Structuring Compensation Models to Improve Physician Recruiting
20-Jul-2005By Phillip Miller, AMN Healthcare 2009
How much should physicians be paid?
This question has become increasingly important during an era in which a growing number of doctors are employed by hospitals, medical groups and other healthcare organizations. Fifteen to 20 years ago, only a limited amount of information was available regarding physician incomes.
Most doctors at that time were independent practitioners operating solo practices or small medical groups. Like other entrepreneurs, they paid themselves based on revenues generated from their businesses. Very few organizations tracked physician salary levels because few physicians drew a conventional salary.
Today, there are a variety of sources that employers can turn to in order to determine physician income levels in various medical specialties. These include the Medical Group Management Association (MGMA), the American Medical Group Association (AMGA), and benefits consulting firms such as Sullivan, Cotter & Associates and The Hay Group. Merritt Hawkins & Associates, a national physician search firm and an AMN Healthcare company, also conducts an annual survey tracking average salary and income guarantee offers used to recruit physicians in 20 different specialties, including the 2009 Review of Physician and CRNA Recruiting Incentives.
Using these sources, it is possible to determine a suitable pay range for physician income levels in many (though not all) medical specialties. However, in an evolving physician recruiting market, how much physicians should be paid is no longer the only salient question. How physician compensation should be structured also is a strategically important consideration.
Jim Lyons, Administrator of Hutchinson Medical Center in Hutchinson, Minnesota, notes that “How the physician recruiting package is framed can be as important or more important than the amount being offered. A strategic compensation package that makes sense for both the recruiting party and the candidate can mean the difference between recruiting success and failure.”
Physician compensation packages can be tailored in various ways to achieve specific recruiting goals. These compensation models are outlined in a new document produced by Merritt Hawkins & Associates and intended as a supplement to its annual recruiting survey. Entitled, Executive Summary: Physician Recruiting Financial Models, this briefing reviews the features of several physician compensation structures prevalent in the market today and evaluates the benefits and the potential drawbacks of each.
Compensation models considered include the straight salary option. In this option, a physician is listed as a W-2 employee on a hospital’s payroll. The straight salary option is rarely used in today’s market but can make strategic sense in academic settings or in searches for relatively low revenue-producing physicians. More typical is a salary with production bonus, which offers physicians both a clearly delineated “bottom line” and a mechanism for earning additional income based on their personal production. There are a number of ways in which production bonuses can be arranged, according to Mark Smith, president of Merritt Hawkins & Associates, depending on what types of physician behaviors hospitals and medical groups wish to reward.
“The keys are transparency and clarity,” Smith observes. “If recruiters can’t explain the basic terms of the compensation structure, it probably is too complex. If the contract masks a hidden agenda of the employer’s, physicians are likely to detect it.”
The salary with production model can be based on gross billings generated in the practice, or on net collections. Other elements of this model include production based on patient encounters and production based on relative value units (RVUs). In addition, there is a growing movement to reward physicians based on qualitative measures rather than on volume measures only. Patient satisfaction surveys and outcome data may play a role in how income is structured under the salary with production formula.
There are still circumstances in which hospitals may wish to recruit physicians into the traditional, solo private practice setting. The solo practice model can be particularly appealing to established physicians with a strong entrepreneurial bent who value practice autonomy. In a solo setting, compensation generally is structured in the form of an income guarantee provided by the hospital to the physician.
The income guarantee acts a subsidy for the first 12 to 24 months a physician is in practice, ensuring the doctor of a base threshold of monthly earnings. The subsidy must be repaid to the hospital, but outstanding amounts the physician may owe on the subsidy can be “forgiven” provided the physician remains in the community for a stipulated period of time.
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