physician co m p e n s a t oi n re c r u i t m e n t · pdf file2 physician compensation &...

“ In my experience, the current economy is having a dramatic impact” on recruitment of practicing physicians.

—Kathy Murray

continued on p. 2

Stagnant housing market keeps physicians at home

INSIDE

April 2009Vol. 17 No. 11

A HealthLeaders Media publication

April 2009 Vol. 10 No. 4

TrendsLearn more about ■

calculating fair market value on p. 3.

Specialty compensationAn overview of ■

hospitalist compensation and recruitment trends begins on p. 8.

ColumnMax Reiboldt ■

provides a model FAQ to help hospitals with acquisition and employment on p. 11.

Ask the expertsOur experts respond ■

to a question about the future of gainsharing on p. 12.

The housing market continues to make physi-cian recruitment more difficult.

Reports of problems began appearing in 2007. In early 2008, Dallas-based Delta Phy-sician Placement confirmed the trend in its quarterly publication, The Physician Recruiting Standard—and that was based on research from before the worst of the credit crisis.

“If anything, it’s gotten worse,” says William Scott Hurst, MBA, principal marketing consul-tant at Delta. “It continues to be an issue for all of our recruiters.”

Asking about the current status of housing has become a standard part of screening physicians at Delta. Being upside down in a mortgage loan may not be a deal breaker, but it’s something Hurst and his colleagues discuss before connecting the physician with a practice or health system.

St. Louis–based Cejka Search reports similar concerns. “In my experience, the current economy is having a dramatic impact” on recruitment of practicing physicians, says Kathy Murray, senior director of key accounts in the physician search division at Cejka Search. “The fear of not being able to sell a home has resulted in physicians making the decision to stay where they are until the housing market improves. It seems that unless the physician’s current situation is untenable, they may decide it is better to wait.”

“Yes, yes, yes, it is causing major headaches,” agrees Fredrick T. Horton, president and CEO of Horton, Smith & Associates in Overland Park, KS.

Tatyana Soloveva, director of physician recruit-ment at John Muir Medical Center in Walnut Creek, CA, also reports that recruiting has become more challenging as physicians, stuck with large

mortgages, are unwilling or unable to move.AMGA and Cejka Search 2008 Physician Retention Survey, released in March, reveals one positive side of declining home values. Of systems and practices surveyed, 54% said the ability of a can-didate to buy a home in the new community had a positive effect on recruitment. But the same percentage indicated that the inability of candi-dates to sell a current home in order to relocate had a negative effect.

A dissenting viewNot everyone agrees about the severity of

the problem. Jim Stone, managing partner and cofounder of Dallas-based Medicus Partners, says he believes that a physician who seriously wants to make a move will, regardless of the housing situation. “It really boils down to the physician’s situation. If they are truly motivated to improve their current practice situation, difficulty selling the house isn’t going to keep them from doing something about it, except in rare cases.”

He recounts the story of a surgeon who want-ed to move from his small town. The surgeon realized that his million-dollar home, in a town where no other house cost more than $300,000, was priced out of the market. “His choice was to

RecRuitmentPhysician comPensation

&


For permission to reproduce part or all of this newsletter for external distribution or use in educational packets, please contact the Copyright Clearance Center at www.copyright.com or 978/750-8400.

2 Physician Compensation & Recruitment April 2009 ©2009 HCPro, Inc.

Other tactics under consideration include: Temporary housing. » Some organizations have bought houses (often at foreclosure prices) to provide temporary housing for newly recruited physicians who are trying to sell their houses, says Hurst. Murray reports that some clients are providing temporary housing until a home sells, and Horton is seeing an increase in temporary hous-ing allowances. Loans. » Some facilities provide home loans to physicians. (According to the AMGA/Cejka survey, about 6% do.) What’s more common—and more prudent—is for hospitals to coordinate with existing lenders, says Hurst.

take a bath on the house and move to a better situation or to stay put. He chose to pick up stakes and move on, taking a bath on the house.”

Not every physician is that motivated, so hospitals, health systems, and practices are looking for ways to make moves more feasible.

Standard bonuses redeployedFor the most part, organizations aren’t throwing a lot

more money at physicians to help dislodge them from their houses. Often, it’s a matter of transforming the signing bonus. For example, the recruiting facility, instead of a bonus, agrees to pay the mortgage on the original house for 6–12 months, says Hurst. The amount may be the same, but it’s directed—at least in part—at house payments.

That parallels Stone’s experience. “Most hospitals realize they are going to need to pay a signing bonus and, at times, it is used to get an ‘upside-down’ physician out of that situ-ation,” he says. “The beauty of the signing bonus is that it can be used for whatever the candidate’s needs are.”

Some organizations are increasing their signing bonuses to help with housing, Horton says.

But the need for relocation bonuses is driving expecta-tions—even among those not facing a crisis. “Residents and fellows may not have a home to sell and they are able to relocate, but they still expect a significant signing bonus and money for relocation,” says Murray.

In the AGMA/Cejka survey, 96% of respondents indi-cated they offer relocation assistance. Approximately 53% offer an average of $10,000–$15,000 to relocate a physi-cian, while 26% spend within the range of $7,500–$9,900. The most common types of assistance were covering moving company and transportation expenses. It breaks down as follows:

Moving company expenses: 92% »Transportation expenses: 66% »Realtor fees: 10% »Other: 8% »Low-cost home loan: 6% »Housing subsidy: 4% »

Housing marketcontinued from p. 1

Unexpected consequences: Is the housing crisis creating more locums?

