization is aligned towards the objective?
- Are the goals and performance during the year adequately communicated to participants?
Considerations for Measure Selection and Goal Setting in 2026
As planning turns toward 2026, the need to balance financial rigor with transformational priorities becomes even more pressing. As incentives for the upcoming year are considered, each organization should ensure that performance measures and goals are tailored to its specific priorities and circumstances.
Our analysis of financial performance indicates significant variability. While some organizations facing significant financial pressure may double down on traditional measures of success such as margin and income, others may argue their positioning necessitates greater and faster transformation. Systems beginning in a place of greater stability should consider where they can get ahead of the market with additional capital to accelerate performance improvement as a buffer against future impacts.
From pandemic-related turbulence to today’s shifting economic and regulatory landscape, health systems have demonstrated remarkable adaptability. The challenge now is to design incentive plans that are both disciplined and forward-focused — supporting near-term stability while laying the groundwork for transformation.
In the short term, STIPs will likely continue to prioritize margin improvement against annual budget targets. This focus helps safeguard operational stability in the face of evolving federal policy, rising labor and supply costs, and increased economic uncertainty. Organizations should assess what levers are within their control. For example, we have seen organizations in the West choose to prioritize cost efficiency while those in the East have emphasized growth and attempt to quantify external market impact on performance. In parallel, LTIPs will likely remain vital for driving long-term imperatives such as capital investment, impact of tech/AI-enabled solutions, patient access expansion, and diversification of revenue streams for growth.
Incentive plans should incorporate an appropriate degree of flexibility given the potential for rapid shifts in market conditions and reimbursement policy. Compensation committees should remain educated on the external environment, regularly review mid-year incentive plan performance updates and be open to discussing unexpected dynamics. While uncommon, committees may contemplate adjustments to goal definitions, weightings, or performance ranges to ensure ongoing alignment with the strategy and the operating environment. Executives should increase the intentionality of incentive plan measure selection, perform robust analyses to ensure effective goal calibration, and adopt best practice change management principles and goal communication processes.
Conclusion
As health systems look ahead, incentive plan design must evolve to be a forward-focused driver of transformation. Success will depend on striking the right balance: building in financial discipline while making space for innovation, adaptability, and long-term growth. To maintain clarity and focus, both STIPs and LTIPs should continue to concentrate on a small set of the most pivotal priorities with clearly defined accountabilities and cascaded goals that connect enterprise operating plans and strategy to business units and functional leaders.
By aligning incentives with mission-critical goals, fostering accountability across the enterprise, and maintaining flexibility in the face of shifting external forces, organizations can ensure that their executive compensation strategies not only withstand uncertainty but also position them to lead in the next era of health care.
INFOGRAPHIC | Executive Benefits Trends
Get the latest insights from SullivanCotter’s Benefits Practices in Health Care Organizations Survey!
Executive benefits are changing! The health care industry is transforming at a rapid pace, and securing executives capable of leading through such change is no easy feat. The stakes are high, and the competition is fierce, as rising health care costs, heightened regulatory complexity, and the demand for organizational transformation mean leaders are carrying greater responsibility than ever before.
Benefits are a critical recruitment, retention, and engagement tool.
Are your current programs aligned with today’s reality?
Dive deeper into the data to see how organizations are evolving their executive benefits strategies to stay competitive in a challenging talent market.
Learn more about our Benefits Practices in Health Care Organizations Survey!
Designed with your organization in mind…
Uniquely focused on only health care organizations, this survey helps organizations address challenges related to executive, physician and employee benefits programs, including optimizing benefits offerings, implementing retirement plans for evolving executive, physician and employee roles and keeping pace with emerging trends in paid time off, severance and disability programs.
SURVEY HIGHLIGHTS
- In-depth reporting on executive, physician and employee benefits
- Data covering all facets of benefits: supplemental retirement plans, paid time off, disability, life insurance, severance policies, perquisites and professional benefits
- Data reported nationally; custom reports available by region and organization size
- This survey is expected to operate on a three-year cycle to better accommodate participant needs and reflect the pace of market trends. The most recent survey was conducted in 2024.
Aligning Executive Compensation with Innovation in Health Care Systems
The time is now! Many health system are investing in innovation-focused strategies.
In this article, leaders from SullivanCotter and McDermott Will & Schulte show how these structures are taking shape and how these forward-looking activities require new compensation models tailored to the unique demands of these new leadership roles.
Contributing authors include John Collins, Principal, Kathy Hastings, Strategic Client Relationships Leader, and Bruce Greenblatt, Executive Workforce Practice Leader, from SullivanCotter; and Jeffrey Holdvogt, Partner, Kerrin Slattery, Partner and Michael Peregrine, Partner from McDermott Will & Schulte.
