Explore the five-step maturity sequence!
Originally published by the American Association of Provider Compensation Professionals
As health systems grow in size and complexity, provider compensation programs are under increasing pressure to keep pace. What was once a relatively informal and decentralized function has become a critical operational discipline – one that directly impacts financial performance, compliance, and provider engagement.
Yet many organizations are still playing catch-up. Compensation programs often evolve organically, shaped by mergers, leadership changes, and immediate needs, rather than through intentional design. The result is a familiar set of challenges including inconsistent governance, heavy manual workloads, and limited scalability.
So how can organizations move forward more strategically?
Insights from a recent SullivanCotter survey offer a clearer picture of where the industry stands and what it takes to build a more mature and effective compensation program.
An Industry Still Developing
Despite the growing importance of provider compensation, most organizations remain in the early to mid-stages of maturity. Many report strength in areas like compensation model design and governance, but other critical components such as stakeholder engagement, technology, and team performance are still developing.
This imbalance creates a common issue: Organizations may have invested resources in compensation model design but lack the operational infrastructure to administer them consistently and efficiently.
At the same time, compensation teams are being asked to take on broader responsibilities. Most now support multiple functions, including analytics, compliance, and payroll. As scope expands, many teams find themselves spending more time managing program administration rather than driving the strategy behind it.
The Core Challenges
Several persistent challenges continue to hold organizations back.
Manual processes top the list, followed closely by technology limitations and scalability concerns – and these issues are interconnected. Reliance on spreadsheets or fragmented systems makes it difficult to scale operations as medical groups grow in size.
Staffing adds another layer of difficulty. Provider compensation is a specialized field where access to experienced talent is limited. Coupled with high reported turnover, this presents a problem. When key individuals leave, organizations often lose critical institutional knowledge, creating disruption and risk.
Many teams also fall into a “firefighting” cycle where they’re focused on day-to-day tasks like processing payments and managing contracts. With limited time and resources, it becomes difficult to step back and implement the changes needed for long-term improvement.
A Clear Path to Maturity
While challenges are widespread, the path forward is becoming clearer.
Provider compensation programs tend to mature in a consistent sequence:
- Centralize the compensation function
- Align governance structures
- Standardize compensation models
- Implement enabling technology
- Strengthen provider engagement
Most organizations have made progress in the early stages, particularly centralization and model design. However, far fewer have advanced to technology-enabled operations or strong provider engagement.
This sequence is critical. Organizations that implement technology without first establishing governance and standardization see only nominal improvement. The automation of inconsistent processes simply magnifies inefficiencies. By contrast, organizations that build a strong foundation first tend to achieve better performance alongside a greater return on technology investments. Software satisfaction and overall program maturity is maximized when following the sequencing model
What High-Maturity Organizations Do Differently
Although only a small group of organizations have reached advanced maturity, they share several common traits:
- Operate with centralized compensation functions, bringing physician and APP compensation under a unified structure. This enables consistency and more efficient workflows.
- Establish clear governance structures with defined decision-making processes, clear rules for exception handling, and strong accountability.
- Minimize unnecessary differences to increase standardization, support scalability, and reduce complexity.
- Invest in knowledge management by documenting processes and cross-training teams to reduce reliance on individual expertise. This creates stability and continuity, even in the face of turnover.
- Take a disciplined approach to technology, implementing systems only after foundational processes are aligned and reliable.
What Doesn’t Drive Maturity
Interestingly, several commonly assumed drivers of success show little impact on overall maturity.
Reporting structure and scope and whether the compensation function sits within finance, operations, or HR does not significantly influence outcomes. Expanding the scope of responsibilities also does not automatically improve performance.
Even technology alone is not a differentiator. While it can enhance efficiency, its effectiveness depends heavily on the strength of underlying processes.
In short, maturity is not driven by where the function sits or how much it does. It depends on how well it is structured and executed.
The Complexity of Scale
Larger organizations face additional challenges in advancing their compensation programs. More providers, legacy systems, and ongoing integration efforts increase complexity –particularly in areas like governance and model standardization.
Reported staffing models often become leaner as organizations grow, and program maturity tends to decline with scale if there are not enough people to support it. Larger systems tend to manage significantly more providers per compensation staff member, increasing workload and amplifying operational strain.
This dynamic creates a “size paradox.” While larger organizations may have more resources overall, they often face greater difficulty progressing through the maturity curve. Organizations should plan for growth and position the provider compensation function for scalability and efficiency.
Moving Forward with Intention
For provider compensation professionals, the path forward requires a deliberate and structured approach. To be most effective, organizations should focus on:
- Building a strong foundation through centralization, governance, and standardization
- Investing in knowledge management to reduce reliance on individuals
- Aligning staffing models with both organizational size and scope
- Implementing technology strategically after core processes are in place
Advancing a compensation program is not about quick fixes. It requires sustained focus on people, processes, and technology working together. For organizations that take this approach, the benefits are significant: more consistent operations, reduced risk, stronger provider trust, and the ability to support broader system goals.
Most importantly, it enables compensation teams to move beyond reacting to complexity and begin managing it with intention.
