Paying More for Less: Why Specialty Practices Need a New Approach to Provider Compensation

For years, medical and specialty-based practice compensation followed a simple logic: physicians produced more, so physicians were paid more. The 2026 MGMA Provider Compensation and Productivity Data Report, based on 2025 data that was compiled from more than 245,000 providers data, shows that logic breaking down. Median total compensation kept rising, but work RVUs fell in 16 of 23 tracked specialties and total encounters fell in all 23 tracked specialties. Compensation and productivity are no longer moving in tandem.

For leaders of independent specialty groups, this is not just a benchmarking trend. It goes to the heart of how they recruit, how they keep the providers they have, and whether the practice stays financially independent over the long term.

A Market Defined by Scarcity and Consolidation

The competition for specialists has never been more intense. As of January 1, 2026, 82.0% of U.S. physicians were employed by hospitals or corporate entities, up from 62.2% in 2019. This leaves fewer than one in five physicians remaining in independent practices (Avalere Health). Every candidate an independent group recruits is also being courted by health systems, private equity-backed and insurance-owned platforms that can offer guaranteed salaries, signing bonuses, and less administrative burden.

Workforce supply makes things worse. The Association of American Medical Colleges (AAMC) projects a physician shortage of up to 86,000 providers by 2036, and scarce specialties command a premium compensation package. Meanwhile, 80% of medical groups report that Medicare pays below their cost of delivering care.

Pay Is Up, Productivity Is Down

The gap between pay and output varies widely by specialty, but the direction is consistent: total compensation is up while WRVUs and patient encounters are down. A comparison of the 2025 and 2026 MGMA Provider Compensation and Productivity Data Reports shows the following shifts in median compensation and productivity:

With Consumer Price Index (CPI) at 2.7%, most specialties' compensation increases trailed inflation, which is a retention risk.

Ownership adds yet another dimension: surgical specialists in physician-owned practices earned 4.49% less than hospital-owned peers despite generating 4.78% more WRVUs per the surveys. Independent private practice groups are producing more while still falling behind on the compensation benchmarks that can influence recruitment and retention.

A Compounding Factor: The 2026 WRVU Reset

On January 1, 2026, CMS applied a −2.5% "efficiency adjustment" to the work RVUs of approximately 7,700 non-time-based CPT codes, which disproportionately affects procedural specialties. CMS has also proposed repeating the adjustment every three years. (ACOG; American College of Surgeons). In practice, this means that a surgeon doing the same work will now record fewer WRVUs.

Any plan that pays a fixed dollar amount per WRVU will look like a pay cut to providers. Any plan that raises the conversion factor to "hold physicians whole" will push more cost back onto the shareowners or health systems that own employed practices.

To illustrate this clearly, consider this scenario: a Urologist whose WRVUs fall 5%, from 8,000 to 7,600 year over year, still might expect a market-matching 6.9% raise, resulting in their compensation increasing from $496,000 to $530,000. Keeping that physician whole requires the WRVU conversion factor to rise from $62.00 to $69.78 per WRVU, a 12.5% increase, at a time when collections are flat or even decreasing. The margin squeeze lands on the owners' distributions or the health system’s investment per FTE provider.

Choosing the Right Model and Its Tradeoffs

There is no single correct compensation model. Every compensation model trades potential guaranteed income against the incentive to produce. Below are some potential compensation models to consider, including their benefits and tradeoffs:

• Straight salary helps recruit into high-demand roles but gives no remedy for under-production.
• Base plus production (WRVUs or collections) reflects acuity and can be benchmarked, but WRVU-based versions now carry real revaluation risk and need reopener language.
• Draw plus pure production and net income ("eat what you see") keep risk and reward with the physician but make recruiting early-career specialists harder compared to what health systems may offer them.
• Tiered production strongly rewards high producers but carries the same RVU and reimbursement exposure.
• Hybrid models layer quality, access, citizenship, and leadership incentives onto productivity. They are increasingly common, though quality still averages under 3% of surgical specialist pay.

Every compensation plan should pass four tests:

1. Supports recruitment and retention,
2. Sets clear requirements and expectations for the providers,
3. Is financially sustainable for both the group and its providers,
4. Is easy to administer.

Specialty groups that keep paying market rates per WRVU while volumes fall and reimbursement stays flat are running down their own margins. Groups that move now to collection-funded, compliant, regularly-recalibrated hybrid models will be better positioned to compete for talent and stay independent, today and into the future.

Ronnen Isakov is Managing Director Advisory Service of Management Group, LLC. His background includes extensive work in areas including business advisory, valuation, network optimization, transaction support, and project management.