Originally published by the American Health Law Association
As health systems seek to increase financial stability, sustain growth and advance their missions in today’s dynamic environment, many are investing in innovation-focused strategies—developing centralized innovation centers and launching new subsidiary business ventures to diversify revenue streams. These forward-looking activities require thoughtfully structured compensation models tailored to the unique demands of innovation leadership roles, as well as to the incorporation models and monetization strategies of the newly created businesses.
Innovation Structures Are Taking Shape
Health systems are increasingly organizing innovation initiatives around two primary models:
Innovation Centers – These are centralized departments or businesses responsible for developing and executing innovation strategies across the health system enterprise. They often evolve from internal initiatives into more formalized structures with dedicated leadership whose purpose is to monetize internal innovation through patents, licensing, new devices or other technologies.
Subsidiary Companies – These are newly formed non-profit or for-profit entities incorporated to:
- Sell products, services, or technologies that may have originated from within the health system, been acquired, or resulted from partnerships with third parties.
- Invest in and then sell off to third-party portfolio companies, like a traditional venture capital (VC) or private equity (PE) investor.
Each model brings distinct governance, ownership, and strategic complications—and each requires leadership with specialized expertise that may come from outside the traditional nonprofit health care sector.
A Shift in Compensation Philosophy
Because of the different operational and financial objectives of these innovation entities, compensation strategies must adjust to reflect the realities of the talent market and business structure:
For Innovation Center Leaders, pay is typically benchmarked against comparable corporate innovation leadership roles in the nonprofit or for-profit sector. These individuals are responsible for setting and managing innovation strategy, with performance measured across the innovation portfolio based on overall performance.
For Subsidiary Company Executives, compensation is typically tied to the financial performance of the new nonprofit or for-profit subsidiary and often tied to an exit strategy (sale or IPO).
Regardless of the model, compensation should aim to attract top talent, drive performance, and align with the health system’s values and compliance obligations.
Managing Risk and Ensuring Compliance
Nonprofit health systems must navigate important legal and regulatory risks when forming for-profit subsidiaries and compensating executives involved in those businesses.
Key concerns include:
- Tax-exemption risks related to private inurement, private benefit, or excess benefit transactions
- Reasonableness of compensation, particularly when equity-based awards are involved
- Transparency requirements, such as reporting on IRS Form 990
Importantly, creating a for-profit subsidiary does not automatically shield the parent organization from regulatory scrutiny (and may, in fact, put a target on the parent organization). Compensation arrangements must be carefully structured, well-documented, and regularly reviewed.
Tailoring Incentives to Role and Structure
Several factors influence how compensation should be designed, including:
- The talent market, which may include candidates from the for-profit sector
- The organizational structure, whether embedded in the nonprofit parent or established as a separate entity
- The business strategy, including monetization plans
- The time commitment of executives with dual roles across the system and the innovation center or subsidiary business
For executives leading for-profit subsidiaries, the pay mix typically shifts toward performance-based compensation with lower base salaries and more significant variable pay, including more annual and long-term incentives.
Common structures include:
- Cash-based long-term incentive plans tied to earnings or return on capital
- Equity-based incentives (e.g., stock options, restricted stock, profits interest) for ventures with defined exit strategies
- Carried interest or similar cash incentives for subsidiaries operating like a VC or PE investor
Organizations with innovation centers should also consider applying payout caps or soft caps on pay to ensure that compensation can still be considered reasonable and not exceed the fair value of the services rendered.
Addressing Dual-Role Scenarios
Executives who serve both the parent organization and its innovation ventures present unique challenges.
In these cases:
- Incentives may be prorated based on time spent on innovation responsibilities
- Threshold time commitments (e.g., 75%) may be set for eligibility in innovation incentive plans
- Special bonuses or goal adjustments may be used for executives with partial responsibilities
Regardless of structure, total compensation must remain reasonable to comply with regulatory requirements and aligned with governance expectations.
Conclusion
As health systems increasingly pursue innovation as a strategic imperative, they must also modernize their approach to executive compensation. Aligning pay with innovation performance, market expectations, and regulatory compliance is critical to attracting the right talent and ensuring long-term success. With the right structure in place, organizations can drive meaningful innovation while remaining true to their mission and values.
About McDermott Will & Schulte
Leading organizations turn to global law firm McDermott Will & Schulte for a better way to address legal challenges, connect with those at the forefront, and drive stronger outcomes. Working across more than 20 offices globally, our 1,750+ lawyers act on data-driven insights, deep relationships, and unmatched industry experience to deliver on our commitment of Always Better.
About SullivanCotter
SullivanCotter partners with health care and other not-for-profit organizations to understand what drives performance and improves outcomes through the development and implementation of integrated workforce strategies. Using our time-tested methodologies and industry-leading research and information, we provide data-driven insights, expertise, and solutions to help organizations align business strategy and performance objectives – enabling our clients to deliver on their mission, vision, and values.
