Physician Recruiting: Costs and Rewards

20-Jul-2005

July - August 2003

Source: Michael P. Broxterman, C.O.O. and Nanette Smith, Staff Writer, Pinnacle Health Group.

Investment. Return. Simple ideas. A balance, really, which every business or organization needs to consider. But is physician recruiting always seen in these basic terms? Especially when everyone gets caught up in all the other important factors of the search — the various personalities, the expectations, the negotiations. Ultimately, the effectiveness of recruiting needs to be assessed by looking at the big picture and the long range. Not just the immediate costs but the potential gains, not just for today but for a year from today.

Costs: The Big Three

It’s helpful to think of physician recruiting in terms of these three areas:

Sourcing, or finding, physicians
Man-hours involved in the recruiting process — whether they are those of the staff recruiter’s or those of an outside recruitment firm realized in terms of the fees paid to that firm
The interviewing and visit expenses

It’s been estimated that the costs for one search generally fall in the range of $20,000 to $40,000 depending on the specialty, region of the country, and methods used for sourcing candidates. The average cost is about $30,000.

The following assumptions are used in deriving these rough estimates:

Direct mail used to find physicians costs from $1.22 to $1.49 per piece in quantity.
It takes approximately 350 man-hours to identify the candidate from prescreening to planning for the site visit.
Interviews cost about $1,500 each, which includes travel and accommoda- tions. You may also want to add another 30 man-hours per visit.

The dollar amount is broad because there are so many variables in each unique search situation. If you compare recruiting through in-house staff to using a recruiting firm, the latter will cost you more; however, the differential is not as much as you might think. The most you can probably save by recruiting completely in-house is probably about $10,000, which in the final analysis isn’t really that much. In fact, you may save more money in the long run by using a recruiting firm if you factor in less tangible — or hidden — costs within the basic categories of sourcing, man-hours, and interviewing and additional costs discussed below. (For a more detailed breakdown of recruiting costs, refer to the article “Physician Recruitment Budgetary Planning: A Case Study” that appeared in the May/June 2001 issue of Recruiting Physicians Today.)

Hidden Costs

Advertising: Of course, advertising is an essential part of any search. It’s only really prohibitively expensive if it’s ineffective. A common problem occurs, for example, when the direct mail or ads go out to an inadequately small or poorly targeted pool. You’re lucky if there’s a hit the first time. Another problem is simply a lack of experience with recruitment advertising. Seek professional assistance in advertising or ask colleagues where they see the most benefit for their advertising dollars.
Man-Hours: Clients using an outside firm know it’s man-hours they’re paying for — the recruiters are focused on their specific search needs as well as provide an expert team of administrators. But the cost if you go with in-house staff only is free, right? Wrong.

The in-house recruiter may earn, say, roughly $50,000. Now factor in the 350 man-hours mentioned and that’s $8,400 per recruited doctor. Said another way, the $50,000 per year salary allows the in-house person to recruit from five to eight candidates, tops — but, this is only a rough estimate.

Interview Costs: Another cost that can rise exponentially is interviewing candidates. The higher the number of candidates seen, the higher the costs; this is not only in terms of airfare and hotel suites, but also in terms of the man-hours of busy administrators and medical staff getting together however many times are needed. Here’s where it’s important to screen physicians well upfront so you don’t waste time and money interviewing every candidate who comes down the pike.

Additional Costs

Set-up Costs: Although not normally considered a part of the recruitment cost, let’s consider these costs because they may cause the organization to hesitate and not move as quickly as they should in terms of recruiting. The costs to help the doctor set up practice can be zero or they can be substantial, ranging from $150,000 to $200,000. These costs may include the initial outlay for equipment, setting up an office, and outreach to create a patient base. Yet the cost-benefit ratio is still excellent, as you will see in the final section of this article.
Salary Guarantee: Like set-up costs, salary guarantees and incentives follow hard on the heels of signing a new doctor, so we may as well factor them into our recruitment investment/return equation. Recruiters should take into account not only new doctors’ salaries but signing incentives, moving costs, and loan repayments. These costs vary widely and can range from $150,000 to $600,000
Turnover: Will the placed doctor be a happy doctor? Every employer knows turnover and personnel problems are expensive, but they can be headed off. Realistic expectations and upfront honesty are key. Whether you represent your opportunity yourself or are using a recruitment firm, be as objective as you can about the position offered — the growth potential, the type of practice, the community, and the personalities involved.
The Speed Factor: The final hidden cost that can be thrown into the mix may be the most overlooked and the most important. The hospital or clinic that moves too slowly stands to lose a great deal. Administrators need to look at the time it takes from the perceived need to having the doctor in place and then consider the revenue not gained during this time.

The Rewards of Successful Recruiting

Here’s the good news: Even estimating high for recruiting costs, the clinic, group, or hospital and the physician are going to come out ahead when the right placement is made. Search fees can be recovered quickly if the physician is in place in two months or sooner. A physician will recover the cost of his/her recruitment and setup in one to two years. In other words, the doctor will have paid for himself/herself in two years or less.

Collected Revenue

Data are surprisingly scarce on what each specialist brings into a hospital. This is especially true with regards to specialties that are in a largely supportive role, such as anesthesiology. However, we do have estimates on what some of the highest grossing specialties yield. According to a Merritt Hawkins & Associates revenue survey, a cardiovascular surgeon can bring $3,134,615 in collected revenue. For a complete summary of net revenues by specialty, refer to the chart from the Merritt Hawkins “2002 Physician Inpatient/ Outpatient Revenue Survey” featured in the Market Watch section.

The Cost of Inaction

In the long run, it’s the cost of inaction that’s highest. If the need is there for a service or specialty, which a hospital is not providing, patients won’t wait forever. They’ll go elsewhere to meet that need. In addition, the balance of physicians on the hospital’s entire medical staff can be hurt: Referral patterns affect physician incomes, and any physician not supported by the proper mix of specialties will go elsewhere. Each specialty is part of the mix, even if it’s not a high-grossing one.

The math isn’t hard to do. Take a look at the means of each element of the costs: $30,000 recruiting cost + $100,000 set-up cost + $200,000 guarantee = $330,000. Now look back at the collected revenue average for a cardiovascular surgeon — over $3.1 million. Need we say more?

The bottom line: Everyone benefits with a great placement. The recruitment costs will be more than met; whereas, a failure to recruit effectively — that is quickly and aggressively — means an enormous loss of potential.

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