The housing crisis appears to be contributing to another

trend, says William Scott Hurst, MBA, principal marketing con-

sultant at Delta Physician Placement in Dallas. Physicians, dis-

contented with their current situations, but unable to relocate,

are turning to locum tenens work. At this point, Hurst says, the

data are still anecdotal, but he says he hopes to quantify it soon.

If physicians end up leaving their practices and turning to locum

work, it could drive up costs even more, he says.

Mike Beckman, director of recruiting at Delta Locum

Tenens in Dallas, first alerted Hurst to the fact that more phy-

sicians were moving into locum tenens because they couldn’t

sell their homes and relocate. But that’s not the only way the

housing crisis is affecting locum tenens, Beckman says.

“With home equity being a big part of many physicians’

retirement nest eggs—much of which has been wiped out with

the recent declines in home prices—more physicians are turning

to locum tenens as a way to rebuild their retirement accounts,”

he says. Increasingly, he’s seeing physicians use their allotted

vacation time (and weekends, when not on call) to do locum

work. It’s a trend he expects to grow during 2009 and beyond.

PCR sourcesMike Beckman, director of recruiting, Delta Locum Tenens, 1755 Wittington Place, Suite 800, Dallas, TX 75234, 214/442-4232.

William Scott Hurst, MBA, principal marketing consultant, Delta Physician Placement, 1755 Wittington Place, Suite 800, Dallas, TX 75234, 214/442-4644.



©2009 HCPro, Inc. April 2009 Physician Compensation & Recruitment 3

likely to have a McMansion at that point,” says Horton. He’s also advising clients to offer flexible starting dates. Waiting a few extra months can make the difference between filling a position and having it go unfilled for a much longer period.

How flexible organizations will be depends on how moti-vated—or desperate—they are. That varies by specialty and facility. A small hospital in a rural community that loses a family practitioner may be more flexible and generous than a health system in a large metropolitan area, Hurst says.

Health systems want to help, but they will not take steps that dramatically increase risk or unsustainable costs, says Horton. “Systems are fighting to make profit and keep their bond ratings intact as the number of uninsured increases,” he says. “They incur more bad debt, their investment earn-ings are plummeting, and elective procedure volume is down. There is only so much they can do.” H

PCR sourcesFredrick T. Horton, president and CEO, Horton, Smith & Associates, 7400 West 132nd St., Suite 350, Overland Park, KS 66213; 913/752-4578.

William Scott Hurst, MBA, principal marketing consultant, Delta Physician Placement, 1755 Wittington Place, Suite 800, Dallas, TX 75234, 214/442-4644.

Kathy Murray, senior director of key accounts—physician search division, Cejka Search, 4 CityPlace Drive, Suite 300, St. Louis, MO 63141, 800/678-7858.

Tatyana Soloveva, director of physician recruitment, John Muir Medical Center, Walnut Creek Campus, 1601 Ygnacio Valley Road, Walnut Creek, CA 94598, 925/939-3000.

Jim Stone, managing partner, cofounder, Medicus Partners, 14114 Dallas Parkway, Suite 600, Dallas, TX 75254, 972/759-0331, Ext. 225.

But this is all new territory and things may change depend-ing on the economy, Horton says. He says he is seeing some systems help with bridge loan underwriting; it’s still rare, but he expects to see more in the coming months. (John Muir offered loans, but no longer does, says Soloveva.)Working with relocation companies. » Some clients are referring the physician to relocation companies that may be able to assist in marketing the home, says Murray. The practice is becoming increasingly common, Horton says.

One tactic that hasn’t emerged is purchasing the physi-cian’s house. When Hurst first looked into this issue last year, he heard “rumblings” about that approach. But organi-zations soon realized “it doesn’t do them much good to buy a home in a different state,” he says.

So far, hospitals and health systems are not paying points or taking on the risk of homes. “And I don’t see them going in that direction,” Horton says. “Typically, those actions are taken when recruiting execs, but they only do that once or twice a year. When they have to recruit 20 physicians a year, they just can’t take on that expense.”

Looking aheadFor now, it may make sense to focus on those unencum-

bered by a house. “We recommend focusing on new grads and recently graduated, early careerists, since [they are less]

continued on p. 4

Martin D. Brown, CPA, a shareholder at Pershing Yoakley & Associates in Knoxville, TN.

At its most basic, FMV is the amount at which property would change hands between a willing seller and a willing buyer when neither is under compulsion and both have rea-sonable knowledge of the relevant facts. Especially for OIG and Stark purposes, it must be an arm’s-length transaction consistent with the general market value.

It’s obvious, but bears repeating: Hospitals often seek to purchase physician practices as a means to retain existing refer-rals or to attract new referrals of patients to the hospital. But

Increasingly, health systems are acquiring private practices. Accordingly, it’s more important than ever for physicians to understand what their practice is worth. That means they must understand the concept of fair market value (FMV).

Valuations are crucial to crafting buy-sell agreements, mergers, and regulatory compliance. But given how wide-spread the trend is, this article will focus on FMV as it relates to practice acquisitions, with emphasis on compensa-tion and retention and recruitment-related issues.