Modern Healthcare | Health care compensation is up this year
Hospitals and health systems are rethinking compensation and staffing as they navigate financial challenges.
Here’s what you need to know…
Health care organizations are adopting new strategies to compensate employees and save on costs as they look to balance the growing competition for talent with ongoing financial pressures.
Featuring data from SullivanCotter’s 2025 Health Care Staff Compensation Survey, Modern Healthcare highlights how:
- Bonuses are being dialed back – especially for nurses
- Wages are increasing for critical support staff
- Competition for clinical technicians is high, causing pay to rise
- More employers are upping pay scales for select roles
See what our experts have to say!
“This year we’re seeing organizations identify new funding sources to support broader market adjustments. In other words, despite financial pressures, employers are finding ways to justify increases across a wider range of roles to remain competitive in today’s labor market.” – Steve Meyers, Consulting Principal, SullivanCotter
Looking for the latest survey data?
We know your organization is navigating a tight talent market and complex economic landscape. You need the right data to recruit and retain clinical technicians, support staff, and others through such challenging times.
Our longstanding Health Care Staff Compensation Survey provides data-driven benchmarks on compensation and pay practices to help organizations make informed recruitment, retention, and staffing decisions.
Report Highlights
- Data from more than 3,660 organizations on nearly 2.5 million employees
- Inclusion of approximately 800 reported jobs
- Market data by region, state and organization size, including hourly base rate and total cash compensation for individual contributors, supervisors and managers in clinical and nonclinical functions
- Detailed on-call pay and shift differential data, including evening, night and weekend coverage
- Compensation practices data on salary increases, new hire strategies, holiday premiums, weekend staffing programs, professional and clinical ladder programs, incentive programs and much more
- Information on certification, charge, extra-shift, float pool and preceptor pay
Press Release | Median Base Pay for Health Care Staff Rose 4.3% in 2025
New report reflects ongoing health care labor market pressures …
September 3, 2025 – CHICAGO – SullivanCotter, the nation’s leading independent consulting firm in the assessment and development of total rewards programs, workforce solutions, and data products for health care and not-for-profits, has released the latest benchmarks from its 2025 Health Care Staff Compensation Survey.
This year’s results show that the median base pay for health care staff positions rose 4.3% in 2025, up from 2.7% in 2024 — a notable increase reflecting ongoing labor market pressures and the need to remain competitive in recruiting and retaining talent. This survey includes data from more than 2,660 organizations on nearly 2.5 million clinical and non-clinical employees, representing the largest and most comprehensive health care staff compensation resource for hospitals and health systems.
Health care organizations continue to face significant frontline staffing shortages. According to SullivanCotter’s 2025 Frontline Staffing and Solutions Pulse Survey, health care organizations reported the highest level of staffing concerns with surgical techs, respiratory therapists, radiology/medical imaging techs and security officers. Data from the 2025 Health Care Staff Compensation Survey reflects these challenges, showing more substantial pay increases for several of these harder-to-fill roles — with hourly base pay for clinical technician positions, for example, rising by 5.5% over the prior year.
Beyond these critical frontline roles, the survey also highlights notable trends in compensation strategies for other key positions, including registered nurses (RNs). This year’s data shows that median base pay for RNs is up nationally by 3.1%. While most organizations (75%) reported using a single market pay strategy for all non-executive employees, RNs are the most likely to have a separate pay structure. 56% of organizations report a pay strategy for RNs that targets above the 50th percentile.
However, significant geographic pay variation adds complexity to evaluating market rates. Differences in base pay between urban, rural, and major metro areas within each region can be substantial. For example, the survey shows that RNs in the Greater New York City metro area have median base pay rates that are 45% higher than the national median, while those in the greater Los Angeles metro area earn 48% above the national median. Similar geographic pay differentials are also observed in other job families, including research and academics, supply chain, ancillary diagnostics, and medical specialties.
As organizations prepare for 2026, many are already taking steps to control costs while remaining competitive in attracting and retaining talent. In the near term, this includes modest adjustments to premium pay policies to limit eligibility, refining how these policies are administered, and being more selective in awarding market and annual increases. Moving forward, organizations should conduct more comprehensive reviews of pay programs to identify cost-saving opportunities and refine compensation strategies to target base pay adjustments for roles that have historically received less focus.
“Looking ahead to the coming year, it will be important for organizations to sharpen their market compensation strategy, reallocate budget resources, invest in compensation expertise, and continue building advancement opportunities to keep employees engaged and retained,” said Steve Meyers, Consulting Principal, SullivanCotter. “These steps can help health care organizations balance financial sustainability with the imperative to reward and retain top talent in an increasingly competitive labor market.”
