Challenge
After implementing a provider compensation model in 2023, a Critical Access Hospital (CAH) in the rural Midwest entered a new phase of transformation. In December 2024, the hospital formally merged with a local clinic, creating a newly unified organization. The merger brought opportunities but also complexities: a new cohort of providers was joining under a unique provider-owned compensation structure, and the hospital needed to integrate them into a single, sustainable, and compliant compensation strategy. The hospital had developed its own compensation strategy the previous year and wanted to ensure that this work would not be undone by the merger.
With no plan in place for the incoming providers and increased regulatory scrutiny following the merger, hospital leadership recognized the urgency of aligning compensation across departments. This alignment needed to support provider satisfaction, recruitment and retention, and financial sustainability—all while adhering to fair market value (FMV) and regulatory compliance standards.
Engagement
Stroudwater was engaged to support the hospital in integrating newly merged clinic providers into its existing provider compensation strategy. The objective was to align incoming providers with the hospital’s structured model while keeping individual compensation as close to historical levels as possible. Stroudwater was also tasked with improving the hospital’s structured model where opportunities arose based on learnings over the implementation period. The project required not only technical expertise in FMV assessments and regulatory compliance but also a deep understanding of rural hospital operations and provider expectations in small, resource-constrained communities.
Approach
Stroudwater collaborated with the hospital’s administrative team, legal counsel, and the merging clinic providers to develop a plan grounded in rural realities, regulatory compliance, and organizational goals. The process mirrored and built upon the original compensation strategy while addressing the unique considerations of the merger.
Key steps included:
- Compensation Model Design: Stroudwater designed a two-year phased plan, beginning with a Year One compensation guarantee to maintain provider trust. All incoming providers received either their historical compensation or MGMA 2024 median compensation (whichever was higher), capped at the 75th percentile.
- Year Two Transition Plan: Base salaries were aligned at 90% of the MGMA median, with up to 10% additional compensation available for providers meeting predefined criteria, including community involvement, tenure, relevant experience, and “good citizenship.” Total compensation remained capped at the 75th percentile.
- Fair Market Valuation and Benchmarking: Due to the limited availability of rural data for all specialties, Stroudwater utilized MGMA national benchmarks and conducted extensive FMV assessments, considering factors such as specialty/subspecialty, provider responsibilities, training, and recruitment timelines.
- Incentive Structure Refinement: The new model included:
- Productivity Incentives: Activated once a provider’s productivity (measured in wRVUs) met or exceeded 100% of their base salary.
- Procedural Incentives: Additional wRVU credit for specific CPT codes tied to advanced procedures, reflecting added training and value to the community.
- Quality Incentives: Up to 5% of base salary tied to annual quality performance metrics.
- Call Compensation Development: Stroudwater implemented detailed, specialty-specific call compensation models:
- General Surgery Call: Base call shifts included in salary; excess shifts compensated at an FMV-assessed rate
- OB C-Section Call: Two approaches were developed, blending MGMA percentile data and hospital-specific activation rates to ensure accuracy and fairness
Results
The post-merger compensation strategy achieved the following:
- Unified compensation philosophy across departments, reducing fragmentation and enhancing equity.
- Compliance with federal regulations, including the Stark Law and the Anti-Kickback Statute, through formal FMV assessments.
- Operational transparency, with providers better understanding how their compensation is determined.
- Recruitment and retention support, with incentives tied to performance, community commitment, and expanded service delivery.
- Call structure clarity, easing administrative burden and minimizing provider dissatisfaction.
Conclusion
For the hospital, the merger represented more than an organizational milestone—it was an opportunity to create a truly integrated provider compensation model from the ground up. With Stroudwater’s guidance, the hospital not only sidestepped compliance pitfalls but also established a plan that is equitable, sustainable, and designed for the future of rural care delivery.
By extending its provider compensation strategy into the post-merger phase, the hospital strengthened its foundation for long-term clinical alignment and financial stability while continuing to serve its rural community with confidence.
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