The basicsIf physicians are regularly buying and selling interests in a

practice, FMV be should be assessed every 2–3 years, says

Accurate comp calculations crucial to fair market value




that potential referral stream cannot be factored into FMV. Neither can any factor that would appeal to one buyer and not to another—for instance, proximity to the acquiring hospital (or even proximity to a competing hospital).

There are three basic approaches for arriving at value: asset-based, income-based, and market-based. The first two are the most commonly used for physician practices; there usually aren’t enough comparable sales in a given area for the market-based approach to be practical.

Getting startedThe most important thing to have before embarking on

a valuation is a good set of statements and balance sheets, supplemented with good statistical information, says Brown.

For example, if the charges are $400,000 per physician, iden-tify how many office visits that represents. “It helps you get your arms around what’s driving the numbers,” he says, adding that although one or two years’ worth of data is required, three is

ideal. Brown offers the following checklist of data require-ments as a starting point:

Practice financial statements »Charges, collections, and adjustments »Accounts receivable and payable »Fixed asset schedule »Notes payable and lease obligations »Payer mix »Patient volume and number of active charts »Physician compensation and any discretionary expenses »Employee list, job description, tenure, and pay rate »

(For a more detailed checklist, see “Appraisal and fair market value checklist” on p. 6.)

FMV is driven by future earnings and the risk associated with those earnings, so forecasts and trends are important. “For example, there is a severe shortage of general surgeons,” Brown explains. “That’s a driver that would likely increase the value of that practice.”

The situation might be reversed for cardiac surgery, where the demand for open-heart surgery is declining because of the availability of other therapies.

For the purpose of financial projections, it makes sense to project an increase in the patient bad-debt expense, given the current economy. It also makes sense to factor in an increase in certain supply costs. Given the current trends, a practice will probably want to project flat reimbursement rates into its calculation.

Numerous other elements go into developing an FMV for a medical practice. Brown offered a good overview in a December 2008 HealthLeaders Media audio conference. (Visit www.hcmarketplace.com/prod-7238.html to order.)

Figuring out compensationCompensation may be one of the most important aspects

of FMV, but what constitutes compensation for such a valuation is very specific. It’s crucial to figure out what to assign to the value of the practice and what to assign to compensation.

Only cash compensation should be included in the calcu-lation. Physicians in private practice generally get all earn-ings that are left after all expenses. But when calculating FMV, any “ownership dividend”—in effect, an ROI and

Fair market valuecontinued from p. 3




is generally considered to “fall within a competitive range” and therefore, FMV. If an organization is proposing to compensate the physician(s) above the 75th percentile, there should be strong productivity data supporting such compen-sation, as well as the business judgment factors, says Mobley.

Another factor to consider is the cost of benefits the ac-quiring hospital is going to incur, Mobley says. There are physician compensation surveys, including SullivanCotter’s, that report on the benefits-cost benchmark norms.

Compensation errorsCarelessness with compensation may be the biggest

mistake made in determining the FMV of a practice, says Brown. It’s not only crucial to coming up with an accurate value, but to establish a realistic figure as a basis for future compensation.

The acquiring entity often feels pressure to pay doctors at least the same amount they earned the previous year. What acquiring entities often don’t fully grasp is that they have taken away the risk of running the practice, Brown says. It makes sense, then to remove the reward for that risk from the cal-culations. It’s a matter of striking a balance between the right amount of compensation going forward and the right amount to pay for the practice. Some of what initially shows up as physician compensation needs to be reallocated to net income.

He offers an example: A physician made $300,000 in income. But based on the benchmark surveys and the cal-culations noted above, it could be that the compensation for actual services rendered by the physician should be $250,000. The remaining $50,000 is related to the running of the business—“an ownership dividend.”

“So from a value standpoint, you would reflect compensa-tion at $250,000, and $50,000 would drop to the bottom line,” says Brown. The hospital would have to explain to the physician that they will be paid $250,000 going forward, not $300,000. However, the physician would then receive a higher value for the practice up front, he says.

The organization also wants to make sure that the compen-sation plan is designed so the productivity targets support the level of compensation that can be earned, says Mobley.

This can be done by looking at actual productivity tar-gets relative to market benchmark norms as well as the

not compensation for services rendered—must be stripped out of the compensation-expense calculation and allocated to the value of the practice. That means going through the compensa-tion, line by line, to remove everything unrelated to pay for ser-vices rendered. For example, comp plans are often loaded with excess fringe benefits, Brown says. Those could include a family cell phone plan, vehicle costs, travel, or entertainment. Such items also need to be excluded from future operations expenses.

You want to look at all the elements of compensation separately and together.

“Once fair market value has been established for the prac-tice, the next step typically involves the development of a compensation plan that will be used for the physicians once they are acquired,” says Kim Mobley, principal at Sullivan, Cotter and Associates, Inc. (SullivanCotter) in Detroit. “It is important to look at the entire compensation arrangement once all of the elements are in place.”

“In these situations, you are often chasing a moving target,” Mobley explains. Although one element of the proposed compensation plan may be reasonable and within FMV, when you add in other components (e.g., sign-on bonus, retention bonus, productivity incentives, and quality incentives), the total compensation may exceed FMV, even though the indi-vidual compensation elements appear reasonable.