For more information on SullivanCotter’s surveys, please visit our website at http://www.sullivancotter.com or contact us via email or by phone at 888.739.7039.
Board Compensation in Health Systems: Balancing Mission, Talent, and Governance Demands
Where do not-for-profit health systems stand on board compensation?
Prevalence remains low, but interest is growing…
Health care governance is increasingly complex as organizations continue to grow in size and scope. This is leading to intense competition for skilled board members.
While board pay is still a minority practice among not-for-profit systems, some are considering compensation in an effort to:
- Attract and retain the most qualified candidates – particularly those with experience in digital transformation, consumerism, financial risk, strategy, commercialization, transformation, and other related fields.
- Signal the importance of the board’s role amidst growing operational complexity.
- Recognize the significant time commitment and expertise that modern board roles demand.
- Mitigate competition from for-profit boards and other major not-for-profits that often offer board compensation.
Is it the right fit for your organization?
In this article from the The Governance Institute, SullivanCotter experts Renee Stolis and James Ferguson offer a data-driven perspective on what pathways nonprofits can follow and provide six helpful considerations for organizations as they think through their approach.
Want a snapshot of the data?
Prevalence of Board Compensation Programs
- ~15% of organizations with more than $1 billion in revenue
- ~30% of organizations with more than $5 billion in revenue
- ~40% of organizations with more than $10 billion in revenue
How Health Systems Can Respond to the 'One Big Beautiful Bill Act'
Moving forward in a way that protects patient access and preserves your mission
The One Big Beautiful Bill Act (OBBBA) poses significant challenges to health systems, particularly in rural areas.
The legislation includes substantial reductions in Medicaid funding – estimated at more than $1 trillion over a decade – which could result in approximately 16 million individuals losing health coverage. Rural hospitals are especially vulnerable, as many are already operating at a loss. There will be an estimated $50.4 billion reduction in federal Medicaid spending on rural hospitals over 10 years, potentially leading to service cutbacks or closure.
Such outcomes threaten the mission of not-for-profit health systems dedicated to providing accessible care within their communities.
In light of these sweeping changes, health care leaders should act swiftly and strategically to safeguard the continuity of care – especially in underserved and rural regions where health systems are often a lifeline. Preserving access to care in the face of deep funding cuts may include deliberate operational, clinical, and strategic shifts.
To ensure they are continuing to deliver on their mission and provide quality care to the communities they serve, health care organizations should proactively seek ways to protect and preserve patient access.
Some strategies to consider include:
- Rethink traditional operating models and consider restructuring to drive greater efficiency and resilience. This may include streamlining and centralizing administrative and support services where possible to enable better cost control without compromising patient care.
- Evaluate how care is currently delivered and whether it aligns with the unique needs of the populations served. Conducting a thorough review of community needs can help determine the types of services required in each geographic area, ensuring resources are allocated effectively.
- Revisit population health strategies, including preventive care initiatives, wellness campaigns, and patient education and engagement efforts. Evaluating these dimensions can help promote long-term health, reduce demand for costly acute care, and guide smarter investment and resource allocation decisions.
- Analyze current telehealth capabilities to help bridge access gaps, particularly in rural regions where physical infrastructure may be strained.
- Leverage artificial intelligence (AI) to create efficiencies where possible, such as automating administrative workflows, optimizing staffing, supporting diagnostics, and enhancing patient outreach and engagement through data-driven insights.
These approaches can help organizations sustain their commitment to community health, even in times of fiscal uncertainty.
Modern Healthcare | How systems are attracting exec talent in a competitive market
Finding and keeping executive talent is critical – but it’s not easy!
Modern Healthcare explores how health systems are staying competitive.
As operations grow more complex and the demand for strategic leadership rises, health care organizations are facing a shrinking pool of experienced candidates. To take on this challenge and stay competitive, many are increasing compensation, developing talent from within, working to reduce turnover, and more.
Featuring data from SullivanCotter’s 2025 Health Care Management and Executive Compensation Survey, Modern Healthcare’s annual deep dive into executive compensation outlines the top five takeaways from this year’s survey findings:
- Total cash compensation is rising
- Operational and strategic roles are more important than ever
- Executive turnover remains a challenge
- Executive positions are becoming more complex
- Organizations still want to promote from within
See what our experts have to say!
“Organizations are balancing what is a complex, challenging operating and financial environment with what is still a highly competitive executive talent market.” – Bruce Greenblatt, Executive Workforce Practice Leader
“Jobs that are core to financial operations and efficiency measures, including pharmacy and ambulatory care executives, are seeing higher demand.” – Jeff Sprague, Principal
Looking for the latest survey data?
