Aligning Compensation and Managed Care: The New Formula for Physician Retention

Physician turnover is becoming one of the most expensive threats to a health system’s financial and clinical stability. As competition intensifies and patient-centric expectations evolve under managed care, the cost of losing a physician goes far beyond the expense of recruitment; it affects every dimension of system performance. It fractures patient relationships, weakens performance on key metrics, and stalls momentum toward value-based transformation. 

For health systems navigating risk costs and shrinking margins, physician retention has become one of the most powerful, and often overlooked, levers for financial and strategic performance. In a value-driven environment, retention becomes essential. 

The Cost of Losing Physicians

Turnover continues to accelerate across primary care and specialty disciplines, straining health systems that cannot afford repeated gaps in continuity. Studies routinely show that replacing a single physician can cost hundreds of thousands of dollars, if not millions, when accounting for signing bonuses, relocation assistance, lost productivity, onboarding time, and temporary coverage.

Growing evidence is revealing that turnover also has measurable downstream consequences for the entire care continuum. The American Medical Association estimates that burnout-driven physician turnover contributes approximately $260 million in excess annual patient-care costs and may account for up to $5 billion in total turnover-related spending system-wide. Losing even a handful of physicians each year can quickly eliminate the financial gains achieved through improved managed care performance, lower utilization, and operational efficiencies.

An office-based physician is also an economic engine for the community. On average, a single physician fuels approximately 17 jobs and more than $1.4 million in wages and benefits, according to Becker’s Hospital Review. Their presence contributes directly to local public resources as well, producing an average of $126,129 in state and local tax revenue each year. 

The Business Case for Retention

From a pure return-on-investment perspective, retaining physicians far outperforms continual recruitment. Recruitment today typically includes sign-on bonuses, relocation support, loan repayment packages, and months (sometimes years) before a physician builds up a full base of patients to return those investments. Across our work with integrated delivery systems, medical groups and health plans, we have observed that retention is most durable when compensation strategy, care team design, and managed care incentives reinforce one another.

The stakes grow even higher, especially for organizations operating under risk-based or managed care contracts. Long-term patient-physician relationships drive risk-adjustment accuracy, preventive care adherence, and shared-savings outcomes. When a physician leaves, the organization loses not only capacity; it also loses the continuity and trust essential to payer-driven quality measures.

To mitigate churn, many systems have deployed selective retention bonuses tied to multiyear commitments. But the emerging consensus is clear: bonuses alone do not secure long-term loyalty. Sustainable retention is rooted in strong, fair, and predictable compensation models that reinforce stability, performance, and alignment with managed care incentives.

Evolving Compensation: From Productivity to Stability

Historically, physician pay has centered heavily on productivity-based models that reward volume over relationship building. But physician expectations are shifting, particularly among younger clinicians who prioritize predictable income, structured schedules, and true work-life balance. Many of these younger physicians prefer higher base salaries, lower variability, and compensation that supports their desire for stability. 

Health systems are adapting by increasing base pay and reducing reliance on volume-based incentives, while still maintaining clear performance expectations tied to access, teamwork, and patient experience.

Yet the industry remains early in this transition. A recent analysis published in JAMA Health Forum found that although most health-system-affiliated physician organizations include quality and cost performance in their compensation plans, value-based components still account for only about 9% of primary care compensation and 5% for specialists. This data highlights the gap between industry aspirations and the actual compensation models physicians experience on a daily basis, reinforcing why retention strategies must evolve alongside managed care objectives. This misalignment leaves organizations increasingly vulnerable: physicians are demanding stability, while payers are demanding performance.

Primary Care at the Center of Value-Based Care

The nation’s shift toward value-based care places primary care physicians at the center of delivery transformation. CMS’s aim to transition a majority of Medicare beneficiaries into value-based arrangements by 2030 accelerates the need for compensation plans that reward prevention, continuity, access, and team-based care.

Primary care pay has been rising faster than many specialties. According to our 2025 Compensation and Production Survey, primary care compensation increased 7.7%, compared with just 7.3% and 3.4% for medical and surgical specialties. With primary care as both the entry point and the engine of managed care performance, aligning compensation with value creation is no longer optional; it is a competitive differentiator. Health systems that delay modernizing compensation risk losing the very clinicians who drive risk adjustment, quality performance, and population health outcomes.

Balancing Value and Margin Pressures

At the same time, health systems are facing unprecedented financial pressures. Wage growth for nurses, frontline staff, and ancillary roles has outpaced physician compensation in many markets, forcing organizations to scrutinize every compensation dollar and justify investments with measurable results.

Consequently, there is a heightened demand for accountability and compensation that must be tied to measurable outcomes, not just historical norms. As more payer contracts include downside risk, the margin impact of weak access, poor continuity, or physician turnover becomes more pronounced. Data-driven models that reward risk management, patient experience, panel growth, and care team leadership help ensure sustainability while reinforcing system-wide goals.

Rather than diluting performance expectations, modern compensation models must clarify them and reward physicians for the value they generate within managed care frameworks.

Strategic Alignment Drives Retention

Sustainable physician retention depends on the tight alignment of three interconnected systems: payer contracts, care teams, and compensation.

1. Payer contracts must incentivize value, access, continuity, and total cost-of-care performance. 
2. Interdisciplinary teams must extend physician capacity, support risk management, and enable high-functioning panels. 
3. And finally, compensation must reward long-term continuity, patient access, risk adjustment accuracy, and the team-based outcomes that underpin managed care. Multiple studies show that aligning compensation with managed care priorities not only strengthens physician retention, but also improves performance across access, utilization, and total-cost-of-care benchmarks.

Organizations that integrate these elements will not only retain high-performing physicians, but position themselves for success in a rapidly evolving marketplace.  

Retention is no longer a byproduct of culture or compensation alone. It is a strategic capability built on alignment, stability, and intentional design across the entire physician enterprise.