Salary surveys can help normalize compensation, but given all the variables involved, they are only a guideline.

The role of compensation surveysPhysician compensation surveys conducted by indepen-

dent organizations should be used to compare the specialty-specific actual compensation levels earned relative to market benchmark norms, Mobley says.

Ideally, such comparisons should also include productiv-ity levels. Ideally, productivity reflecting actual collections or wRVUs should be used. “In most instances, the compensa-tion approach for the acquired physician practice will be dif-ferent than what the physicians were used to in their private practice,” Mobley says. “To ensure that the compensation plan is working as intended, as well as to ensure the compen-sation levels produced represent FMV, the projected com-pensation levels should also be analyzed.”

If the proposed total cash compensation for the physician falls between the 25th and 75th percentiles of the market, it continued on p. 6




will experience losses and never recoup their up-front invest-ment,” says Brown.

A less common—but costly—mistake is failure to nor-malize taxes. Usually, the practice doesn’t pay corporate income taxes because there’s no net income; it’s all distrib-uted. But in FMV calculations, there is net income projected forward. Therefore, it’s essential to calculate the income tax

ratio of total cash compensation to projected collections or wRVUs. A common mistake acquiring entities make is to pay for the practice and keep the compensation at $300,000. “When they do that, they’ve usually double-dipped. They

Fair market valuecontinued from p. 5

Appraisal and fair market value checklist

Yes No

Selecting the right valuation professional

Does the individual or firm have the appropriate credentials (i.e., CPA or CFA?)

Does the individual or firm have the appropriate level of healthcare experience?

Do they have experience with similar engagements?

Does the firm have sufficient resources to complete the engagement within the necessary time frame?

Were you offered options regarding the level of analysis (i.e., a full appraisal vs. calculation of value) specific to your needs?

Were you provided with a list of credible references with contact information?

Assessing the valuation report

Does the appraiser take responsibility for the work product as evidenced by the inclusion of a signed certification?

Is the Stark definition of fair market value (FMV) defined and considered?

Does the report contain a section indicating the appraiser’s understanding of the industry?

Does the report represent that it is prepared in accordance with appropriate professional standards?

Does the report contain a section analyzing the entity’s historical financial performance?

Does the report include a benchmarking analysis?

Are cash flow assumptions reasonable and do they take into consideration recent changes in reimbursements?

If the market approach was used, were the transactions selected from the same geographic area?

Does the discount rate seem reasonable given the risk characteristics of the business?

Does the report address the existence of debt and its impact on the assessment of risk and the capital structure?

Are discounts and premiums related to control and marketability adequately explained and reasonable under the circumstances?

Are the value indications obtained from various methods reconciled appropriately?

Does the financial conclusion seem reasonable and supported?

Assessing the FMV compensation report

Are multiple survey data sources incorporated in the analysis?

Did the analyst consider differences in geographic makeup between the survey data and the physician(s) location?

If applicable, was productivity of the physician(s) factored into the analysis?

Does the report address FMV as defined by Stark/OIG?

Is there an analysis of wRVUs? If not, should there be?

Did the analyst address any recent changes in the RVU structure and its impact on the conclusion?

Will the physicians have use of hospital space and has that been addressed in the analysis?

Have marketplace transactions been considered?

Did the FMV process appropriately differentiate between administrative and clinical responsibilities?

Are the required hours (i.e., medical directorship) reasonable?

Does the report consider the amount of time required to perform the necessary duties?

Source: Pershing Yoakley & Associates. Used with permission.




has enhanced value. Such ability—be it based on location, recruiting skills, or anything else—contributes to the bottom line, Brown says.Duration of relationship. » A related question is how long the physicians will stay on board after the acquisition. Is the sale an exit strategy or are the doctors planning to remain with the practice? If the employment agreement is for one or two years, that raises concerns about the long-term viability of the practice. (Likewise, it makes a difference whether the sale is part of an exit strategy for a retiring physician.) Untapped competency. » Although a minor factor, it’s often overlooked by practices. The unused expertise of a physi-cian in the practice, especially if that competency can be put to use by the acquiring hospital or health system, may have bottom-line value. The doctor who is very good at speaking, teaching, and clinical research, but doesn’t have the oppor-tunity to use those skills in the practice, could be a valuable asset.

Developing an FMV that’s accurate and avoids the risk of Stark or OIG action can be tricky, Brown says. That’s why he offers a final word on the issue: “Be diligent—and careful.” H

PCR sources

Martin D. Brown, CPA, Pershing Yoakley & Associates, 525 Portland Street,

Knoxville TN, 37919, 865/673-0844; [email protected].

Kim Mobley, principal, Sullivan, Cotter and Associates, Inc., 3011 West Grand

Boulevard, Suite 2800, Fisher Building, Detroit, MI 48202, 313/872-1760;

[email protected].

expense, since that would likely reduce the value. This needs to be done even if the acquiring entity is tax-exempt. If that comes down to the “any willing buyer, any willing seller” concept, you could have a for-profit entity buying the practice.

Recruiting and work force issuesValuations aren’t just about tangibles. Intangibles, such

as goodwill, can contribute to the value of a practice but can be difficult to quantify. Most recent transactions that Brown has seen don’t include goodwill, but that can vary by market.