We know your organization is navigating a tight talent market and complex economic landscape. You need the right data to recruit and retain executive-level leaders with the right mix of skills to lead through such challenging times.
For more than 30 years, our longstanding Health Care Management and Executive Compensation Survey has provided data-driven benchmarks on executive and management compensation to help organizations make informed decisions on pay, incentive program design, and more.
Report Highlights
- Data from more than 3,300 organizations on nearly 48,000 individuals
- Inclusion of approximately 350 reported jobs
- Base salary, total cash compensation, and total direct compensation
- Insight into annual and long-term incentive plan design, including performance measures, award opportunities, and payouts
- National compensation data reported by organization type and size with regional and sub-regional breakouts for subsidiary hospitals
- Regression equations by organization type
JAAPA | Optimizing NP and PA Roles to Improve Care Access
Need actionable strategies for increasing patient access to services while also managing costs?
Turn to your NP and PA workforce! We’ve got the latest research and insights as published in the Journal of the American Academy of Physician Assistants.
It’s no secret that patients are struggling to gain access to care when they need it. In fact, a recent Harris poll found that the average wait time to get an appointment is 3.9 weeks.
How can we fix this? By unlocking the full potential of nurse practitioners and physician assistants and optimizing their roles. SullivanCotter’s Amy Noecker, Zachary Hartsell, Jaime Lough and Lacey Buckler recently contributed to an important case study in the Journal of the American Academy of Physician Associates (JAAPA) about improving patient access in an academic medical center. This includes a study of three specialty areas – Cardiology, Hospital Medicine, and Oncology – and outlines how the organization was able to expand patient access while also increasing revenue through a more holistic care model design.
Now’s the time to rethink workforce models and empower APPs to work at the top of their license!
Need more information?
Abstract: The healthcare industry is in the midst of unprecedented change as hospitals and health systems nationwide balance the need to increase patient access to services with managing costs. Nurse practitioners and physician associates are well-positioned, and often overlooked, members of the healthcare team who can serve as resources for organizations to improve care access. Using an intentional and data-driven process, one academic medical center both improved patient access and increased revenue through a holistic care model redesign in three specialty areas, as described in this organizational case report.
Authors: Chris Ferron, MBA, PA-C; Wendy Franklin, MSN, ANP-BC, CCRN; Hope Sellars, MSN, RN, ANP-BC, AACC; James Shamiyeh, MD, MDA, MSPH; Sandy Leake, DNP, RN, NEA-BC; Lacey Buckler, DNP, ACNP; Jaime Lough, RN; Amy Noecker, MEd; Zachary Hartsell, DHA, PA-C
Looking for a summary?
As the U.S. healthcare system continues to recover from the pandemic, patient access challenges remain critical, with widespread dissatisfaction and long wait times. A recent Harris Poll shows that only 10% of U.S. adults rate the system an “A,” while 60% give it a “C” or worse. Key barriers include long wait times, confusing care navigation, and a lack of providers. This is exacerbated by a projected physician shortage of up to 86,000 by 2036.
To address this, healthcare organizations are increasingly turning to advanced practice providers (APPs) like nurse practitioners (NPs) and physician associates (PAs), though their roles remain underutilized. Surveys reveal growing demand for APPs, parity in compensation across roles, and comparable productivity. Strategic deployment of NPs and PAs can enhance access and deliver financial benefits, as evidenced by their expanding role in Medicare billing.
Organization Background
Amid rapid APP workforce growth, a Southeast academic medical center identified critical gaps in structure, utilization, and productivity, prompting a comprehensive internal analysis.
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Workforce Underutilization: Despite employing nearly 360 APPs, many felt underused—55% considered leaving due to unclear roles and lack of recognition, especially in cardiology, oncology, and hospital medicine.
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Productivity Lag: APPs performed fewer independent tasks than national peers, with 10 specialties below median productivity and five below the 25th percentile in wRVUs.
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Missed Financial Opportunity: Bridging the productivity gap to national medians could generate $1.1–$3.6 million in additional annual revenue, yet the organization lacked a strategic plan for APP deployment.
Methods
To improve patient access, the organization launched a structured initiative focused on optimizing PA and NP utilization across key clinical departments.
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Strategic Planning & Department Selection: A steering committee, in partnership with SullivanCotter, identified cardiology, oncology, and hospital medicine as high-opportunity departments based on readiness for change and potential access gains.
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Collaborative Workgroups: Multidisciplinary teams—including physicians, APPs, nurses, and support staff—met to define ideal roles, determine patient management structures, and identify infrastructure and staffing changes to support new care models.
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Implementation Oversight: Recommendations were presented to the steering committee, which met monthly to approve plans and monitor progress as departments moved forward with care model redesigns and execution.
Results
Through a structured redesign effort, three clinical specialties implemented workflow and care model changes to improve NP and PA utilization, patient access, and productivity.
