Insights September 2020

Steps to Determine a Better Physician Compensation Model: An Interview with Dr. Marchildon

Monish Ahluwalia



Canada’s healthcare costs have grown significantly over the past twenty years and physician compensation is the fastest growing sector on average (CIHI 2019). Despite this, Canada continues to face issues related to quality and access to care.

In the past, provincial governments have used physician compensation models as a policy lever to decrease costs and improve patient care. These models include:

Fee-for-Service (FFS) – Payment based on the services provided. This incentivizes efficiency and accounts for 70-73% of Canadian physician compensation (CIHI 2018).

Capitation – Payment based on the number of patients in a roster. This incentivizes under-provision of services.

Salary – A fixed salary, which incentivizes physician well-being.

The question that remains is this: How should we build a compensation model with the right incentives?


Monish Ahluwalia (MA): Thank you Dr. Marchildon for speaking with us today. Could you tell us a bit about yourself?

Dr. Gregory Marchildon (GM): I’m an academic and policy practitioner with a PhD in Economic History from the London School of Economics. I taught at John Hopkins University for 5 years in the School of Advanced International Studies (SAIS). I left to become a deputy minister of intergovernmental affairs in Saskatchewan and later, cabinet secretary and deputy minister to the premier. After that, I became the executive director of the Romanow Commission until 2002. Then, I went back to academia in Saskatchewan as the Canada Research Chair in Public Policy and Economic History and began publishing in health policy and health systems. In 2015, I joined the University of Toronto to become an Ontario Research Chair in Health Policy and System Design.

MA: I’m going to start with the million-dollar question – how do we create a compensation model that achieves better cost control and patient care?

GM: We often focus on payment but there are the corresponding issues of governance and accountability, which are as important as the payment system. Canada is unusual in that Canadian physicians negotiate their contracts directly with the ministry of health, meaning there is no accountability between them and the sites or regions where they actually work. A hospital doctor may feel issues in their hospital aren’t their problem and that they have little say in any event. There often isn’t a great relationship between managers who are employed at such sites, and doctors who are separately accountable through a collective agreement to the ministry of health.

MA: So how are physicians held accountable currently?

GM: For patient-physician accountability, we have a complaints-based regulatory system through the provincial colleges of physicians and surgeons. However, most patients swallow their dissatisfaction, partly because they don’t want to lose their doctor, they are intimidated by the system, or they don’t know what to do. This is not going to be a remedy, so we’ve relied on changes in payment models to leverage better and more responsive care for patients. For ministry-physician accountability, there's a master agreement setting physician payments and certain responsibilities on both sides, but otherwise, there’s very little.

MA: In the past, how have we used compensation models to hold physicians accountable?

GM: We’ve done this in two ways – salary and capitation – sometimes known as alternative payment. Unfortunately, capitation agreements are not well understood. Ideally, they indicate respective responsibilities between doctors and patients while encouraging patients to get most of their care through their primary care practice. Capitation means physicians are supposedly held accountable for their patients’ outcomes, though that’s highly debatable.

In addition, the current scheme recognizes its downsides and compensates with additional payments. For example, we encourage FFS-based doctors to work extended hours by providing additional payments. Even if these physicians predominantly receive FFS, they are classified as receiving “alternative payment” by CIHI. Ontario now has more alternative payments than FFS, but that may be misleading. We have a governance and a numbers problem.

Finally, we have little understanding of the extent to which doctors benefit from tax deductions and professional incorporations, and our numbers sometimes underestimate actual remuneration.

MA: How can we begin to approach changing the compensation model?

GM: For services that are highly transactional (e.g. surgical services), it probably doesn’t make any difference. No one can reasonably argue that a doctor will spend less time on a surgery, for example, because they receive FFS. I sense a physician’s professional responsibilities and natural concerns for the patient’s outcome outweigh concerns about remuneration.

The problem is with non-transactional services (e.g. psychiatry, neurology, family medicine) where the time required is unique to the patient’s needs and the nature of the physician-patient relationship. In those situations, FFS is deadly because you’re constantly tempted to cut appointments short. Sometimes, the easiest way out is to write a prescription and refer the patient for a diagnostic test. As a consequence, FFS can result in over-testing and over-prescription, instead of the physician taking the time to find the source of the problem.

MA: Should we shift toward a more salary-based compensation model?

GM: Salary has its own problems as shown by the issues with salaried general practitioners in Sweden many years ago. In response, the Swedes created a private sector, basically, to compete with the public sector in order to improve outcomes and patient choice. While we need more data to determine if this reform really worked, it’s clear patients were dissatisfied with the public salaried system. My point is every payment system has inherent weaknesses. To mitigate them, you need clear accountability and greater transparency regarding payment methods.

MA: How can we begin to approach changing governance, and thus, accountability?

GM: We have to undo what I call the Saskatoon Agreement of 1962, where physicians retained their right to operate as independent contractors paid on FFS. Provincial medical associations have fought tenaciously against provincial health agencies and regional health authorities from becoming their paymasters – the source of our accountability problem. Most medical associations assume, perhaps correctly, that their bargaining power will be weakened if they couldn’t negotiate directly with provincial health ministers and their health ministries.

The second part is Canada has the most FFS-hospital-doctors in the world, percentage-wise. Generally, hospital doctors in most high-income countries are salaried by their hospital, creating the necessary accountability relationship. If they are out-patient specialists, they can run independent practices, but they should still hold a contract with the appropriate provincial or regional health authority. Family medicine practitioners should also have an accountability agreement with their patients.

The Commonwealth Fund has statistics on global health systems and the UK has shown significant improvement in primary care indicators over the past twenty years with accountability reforms and a mixed salary-capitation-FFS compensation model. Australia has also shown improvement, yet they are a traditional FFS country. Is it the payment system or is something else going on? I think it’s more about accountability arrangements – that said, the payment scheme still matters. I think it’s interesting Australian physicians receive only a portion of their fee code for providing mental health advice to patients unless they are further trained and credentialed in primary mental health. We don’t use incentives in quite that way in Canada, and maybe we should.

MA: How have the new accountability measures fared in the UK?

GM: UK physicians are unhappier and have complained about their administrative burden in terms of greater reporting and documentation. However, according to the Commonwealth Fund, their patients are receiving the best, or close to the best, primary care in the world! The real question is whether this was the necessary price for better care.

MA: How can we determine the best system for Canadian healthcare?

GM: We need a lot more provincial experimentation with payment and accountability mechanisms alongside good external evaluation. All payment changes should be strengthened by accompanying changes in governance and accountability.

MA: Is it possible to experiment?

GM: In our federal system, absolutely! It requires political will and desire to work collaboratively with a progressive medical association and other health professions. Ontario has ongoing experiments in primary care payment. In the Northwest Territories, all doctors are on salary, and in Nunavut, they are not just on salary but are also regulated by the government. I would like to see even more experiments with even better evaluation so that we can really learn from them. We also need to look beyond Canada to see other ways of doing things. There is so much we can learn.

About the Author(s)

Monish Ahluwalia, HBSc, is an MD/MSc student at the University of Toronto, Toronto, ON. Follow him on Twitter @monish_ahl.  


Canadian Institute for Health Information. 2018. Physicians in Canada, 2018Summary Report. Retrieved July 5, 2020. <>.

Canadian Institute for Health Information. 2019. Where is Most of the Money Being Spent in 2019? Retrieved July 5, 2020. <>.


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