Compensation Issues

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8 Points Hospitals Need to Keep in Mind When Paying Employed Physicians

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Over the past decade, physician employment has grown by 32 percent at hospitals, and roughly 20 percent of the practicing physician workforce now works for a hospital. This explosion of employed physicians signals several factors: the move toward accountable care organizations, the harsh financial realities of being an independent physician today and a growing preference for guaranteed compensation over fluctuating and unpredictable income.

However, compensation is one of the most foundational questions for any physician, just like it is for anyone looking for a job. After the prospects of working for a certain company or hospital become appealing, the next intrinsic question is, "How much am I going to get paid?"

Physicians who decide to take the employment track are giving up their autonomy but also are gaining more predictable incomes, and in many cases, a more balanced lifestyle. Hospital executives should consider these eight points when they are developing a compensation plan for their employed physicians.

1. Keep compensation policies consistent. Tommy Bohannon, vice president of recruiting at physician staffing firm Merritt Hawkins, says there a few common sense items hospitals need to keep in mind when they are coming up with compensation plans for physicians. One of the biggest is consistency.

"It's very detrimental to a hospital's long-term goals if they do something different for the new physician compared with everyone else," Mr. Bohannon says. "Across physicians in all specialties, you need to treat people fairly."

Additionally, if hospitals adjust how they compensate their new employed physicians due to changing standards and fluctuating salary market baselines, they must also consider how they will handle the compensation plans of their other employed physicians, he says.

2. Transparency goes a long way. Transparency has turned into a buzz word for many, but Mr. Bohannon says being direct and clear with physicians on how they will be paid is more important than ever. Hospitals need to compete as well as stay compliant with industry regulations. "You need to have physicians trust what you're doing," Mr. Bohannon says. "They are giving up so much autonomy, so that transparency goes a long way."

3. One size does not fit all. In the Merritt Hawkins 2011 Review of Physician Recruiting Incentives, physician salary and compensation structures and methodologies varied both within and among other medical specialties.

For example, an orthopedic surgeon made an average base salary of $521,000 in 2010-2011, which varied significantly from a neurologist's average salary of $256,000. Salaries also varied within the most hotly pursued specialty: primary care. Internal medicine ($205,000 average salary), family practice ($178,000 average salary) and other primary care physicians cannot be lumped into a single type of pay structure, and this extends to all specialties in general. Hospitals also need to recognize the omnipresent importance of fair market value and make sure they are within an evenhanded range.

"You can't assume that what you do for family medicine makes sense to do for anesthesiology," Mr. Bohannon says. "Different methodologies are often required for different specialties."

4. Volume must be coupled with quality. According to a recent SullivanCotter report, 74 percent of healthcare organizations with employed physicians tie physician pay to patient satisfaction. Additionally, 72 percent of physician compensation plans factored in physician quality and patient satisfaction. Although quality and patient satisfaction only account for 3-5 percent of physician compensation, it is projected that number will increase to 7-10 percent over the next few years.

Some compensation plans have already reached that benchmark and then some. Physicians at clinics within Minneapolis-based Fairview Health actually have half of their income based on patient satisfaction surveys and quality-of-care scores.

The pervading trend, though, is to no longer have strictly volume-based compensation plans. Mr. Bohannon says hospitals will be wise to include production-based bonuses (e.g., relative value units, net collections, etc.) as well as quality measures in physician compensation plans. "This will promote physicians to be busy but not to lose sight of quality," Mr. Bohannon says.

5. Compensation is based on the national market now. Although healthcare is still mostly a local endeavor for patients, that mindset may not apply when constructing a compensation plan for employed physicians.

Mr. Bohannon says in the past, if you were a hospital in a major metropolitan area, the salary offerings proposed by other major hospitals in the area would have been relevant. However, physicians are no longer sticking to one community, and hospitals can no longer benchmark against their own geographic locales alone.

"Now, it's all about attracting and retaining the right talent for your hospital or group," Mr. Bohannon says. "Historically, hospitals have been able to attract physicians due to ties to a certain area. It's not really that way anymore. With a more portable workforce, national competition is much more important."  

6. An income guarantee model is a difficult sell. The income guarantee model differs from salary in that the hospital pays physicians predetermined loans or advances to set up their practice in the community. Those loans are then forgiven at the end of the term as long as the practice is self-sufficient and will remain in the community.

However, Mr. Bohannon says many physicians today simply want true employment with salary and benefits. This means they receive clearly defined expectations, full benefits and a consistent paycheck in exchange for lost autonomy.

Consequently, the income guarantee model has faded over the years. Income guarantee models only made up 9 percent of physician compensation plans in 2010-2011, according to the Merritt Hawkins report, compared with 21 percent in 2006-2007.

7. Signing bonuses are nearly a given. Roughly 88 percent of placed physicians received a signing bonus in 2011 — up from 73 percent in 2010 — and the average signing bonus also topped $20,000.

Instant cash for the "John Hancock" used to be a nice added perquisite, but now it's almost universally expected, Mr. Bohannon says. "When we talk to candidates, they want to know what the signing bonus is," he adds.

8. Initial offering goes a long way. Some physicians ultimately decide where they want to practice and be employed based on intangibles or how they think they will fit within the organization. However, physicians will use the initial compensation offer as the first test to see if the hospital is acting in good faith. "You don't have to be the highest-paying [hospital], but you can't be the lowest-paying either," Mr. Bohannon says. "You have to be in the range of the market to have them talk to you."

Related Articles on Physician Compensation:

Physician Call Compensation Rates: 11 Determining Factors

Compensation & Competency: 4 Factors to Consider When Hiring Physicians

Dr. Linda Brodsky: 5 Major Issues With Physician Compensation

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