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Specialty-Specific Changes:
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Cardiology standardized scheduling, reduced NP/PA-to-MA ratios, and added rapid access appointments.
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Inpatient cardiology piloted APP-led rounding models and developed a low-risk chest pain observation service.
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Hospital medicine restructured cross-cover roles and trained staff to differentiate urgent vs. routine calls.
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Oncology aligned scheduling and patient-facing time but faced delays in implementation due to leadership turnover.
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Data-Driven SMART Goals: Each specialty established measurable targets—such as increasing patient volumes, reducing no-show rates, and tracking APP encounters—to guide performance improvements and access gains.
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Early Outcome Highlights:
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NP/PA outpatient cardiology encounters rose 7.5%; telehealth visits surged by 93%.
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Inpatient cardiology encounters increased from <100 to 500–700 monthly.
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Hospital medicine saw a 50% boost in cross-cover census and over 300 additional critical care visits.
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Improved Engagement and Retention: NP/PA turnover dropped by 13% across participating specialties, with increased satisfaction leading other departments to request involvement in the redesign process.
Discussion
This case report highlights how intentional care model redesign focused on NP and PA optimization can drive meaningful improvements in patient access, team efficiency, and revenue—while also uncovering challenges in sustainability and implementation.
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Demonstrated Impact: A similar model led to more than 6,600 additional monthly encounters across nine specialties, showing that structured optimization of NP and PA roles can improve care delivery without increasing overall costs.
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Success Drivers: Effective initiatives relied on clearly defined team roles, strong leadership engagement, performance data transparency, aligned compensation, and structured support for role transitions.
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Implementation Limitations: Long-term success remains uncertain due to selection bias, variability in NP/PA scope by organization and region, and operational challenges like unclear benchmarks for overnight staffing and communication systems—highlighting key areas for future research.
Your Clinical Workforce: Improving Value to Ensure Long-Term Sustainability
As health care organizations move through 2025 and reflect on last year’s financial landscape, there continues to be variability in how many systems are performing.
How can you improve the value of your clinical workforce to help support long-term sustainability?
Overall, margins have reboundedwhen compared to 2023 and pandemic-era lows. However, evolving reimbursement, government policy changes, growing patient demand, increased health care demand, workforce shortages, and other concerning developments are impacting future operability. These challenges have caused cost structures to rise across the board – especially within the clinical workforce – and are happening alongside uncertainty in future reimbursement and funding sources.
This raises two foundational questions:
- Is health care financially sustainable?
- What can health systems do to address these issues?
Long-term sustainability relies on the straightforward principle that revenue must outpace expenses. No single industry player – whether health systems, payers, or investors – can independently transform the sector. To help navigate rising costs and reimbursement risks, health systems must understand these changes in greater detail before determining the most effective strategies to improve value within the organization.
Key changes in health care costs and reimbursement
According to SullivanCotter’s proprietary research and survey data, workforce costs are increasing across the board as compensation for physicians, advanced practice providers (APPs), health care staff, and executives is on the rise. Depending on specialty area, physician compensation has increased between 11% and 17% over the past five years, while APP compensation rose between 14% and 17% in just three years’ time. This upward trend extends to other health care workforce roles, with a 5% rise in median base hourly rates for all staff and a 3% increase for staff RNs. Additionally, there was a 5% to 8% increase in management and executive total cash compensation, respectively.
Wage pressures are unlikely to subside soon. There is a projected shortage of nearly 200,000 U.S. nurses and 124,000 physicians over the next 8-10 years, which may be higher if projected increased training levels do not keep pace. This is not limited to clinicians and continues to drive wage growth as health systems compete to attract and retain talent.
Aside from direct labor expenses, the cost of doing business is also escalating in virtually all other areas. Non-workforce expenses are also straining hospital and health system margins, as seen in the reported 10% year-over-year increase in total non-workforce expenses that had drug costs rising by 15%, supply expenses by 13%, and purchased services by 12%.
In terms of reimbursement, the Centers for Medicare & Medicaid Services (CMS) implemented a 2.83% cut in Medicare reimbursement rates for 2025. This marks the fifth consecutive year of such reductions and the second consecutive year that Congress has not acted to patch the cut. When adjusted for inflation, it’s calculated that Medicare physician payments decreased by 33% between 2001 and 2025. While health system revenue extends beyond Medicare, it remains the largest single contributor to national health expenditure and accounts for approximately 21% of total spending. A compounding factor to the historical decreases in Medicare funding is that many health systems are reimbursed by commercial insurers based on a percentage of Medicare rates – a practice known as Medicare benchmarking. When Medicare rates decline, commercial reimbursements often follow suit. For example, if Medicare reimburses $100 for a procedure and a commercial insurer pays 150% of that rate ($150), a 2.83% Medicare reduction to $97.25 would cause the commercial rate to drop similarly from $150 to $145.86.