It’s important to distinguish between personal goodwill and practice goodwill—both to arrive at the proper value and to avoid triggering an OIG investigation.

Brown gives an example of personal goodwill in a neu-rosurgery practice. “The actual skill set of the named indi-vidual is so incredibly important that if he or she were not involved in the practice going forward, it could take away its value,” he says. “You can’t sell personal goodwill, because it always stays with you.”

Practice (or professional) goodwill includes intangible practice assets—such as work force-in-place or locations—that contribute to the revenue stream.

Intangibles related to retention and recruiting can include the following:

Recruiting success. » The ability to recruit can enhance a practice’s value. A practice with a good record of recruit-ing residents and transitioning them into private practice

PCR Subscriber Services Coupon Your source code: N0001

Name

Title

Organization

Address

City State ZIP

Phone Fax

E-mail address(Required for electronic subscriptions)

❑ Payment enclosed. ❑ Please bill me.

❑ Please bill my organization using PO #

❑ Charge my: ❑ AmEx ❑ MasterCard ❑ VISA ❑ Discover

Signature(Required for authorization)

Card # Expires(Your credit card bill will reflect a charge to HCPro, the publisher of PCR.)

❑ Start my subscription to PCR immediately.

Options No. of issues Cost Shipping Total

❑ Print 12 issues $399 (PCRP) $24.00

❑ Electronic 12 issues $399 (PCRE) N/A

❑ Print & Electronic 12 issues of each $399 (PCRPE) $24.00

Sales tax (see tax information below)*

Grand total

Order online at www.hcmarketplace.com.

Be sure to enter source code N0001 at checkout!

*Tax Information Please include applicable sales tax. Electronic subscriptions are exempt. States that tax products and ship-ping and handling: CA, CT, FL, GA, IL, IN, KY, MA, MD, MI, MN, NC, NJ, NY, OH, OK, PA, RI, SC, TN, TX, VA, VT, WA, WI. State that taxes products only: AZ. Please include $27.00 for shipping to AK, HI, or PR.

Mail to: HCPro, P. O. Box 1168, Marblehead, MA 01945 Tel: 800/650-6787 Fax: 800/639-8511 E-mail: [email protected] Web: www.hcmarketplace.com

For discount bulk rates, call toll-free at 888/209-6554.




This compares to the combined internal medicine median compensation of $190,574.

According to the SHM 2007-2008 Survey on the State of the Hospital Medicine Movement, the average hospitalist made $193,000 (adjusted mean) in 2007. (The median compensa-tion in 2007 was $183,900, compared to $171,000 in 2005.) These numbers include all hospitalists, including those work-ing in academic environments who make significantly less than other hospitalists do, says Miller.

Meanwhile, North Hollywood, CA–based IPC The Hos-pitalist Company, a national chain of hospitalist private prac-tices, reports substantially higher compensation. According to IPC, its hospitalists had an average take-home compensation—salary plus bonus—of more than $260,000 in 2008. (Note that this figure is an average, not a median. Moreover, it does not include academic medicine.)

Demand’s high, but is there a shortage?Miller believes the demand for hospitalists is strong and

growing stronger. But opinions vary as to whether that is causing a shortage. Miller believes so, noting that virtually every program recruiting additional hospitalists is having trouble.

Adam Singer, MD, IPC founder, chair, and CEO, thinks it’s particularly severe among those with specific training. “When you take into consideration the many internists who refer to themselves as ‘hospitalists,’ but who have not had the benefit of in-depth training specific to hospital medicine, the shortage is much greater,” Singer says.

Fuller disagrees. “Internal medicine residents naturally gravi-tate toward hospital medicine, as they are accustomed to the fast-paced culture of the emergency room setting.”

Moreover, new residents receive extreme peer pressure from the subspecialists that train them, which helps drive residents into hospital medicine. “The reality is that of the 6,800 grad-uating internal medicine residents in 2009, only 1,600 will go into general practice. The remainder will choose hospital medicine or subspecialty fellowships,” says Fuller.

But it’s not just residents moving to hospital medicine, he adds. Many practicing traditional internists have gravitated

Although it is relatively new, hospital medicine is on its way to becoming the largest specialty in the United States. The term “hospitalist” was coined by Drs. Robert Wachter and Lee Goldman in the August 1996 New England Journal of Medicine.

Compensation is increasing steadily and is already higher than that of other internists. More than 80% of practicing hospital-ists are trained in general internal medicine and 6.5% are trained in general pediatrics, according to the Society of Hospital Medicine (SHM) in Philadelphia. These numbers vary, since some sources may include nonphysician providers and hospital-based specialists such as laborists and neurohospitalists.

Rapid growthHospital medicine is the fastest-growing medical specialty in

the history of American medicine. On average, the number of hospitalists is increasing about 20% per year, says Joseph A. Miller, executive advisor to SHM’s CEO.

Based on data from the American Hospital Association, SHM representatives estimate there are approximately 28,000 practicing hospitalists in the United States. That contrasts to

23,198 in 2007, 19,271 in 2006, and 16,383 in 2005.The growth rate should moderate as the specialty becomes

more established and supply meets demand. Miller says he expects the number of hospitalists to peak around 40,000. Meanwhile, penetration continues to increase, with more than half (58%) of U.S. hospitals having hospitalists on staff.

