7 Trends in Hospital-Employed Physician Compensation

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Salaries and compensation packages of hospital-employed physicians have become a burning topic in recent years, mostly due to the upsurge in hospitals acquiring physician practices and subsequent employment of physicians.

Today, roughly 25 percent of all specialty physicians who see patients at hospitals are employed — a sizable increase from the 5 percent of specialists who were hospital-employed in 2000. The number of employed primary care physicians has doubled to roughly 40 percent during the same time span.

As more physicians become hospital and health system employees, it has become paramount to tackle the sometimes difficult process of benchmarking physician pay. In 2010, the MGMA-ACMPE reported the 25 highest-paid specialties among hospital-employed physicians included orthopedic surgeons, spine surgeons, neurosurgeons, cardiovascular surgeons and specialty pediatric surgeons, among others. The salaries of those 25 high-paid specialties ranged from a low of $465,543 for dermatologists to a high of $714,088 for orthopedic spine surgeons.

With those figures in mind, here are seven trends regarding hospital-employed physician compensation that have emerged over the past several years.

1. For physicians, earning power is greater in a hospital-based setting than private practice. Tom Flannery, PhD, partner with consulting firm Mercer, says there is a general belief in the healthcare environment that physicians in private practice can earn higher incomes than those who decide to become hospital employees. However, that may not always be the case, he says.

After factoring out malpractice costs, health insurance, overhead and other operating expenses, Dr. Flannery believes hospital employment offers greater earning potential for physicians, especially those looking for more stability.

"When everything is considered, including the hassles of running your own practice, the earning power [physicians] have can actually be higher in a hospital-based practice," Dr. Flannery says. "But there's still a perception that private practice physicians can earn more. [That] is more to do with the freedom to act as opposed to earning power."

2. High-paid specialties to watch include noninvasive cardiology, ophthalmology, general orthopedic surgery, neonatal medicine pediatrics and neurosurgery. Mercer recently completed its 2012 Highly Compensated Physician Survey, which collected salary and cash compensation data for the highest-paid employed physician specialties. Mercer analysts highlighted five specialties in particular: noninvasive cardiology, ophthalmology, general orthopedic surgery, neonatal medicine pediatrics and neurosurgery.

Of those five hospital-based specialties, ophthalmologists recorded some of the highest pay packages. Total cash compensation of hospital-employed ophthalmologists in the 75th percentile averaged $779,290, according to the survey. Neurosurgeons recorded the next-highest total compensation average in the 75th percentile at $778,890.

In the 50th percentile, all five specialties averaged more than $500,000 in base salary alone. Here are market base salary averages in the 50th percentile for each specialty:

•    Neurosurgery: $663,760
•    Ophthalmology: $628,260
•    Noninvasive cardiology: $575,000
•    General orthopedic surgery: $538,970
•    Neonatal medicine pediatrics: $505,000

MercerHospitalPhysicianComp2012

3. Benefits for physicians mirror the general hospital employee base, not the C-suite.
Physicians who are added to the hospital payroll are increasing the hospital's operating expenses with higher benefit plan costs. However, Pat Kopacz, principal at Mercer, says Mercer's Highly Compensated Physician Survey showed most physicians — even those who become heads of a service line or department — receive the same health benefit plans and retirement options as nurses, frontline staff and other frontline hospital employees. The hospital's executive team usually has its own benefit program, she says.

4. Hospitals are emphasizing value over productivity. In order to combat increased financial pressures such as the aforementioned boost in benefit plan costs, hospitals have traditionally encouraged higher levels of productivity. However, the fee-for-service environment is becoming a thing of the past. Focusing on volume is not a silver bullet in an increasingly value-based environment, but at the same time, hospitals cannot just "let physicians do what they want in terms of productivity," Dr. Flannery says.

Therefore, in compensation plans, hospitals are incentivizing physicians to focus their energy and efforts on high-level cases instead of "churning numbers." Instead, advanced practice clinicians, such as nurse practitioners and physician assistants, are helping with simpler cases, a process that has boosted their compensation as well.

"Physicians have to practice at the top of their skill level, and that's not happening," Dr. Flannery says. "When we see physicians operating at the top of their skill level, pediatricians aren't seeing strep throat and ear infections — those are being seeing by nurse practitioners. Therefore, nurse practitioners need to operate at the top of their skill level, too. When the value goes up, compensation goes up, and it frees up time for more complicated cases [for physicians]."

5. Hospital-affiliated primary care physicians will eventually see their salaries increase more. Primary care is a major emphasis within the healthcare reform law, and Dr. Flannery predicts primary care physicians will receive higher pay in the process.

For example, in November, CMS released a final rule that said primary care physicians in the specialties of family medicine, general internal medicine or pediatric medicine (and related subspecialties) will be paid Medicare rates for Medicaid primary care services for this year and 2014. In addition, qualifying physicians will receive higher payments if primary care services are rendered by certain physician extenders — such as nurse practitioners — who work under the qualifying physicians' supervision.

"The literature is starting to say there's going to be a change in the economics. We're going to see an increase in primary care physician compensation because the value of primary care is high now and will be higher over the next several years," Dr. Flannery says.

Dr. Flannery adds that specialists will still remain in high demand and command high salaries due to a general shortage of physicians and the fact that "unhealthy nations are going to need cardiologists, orthopedists and neurosurgeons left and right."

6. The highest-paid physicians at hospitals have the highest expectations, especially those in administrative roles. Ms. Kopacz says hospital-employed physicians who earn the most — such as CMOs, department heads and other physicians who have additional administrative roles — have higher expectations now. If a physician is making more than $700,000 per year and is a department chair, for example, he or she will be expected to maintain clinical quality and also become a "manager" who helps operate the department.

"Physicians are [being] asked to play multiple roles within an organization — not just clinical, but administrative as well," Ms. Kopacz says. "That's something we expect to see more and more. Physicians are going to have to be clinical leaders as well as part of the administration."

7. Compensation arrangements between hospitals and physicians involve quid pro quo elements. Although some may view compensation negotiations between hospitals and physicians as a Wild West showdown, that is generally not the trend, Dr. Flannery says. Both sides usually are open to a "this for that" mentality.

Of course, hospitals must pay physicians fair market value, but there are certain quid pro quo elements. For example, physicians will receive various benefits outlined in the hospital benefit plan, but it may not be as extensive as benefit plans in other industries. Dr. Flannery views that situation as hospitals offering a perk that physicians may not have had before, and although it's not as much as other industries, physicians will not have to be on call 24/7, as they would be in private practice.

Another example is tuition and student loan forgiveness. A hospital may offer a physician a sizable sum of money to help pay down medical school loans, but the hospital may ask that physician to commit to work at the hospital for a predetermined amount of time.

"Think about the economics of having to recruit physicians," Dr. Flannery says. "You have to pay a headhunter, pay relocation, get [physicians] to productive levels — you're talking potentially the equivalent of 12 to 24 months compensation. It's a short payment to give them a couple hundred thousand [in student loan forgiveness] to have them agree to stay for five to seven years and not having turnover every two years."

More Articles on Physician Compensation:

24 Statistics on Physician Income Over the Past 3 Years
11 Physician Specialties With Largest Declines in Average Compensation
Average 2011 Salaries of 25 Hospital-Employed Physician Specialties

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