The five-year run of declining Medicare reimbursement conversion factors is expected to come to an end as CMS has proposed the 2026 Medicare Physician Fee schedule. This includes a 3.8% increase for physicians in advanced payment models and a 3.3% increase for all other physicians. However, uncertainty over future reimbursement remains. Health systems face heightened reimbursement risk due to anticipated cuts in Medicaid and clinical research funding. The Congressional Budget Office (CBO) projects that Medicaid funding will decline by $911 billion over the next decade following the passage of the One Big Beautiful Bill Act – which was signed into law on July 4, 2025. In parallel, the Kauffman Family Foundation (KFF) estimates that the number of uninsured individuals will rise by more than 10 million. Compounding these challenges, the National Institutes of Health (NIH) could lose up to 40%—or $20 billion—of its annual budget under the Administration’s recent proposal, with potentially significant consequences for health system financing and research infrastructure.
Addressing rising costs with the Workforce Value Formula
When macroeconomic trends and industry headwinds challenge a business model, there are limited levers to pull. Health systems can enhance revenue, manage expenses, and/or invest strategically in long-term structural changes. Each approach involves complex variables requiring expertise across multiple disciplines, often without a clear path forward. This is why simplifying strategies to their core elements can be valuable, and there is no element more essential to a health system than its clinical workforce.
Without a sufficient number of qualified and accountable physicians, APPs, and other care team members, organizations cannot effectively achieve their health care delivery or payer reimbursement missions for long. With a limited supply of clinicians and a continued rise in demand, organizations must identify ways to expand the value of their existing clinical workforce. They must focus on strategies that allow them to achieve provider alignment and effectiveness.
One way to measure the value of a health system’s clinical workforce is with the Workforce Value Formula: Value = Efficiency × Effectiveness.
Although not exhaustive of all considerations, this formula provides both a reasonable and practical economic framework for assessing the clinical workforce’s overall contribution to a health system’s performance.
Workforce efficiency focuses on how well physicians, APPs, nurses, and other clinical staff utilize their time, skills, and resources to deliver care with minimal waste. It emphasizes the importance of managing staffing levels, shift coverage, work expectations, and scope of responsibilities to ensure optimal resource use.
Meanwhile, workforce effectiveness measures how well clinicians are meeting patient care goals like improving health outcomes, enhancing patient satisfaction, and ensuring timely access to quality care. Together, these elements determine a high-level summary of overall value and productivity of the clinical workforce.
The Workforce Value Formula also underscores the importance of balancing both components to maximize the value of the clinical workforce. For example, a hospital with highly specialized physicians capable of delivering exceptional care (high effectiveness) but limited patient access (low efficiency) would experience delays in care delivery – thus reducing overall value. Similarly, the hospital could deliver excellent care but be financially unsustainable due to the underutilization of resources or the high cost of care delivery.
Conversely, high workforce efficiency without effectiveness might result in increased patient throughput but compromised care quality. A well-staffed care team with great patient access but suboptimal health outcomes would fail to meet the community’s needs.
Achieving a balance between workforce efficiency and effectiveness is crucial for delivering positive patient outcomes while maintaining long-term operational sustainability.
Key considerations for health systems
To improve value by ensuring the right balance of efficiency and effectiveness, health systems should consider the following questions:
How can our clinical workforce be better utilized to expand patient access or improve financial performance?
- Is your workforce leveraging technology to expand access?
- Do team-based care models address access shortages?
- Are workflows set up for efficient patient care?
- Is the right clinician providing the care?
Are clinicians motivated to exhibit the right behaviors?
- Does the current compensation model advance your organizational mission and access to care?
- Is compensation aligned with payor reimbursement? Are your quality incentives aligned with your measure of effectiveness?
Is the cost of delivering care sustainable?
- Is your cost of delivering care less than your total revenue?
- Are your APP, nursing, and support resources working to the top of their scope, training, and capability?
- Are your measures of quality aligned with your reimbursement model?
How sustainable is your workforce composition?
- Are there significant retention challenges or a long-term recruitment plan in place?
- What is your ratio of physicians to APPs?
- What is your mix of clinical specialties, settings, and affiliations?
Conclusion
Health system sustainability is directly tied to the performance of its clinical workforce. Recruitment and retention aren’t enough – organizations must continuously improve the value of their clinical workforce by balancing efficiency and effectiveness. This is a controllable strategy that can help manage uncontrollable industry challenges and create a foundation for long-term success.
Long-term sustainability requires all hands on deck.
SullivanCotter’s Provider Affiliation and Optimization team partners with organizations to identify, quantify, and optimize physician and APP relationships and performance to improve productivity, engagement, financial results, staffing ratios, and more.