CompensationCompensation also continues to grow steadily. “Supply

and demand has driven the compensation trend upward for hospitalists over the last few years. The key drivers include availability of providers and work-life balance or quality- of-life issues,” says Jim Fuller, vice president of marketing at Delta Physician Placement in Dallas.

Generally, hospitalists make less than most specialists but somewhat more than internists do practicing primary care. Still, there’s considerable variation. In its 2008 survey, MGMA reported the following median compensation in 2007 for hospitalists: Family practice was $194,259, internal medicine was $197,872, and pediatric was $161,000.

Regular hours, stimulating work, good pay draw hospitalistsRapid evolution of hospital medicine brings growing pains




Locum role About 5% of hospitalists work as temps, either through

a locum tenens agency or as a moonlighter, says Flores. Another 10% are part-time hospitalists working as part of a core group. The rest are full-time.

Given the shifting nature of hospital medicine, it’s easier to integrate locum tenens hospitalists into the mix, says Flores. Using locum physicians makes it easier to provide more attractive schedules to the staff hospitalists.

Specialty hospitalistsSHM’s numbers refer to hospitalists only in the internal

medicine and pediatrics universe. But there’s an emerging trend: Specialty hospitalists.

Increasingly, specialist groups are recruiting hospital-based providers, Fuller says. Hiring hospital-based special-ists eliminates call coverage and allows specialists to expand their outpatient practice. Laborists (OB hospitalists) are among the most common. Other specialties that have adopted this model include orthopedic surgeons, pulmo-nary/critical care intensivists, pediatricians, neurologists, and gastroenterologists.

The trend will grow, says Flores. Given the growing num-ber of uninsured patients and the increased unwillingness of some physicians to take ER call or accept unassigned patients, it makes sense for hospitals to hire hospital-based specialists, she says.

Employment and compensation modelsHospitalists are compensated under a wide range of finan-

cial arrangements. According to SHM, 24% are salaried, 6% are compensated based on productivity and performance, and 69% are compensated through a mix of salary and pro-ductivity and performance-based incentives.

Compensation models are different for hospitalists; pro-fessional-fee revenue does not cover expenses. Hospitalist programs require financial support (or subsidy) to be viable, Miller says. SHM survey data suggest these subsidies amount to approximately $95,000 per FTE per year. When that amount is applied to the 28,000 hospitalists, it totals more than $2.5 billion. However, the SHM, among others, notes that using hospitalists can save considerably more. Research

toward it for two primary reasons: better work schedules and better compensation. The real shortage is in internal medicine, Fuller says.

He does concede, however, that since internists make up approximately 75% of the current hospitalist pool, the chal-lenge of recruiting quality hospitalists is proportionally tied to the availability of internal medicine physicians.

Recruiting and retentionAs is the case in other specialties, quality of life, compen-

sation, and location help drive recruitment and retention. For hospitalists, quality of life is closely tied to work sched-ule and patient volume, Fuller says. Accordingly, most pro-grams offer scheduling flexibility.

Physicians are attracted to the specialty by predictable hours and compensation, says Leslie A. Flores, MHA, director of the SHM Practice Management Institute in Philadelphia.

Retention can be a challenge: It’s easier for hospitalists to move around and find the right niche. With few barriers to entry or exit, turnover can be high, Flores says.

If a hospitalist wants more responsibility, more money, and better conditions, he or she can leave for another job and have a full schedule the first day. There’s not the same investment as in practice building, she says.

Another factor, says Miller, is that for some freshly minted residents, working as a hospitalist “is a stepping stone rather than a career.”

He reports that about 10%–15% of hospitalists practice hospital medicine before moving on to a fellowship or sub-specialty training. Of all departing hospitalists, 26% leave for this purpose.

Exactly 50% of all hospitalists come straight out of resi-dency or fellowship, says Flores. This is their first actual job in medicine, they are young and may not be certain about what they are looking for in a career.

The average hospitalist is about age 38, male (65% vs. 35% female), and has 3.7 years of experience, says Miller. According to SHM, 53% of hospital medicine groups have on-site providers at night, 27% provide on-call hospital-ists, and 16% provide a combination of on-site and on call. The average hospitalist sees more than 2,400 hospitalized patients per year. continued on p. 10




Not only is the role changing, it’s expanding. One example is the emergence of the co-management model. Some hospitalist groups are setting up preoperative clinics and establishing con-tracts with surgery groups to co-manage hospitalized patients.

The expanding role of hospitalists provides exciting opportunities to attract residents to the field, but it can also create tension among physicians. Moreover, in some hospitals, there are no clear standards regarding who admits certain patients, such as stroke patients or those with GI bleeding or hip fractures, and such issues can hurt physician retention, says Flores.

As hospital medicine programs—and hospitalists’ roles—grow, more questions will emerge, says Miller. It will be stressful, he says.

But such growing pains are to be expected, given what he sees as the hospitalists’ task. “Our professional society and the movement, in general, views the role as fundamentally changing the way care is delivered in hospital.” H

PCR sourcesLeslie A. Flores, MHA, Director, Practice Management Institute Society of Hospital Medicine, 1500 Spring Garden, Suite 501, Philadelphia, PA 19130, 267/702-2602.

Jim Fuller, vice president of marketing, Delta Physician Placement, 1755 Wit-tington Place, Suite 800, Dallas, TX 75234, 212/442-4644.

Joseph A. Miller, executive advisor to the CEO, Society of Hospital Medicine, 1500 Spring Garden, Suite 501, Philadelphia, PA 19130, 267/702-2602.

Adam Singer, MD, founder, chair, and CEO, IPC The Hospitalist Company, 4605 Lankershim Boulevard, Suite 617, North Hollywood, CA 91602, 888/ 447-2362.

studies show that patients under the care of hospitalists have shorter lengths of stay and reduced costs per discharge than those under traditional care.

The primary reason for the subsidy requirement is reim-bursement, says Miller. For example, no matter how many times a hospitalist visits a patient, only one encounter per day can be billed. Hospitalists cannot share in the savings they gen-erate for the hospital because of gainsharing regulations.

Increasingly, compensation is moving toward pay for performance and that should have a positive impact on hos-pitalists, say Miller and Flores. Based on SHM survey data, roughly 45% of hospitalist groups have a quality incentive compensation program. Hospitalists are increasingly taking the lead in quality improvement initiatives, and Miller says no other specialty comes close to hospitalists in terms of pay for quality. It may be a harbinger of things to come for other specialties, he says.

Rapidly evolvingLike any new field that’s developing rapidly, the hospital-

ist’s job is still evolving. What it looks like today is different from what it looked like last year—and what the job will look like next year, says Miller. Moreover, each practice set-ting brings its own pressures and challenges.

Hospitalistscontinued from p. 9

Hospitalist median compensation trends

Compensation survey

2008 report median

2007 report median

2006 report median

2005 report median

2007–08% change

2005-08%

change

AMGA Medical Group Compensation and Financial Survey $205,445 $191,463 $189,677 $171,991 7.30% 19.45%

HCS Physician Salary Survey Report (salary data only) $199,000 $163,800 $152,950 $146,702 21.49% 35.65%

MGMA Physician Compensation and Production Survey

(internal medicine hospitalist)

$197,872 $193,330 $182,184 $176,323 2.35% 12.22%

Sullivan, Cotter and Associates Physician Compensation

and Productivity Survey

$180,000 $173,644 $161,988 $163,509 3.66% 10.09%

Note: Survey results are based on the previous year’s data.

Source: Data excerpted from AMGA, Hospital & Healthcare Compensation Service (HCS), MGMA, and Sullivan, Cotter and Associates,

Inc., compensation surveys. Reprinted with permission.




purchased in the acquisition. Your ancillary services, depend-ing upon what they are, might be operated within the hospital or as a hospital outpatient department. Because of regulatory constraints, you cannot be compensated for the Medicare/Medicaid components, based upon your direct productivity (i.e., referrals) for these services. Your professional fees will, of course, be recognized as they relate to the performance of these services. Your overall compensation as an employee of the hospital should reflect the value you bring to the organiza-tion going forward (within FMV parameters).

What changes can we expect post-acquisition by the »hospital? From a clinical standpoint, as long as you maintain the hospital’s professional standards and practices, you will see no changes. From a business standpoint, the hospital’s goal is to manage your business as efficiently as possible. This means increased purchasing power for supplies and equipment, consolidating certain processes such as administra-tive management and billing/collections, increasing access to IT, and a variety of other areas.

Will we be required to change our location? » Assuming your facility meets the hospital’s standards, you will be allowed to stay until such time as it is mutually agreed that relocation is desired. Depending on the lease and what is allowed by the landlord, the hospital will either assume that contract or sublease the space from you directly. In situations where the hospital-employed physicians (or entities owned by same) are the lessors, the hospital is required to lease the space at FMV.

What will be our control over hiring/firing of staff »going forward? Adding and dismissing staff will be completed through the hospital’s HR department. Our goal is to ensure that the practice runs as efficiently and effectively as possible, which means that the physicians should be involved in the overall decision-making process. Your opinion is valued and specific input will be welcomed. As the employer, however, the hospital has final authority and legal responsibility.

What does the process entail, and what are our next »steps? How long does this process generally take? (Here, you will want to include a timeline of the process.) H

Editor’s note: Reiboldt, president and CEO of The Coker Group in Alpharetta, GA, can be reached at [email protected] or 678/832-2007.

by Max Reiboldt, CPA

As hospitals continue to aggressively acquire physician practices and employ their providers, it is imperative that each facility have an organized plan for acquisition. We rec-ommend an FAQ presentation, followed by a timeline for completion of the necessary steps within the acquisition and employment process. The following is one example of how this can be done:

What is the general structure of the compensation »plan under an employed scenario? The plan will emphasize individual productivity with the potential of some group incen-tives, as well as nonproductivity-based, or soft, incentives. Some guaranteed pay may be available and the possibility of individual sign-on bonuses will be considered, although, as a general rule, will not be provided. An excellent benefit package will result, likely better than that which exists in your private practice. All of the compensation components must be deemed to be within fair market value (FMV).