Excise Tax Expansion Ahead: Is Your Health System Ready for 2026?
More individuals may fall within the scope of the excise tax under the One Big Beautiful Bill Act.
This could increase the cost of compensation for many health systems.
The One Big Beautiful Bill Act (OBBBA) is expected to have a dramatic impact on many health systems across the country. While much of the focus has been on the impact of Medicaid eligibility reductions and other revenue implications, a change to the tax code may increase compensation costs for many health systems.
Excise Tax Rule Changes
Since the Tax Cuts and Jobs Act of 2017, health systems have had to pay excise taxes of 21% of remuneration above $1,000,000 for a group of “covered employees”. The definition of this term included the five highest-paid individuals plus anyone who was in the top five group in a prior year. For purposes of the excise tax calculation, remuneration is essentially all taxable pay, excluding pay related to the provision of medical services.
Effective in 2026, the OBBBA changes the definition of “covered employees” to include all employees of the organization, not just the five highest-paid. This means that the health system must pay excise taxes for every employee with includable pay above $1,000,000. The exclusion of pay related to the provision of medical services continues to apply, so excise taxes are not expected to be incurred for most physicians paid over $1,000,000.
What’s Next?
As health systems prepare for this, a first step is to understand the magnitude of the change in excise taxes. While systems with fewer than five individuals with pay above $1,000,000 may not be impacted today, they could be in the future since the $1,000,000 threshold is a fixed amount. Health systems that have multiple individuals with pay above $1,000,000 may see a substantial increase in excise taxes.
For health systems impacted by the change, the following strategies may help mitigate risk and manage costs:
- Review compensation program structure: Excise tax exposure is often highest in years when executive compensation spikes – particularly due to deferred compensation arrangements or long-term incentive plan payouts. Health systems should evaluate how these plans impact excise taxes and whether modifications can help manage the tax liability while continuing to meet the core objectives of these programs. They may also consider less traditional compensation strategies – such as split-dollar life insurance – that reduce pay subject to excise taxes.
- Evaluate pay acceleration strategies: With changes effective in 2026, there may be a one-time opportunity to make compensation changes in 2025. As an example, accelerating certain payments or vesting of deferred compensation into 2025 may mean those amounts never become subject to excise taxes, particularly for new covered employees. Health systems should carefully consider the optics of such changes given increased scrutiny and the current sociopolitical environment. They should also ensure compliance with tax rules governing the acceleration of payments and should also weigh other consequences related to acceleration – including the impact on 2025 excise tax calculations, Form 990 compensation reporting implications, impact on other benefits costs tied to cash compensation, and an individual’s particular tax circumstances.
- Review processes for determining includable pay: In addition to identifying tax savings opportunities, health systems should ensure a sound process for determining includable pay, particularly for physicians with administrative roles. Many may have used a simplified process historically, such as reviewing remuneration levels only for physicians with administrative roles who may be in the five highest-paid group. Going forward, health systems will need to determine the portion of pay attributed to the provision of medical services for more physicians. The calculation of includable pay is critical for all covered employees and requires collaboration between those calculating excise taxes and those who understand the compensation program to ensure that certain nuances of the calculation are addressed.
With the expanded definition of “covered employees,” more individuals may fall within the scope of the excise tax – potentially increasing costs. To prepare, health systems should assess their current compensation structures and consider adjustments before the rules take effect in 2026. This includes ensuring a more robust process for determining includable pay.
Need support navigating these excise tax changes?
Reach out to us to learn how SullivanCotter can help you align your compensation strategy with these recent developments!
On-Demand Webinar | Building a Next Gen Operating Model
It’s time to create a stronger health care enterprise…we have the blueprint for building a next gen operating model!
Health care leaders are reimagining operating models to drive sustainable performance and resilience. But how?
Drawing from real-world experience and strategic insights, experts from SullivanCotter and Lotis Blue highlight what it takes to build a more agile, outcomes-driven health care enterprise.
During this session, we provide guidance on how to:
- Design integrated, flexible operating models to support evolving care delivery and address cost pressures
- Align strategy, structure, and capabilities to improve financial, clinical, and patient experience outcomes
- Enable transformation through strong governance, cross-functional collaboration, and leadership agility
Our esteemed panelists include:
- Sean Butler, Director of Client Experience – SullivanCotter
- Garrett Sheridan, CEO & Managing Partner – Lotis Blue
- Tom Robertson, National Advisor, Health Systems – Manatt Health
Turn bold objectives into real, measurable results.
Many organizations have well-defined strategies but struggle to execute them consistently. Lotis Blue’s Operating Model Playbook helps leaders design an organization that doesn’t just plan well, but executes effectively…
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