Will there be any acquisition of the practice? If so, »how will the value be determined? Given the scrutiny placed on hospital-physician acquisition transactions by regulators, we believe it is safest (from a regulatory point of view) for the hos-pital and you to not consider “goodwill,” which is nebulously calculated, at best. Thus, we will base our acquisition on the value of your tangible assets (e.g., medical and office equipment, computers, furniture, etc.). They will be appraised by an inde-pendent third party in compliance with valuation standards. Any intangible value that may have otherwise been paid at closing will be inherently considered within the go-forward compensa-tion structure, which not only mitigates the issue of goodwill, but in the long run, it is likely a much better economic arrange-ment (plus, much safer from a compliance perspective).

What will be the term of the employment agreement? »The term of the employment agreement will range from one year to potentially as many as three years, depending upon the situation. Fairly flexible termination terms will exist, although the hospital’s investment must be protected by a reasonable restrictive covenant and non-solicitation agreement.

How will our practice ancillaries be handled going »forward? The equipment and other tangible assets that support the production of the ancillaries will likely be

FAQ approach aids acquisition, employment




Although gainsharing may have created virtual integration in narrowly focused ways, this truer form of integration sets in motion models that offer the potential of long-term and ongoing improvement of cost and clinical outcomes across the entire continuum of care. The result is that the gainshar-ing model is being leapfrogged over by true integration and will likely not reach its anticipated potential.

James W. Lord, principal, ECG Management ConsultantsGainsharing has tremendous potential for creating align-

ment in healthcare. Once banned, it is back in the headlines as an answer for creating better cost-efficiencies.

Appropriate alignment that encourages cost-efficiency is an important tool in the ability to stave off double-digit healthcare inflation. It has been proven that physicians and hospitals working together to create the best value (great-est outcome at the most appropriate cost) is possible, but that incentives must be in place to realize the potential. Gainsharing is an important component of creating value in healthcare.

Max Reiboldt, CPA, president and CEO, The Coker Group

The basic premise of gainsharing is very much alive and well. The devil is in the details, and this is often where gainsharing programs are most lacking.

It remains to be seen how current and prospective gainshar-ing programs will function in the healthcare delivery system, although the indicators are promising. H

Editor’s note: PCR asked “What is the future of gainsharing?” Send your questions for our experts to [email protected].

Phillip Miller, vice president of communications, Merritt Hawkins & Associates

Recent rulings appear to open the door to gainsharing wider, but this method of bringing hospital and physician goals in line is being supplanted by the increased employ-ment of physicians by hospitals.

Fredrick T. Horton, president and CEO, Horton, Smith & Associates

Gainsharing has not proliferated at the expected pace. Several issues have stalled broad-based execution of the strategy:

The complexity in creating models that don’t run afoul of »the various laws and regulations. Even after due diligence, there can be ambiguity and risk.It is difficult to create sustainable gainsharing targets that »contain payback after the initial gain has been achieved. The overall model tends to have a narrow focus and is a »relatively immature level of integration when compared to other models of affiliation.

The real action in the world of integration and clinical/cost improvement is occurring via true integration, as groups are being merged into hospitals or health systems at a very brisk pace. The effort and energy that had been focused on gainsharing is now being refocused toward more advanced models of true integration.

Ask the experts

Experts differ on future of gainsharing

Editorial BoardMarc Bowles, CPC-PRC, CMSR, FMSDChief Marketing Officer The Delta Companies Irving, TX

James W. LordPrincipal ECG Management Consultants, Inc. St. Louis, MO

David A. McKenzie, CAE Reimbursement Director American College of Emergency Physicians Dallas, TX

Kim MobleyPrincipalSullivan, Cotter and Associates, Inc. Detroit, MI

Max Reiboldt, CPAPresident and CEOThe Coker Group Alpharetta, GA

Ron Seifert Senior Healthcare ConsultantHay Group, Inc. Philadelphia, PA

Physician Compensation & Recruitment (ISSN: 1937-7576 [print]; 1937-7584 [online]) is pub-lished monthly by HCPro, Inc., 200 Hoods Lane, Marblehead, MA, 01945, 781/639-1872, www.hcmarketplace.com. Copyright © 2009 HCPro, Inc. All rights reserved. No part of this publication may be reproduced or transmitted by any means, electronic or mechanical, including photocopy, fax, electronic storage, or delivery without the prior written permission of the publisher. Physician Compensation & Recruitment is published with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Subscription rate: $399/year (25 copies maximum); back issues are available for $30 each. • Printed in the USA. Except where specifically encouraged, no part of this publication may be reproduced, in any form or by any means, without prior written consent of HCPro or the Copyright Clearance Center at 978/750-8400. Please notify us immediately if you have received an unauthorized copy. • For editorial comments or questions, call 781/639-1872 or fax 781/639-2982. For renewal or subscription information, call customer service at 800/650-6787, fax 800/639-8511, or e-mail: [email protected]. • Occasionally, we make our subscriber list available to selected com-panies/vendors. If you do not wish to be included on this mailing list, please write to the marketing department at the address above. • Opinions expressed are not necessarily those of PCR. Mention of products and services does not constitute endorsement. Advice given is general, and readers should consult professional counsel for specific legal, ethical, or clinical questions.

Group Publisher: Matt Cann

Executive Editor: Rick Johnson

Editor: Roxanna Guilford-Blake [email protected]

physician co m p e n s a t oi n re c r u i t m e n t · pdf file2 physician compensation &...

Documents