Physician compensation is changing as hospitals rapidly acquire physician practices and reimbursement levels decline. To augment their earnings in the face of reimbursement cuts, expensive practice investments and an uncertain future, physicians are looking for new methods of compensation that tie their pay to on-call coverage, medical directorship and quality measures. Here are five trends affecting the future of physician compensation, according to several compensation experts and recent studies.
1. RVU and bonus models continue to be favored over flat salaries. According to Sidney S. Welch, JD, MPH, partner with Arnall Golden Gregory, in the wave of physician practice acquisitions in the 1990s, hospitals generally paid physicians a flat salary for their work. "In this second wave, physicians are being put on a productivity formula in most situations, and typically that is some sort of structure that entails work RVUs," Ms. Welch says. This means that most physicians now receive base compensation in addition to a bonus depending on their productivity, which can be distributed to individual physicians by the hospital itself or divided up by the practice. Ms. Welch says while work RVUs have become standard in physician employment compensation arrangements, the industry is also starting to see the rise of quality indicators tied to compensation.
According to Jim Farrell with Florida law firm Shutts & Bowen, the danger of basing compensation on work RVUs is that the system is "fraught with potential gaming." He says that historically, hospitals have run into problems because "you can get a physician who goes and camps out at the ER all week long and takes care of every indigent patient walking down the street in order to generate RVUs to get a bonus — without generating any money for the facility." He says bonuses based on quality indicators are more naturally aligned with the hospital's interests; to earn extra pay, the physician must increase patient satisfaction or improve patient care outcomes. These quality outcome bonuses can also be negotiated with third-party payors, he says. "Hospitals are now able to negotiate with managed care on outcomes for cardiac-related admissions and see some compensation for the third-party payors, which they're able to turn into bonus structures for the providers," he says.
2. On-call compensation is more common. Historically, physicians were expected to provide on-call coverage as part of their affiliation with the hospital, says Mark Folk with Shutts & Bowen. No longer: Physicians across the country have begun demanding compensation for their time on-call, and the trend is spreading rapidly. "As soon as one hospital started paying one subspecialty for call coverage, everybody came down with the flu," Mr. Folk says.
Mr. Farrell adds that in communities where call coverage is new, the trend generally begins with trauma and neurology coverage. "Neurology was one of the early ones that occurred because while neurologists can do just fine with an office-based practice, hospitals desperately need them for stroke patients," he says. "And now you're asking the neurologists to come in on the high risk matters. They don't really want to come to the hospital in the first place, and there's generally a national shortage of neurologists." According to Medical Group Management Association's Medical Directorship and On-Call Compensation Study: 2011 Report Based on 2010 Data, on-call compensation can vary widely by specialty. Invasive cardiologists reported the highest median daily rate of on-call compensation at $1,600 per day; general surgeons earned a median of $1,150 per day.
3. Physicians are increasingly involved in administrative duties. As physician employment seeks to align providers more closely with hospital initiatives, physicians are increasingly expected to dedicate some time to administrative duties, says Mr. Folk. The trend has only increased as the physician population ages and older physicians look to move away from clinical duties to physician executive or management positions. Ms. Welch cautions physicians to look carefully at their employment contracts to ensure they are receiving fair market value compensation for their duties "above and beyond" clinical practice, which the hospital may consider part and parcel of their employed compensation. "The hospital is going to be asking or expecting the physicians to do certain things above and beyond as it relates to strategic planning, service line management or on-call coverage," she says. "That should come with additional compensation and fair market values that would have to be separate from [base compensation]."
Compensation for medical directorships — an increasingly common position for physicians looking to fulfill administrative duties — varies widely based on specialty, according to MGMA's Medical Directorship and On-Call Compensation Survey. According to the study, the majority of participants reported median annualized compensation levels of less than $50,000, with only four specialties reporting levels of more than $50,000. The lowest annualized compensation was reported by internists and pediatricians at $7,500.
4. Subspecialty and practice size continue to impact pay. Mr. Folk says hospital-employed compensation arrangements can vary greatly based on subspecialty and practice size, as both factors impact how the hospital can expand its ancillary services. "The type of ancillary services you can pack into a physician practice obviously varies by specialty," Mr. Folk says. "I'll give you an example. Earlier in the year and late last year, cardiologists were really hurting because their reimbursement under Medicare Part B got cut so drastically, so a lot of groups around the country contacted their local CEO and said, 'You've got to help me or you're not going to have cardiology at the hospital anymore.'" He says the cardiologists could move their practice ancillary tests into the hospital, where the hospital could receive higher reimbursement for a test than the physician could have received in his individual practice. While the physicians could not share in that ancillary income after the machine was part of the hospital, the revenues could contribute to the sale price of the practice.
Physician compensation can also be affected by the size of a group practice, Mr. Folk says. "Going forward, doctors in a group practice generally fare better under employment with a hospital than the individual physician who operates a physician office in a strip mall," he says. "Because of what the acquiring entity can do to augment practice revenue by adding ancillary tests, the hospital can share some of that revenue with doctors." He says the addition of ancillary equipment is more difficult in a small, solo practice with limited space.
5. Hospitals guarantee compensation for up to five years. When hospitals acquire physician practices, they generally guarantee compensation for 2-3 years, according to Mr. Folk. "Obviously the hospitals want to keep the guarantee as low as possible and for the shortest amount of time," Mr. Folk says. This hesitance to guarantee compensation long-term is due to the uncertainty of reimbursement over the next several years, he says. Fair market valuators are usually unable to predict more than five years into the future because changes to managed care rates are unpredictable. "We know there are anticipated changes in reimbursement coming from the government, and when there are changes in government reimbursement, there will be changes in managed care rates," Mr. Folk says. Because of this, compensation levels for hospital-acquired physicians may change significantly over the next several years as reimbursement rates are affected by changes to Medicare.
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1. RVU and bonus models continue to be favored over flat salaries. According to Sidney S. Welch, JD, MPH, partner with Arnall Golden Gregory, in the wave of physician practice acquisitions in the 1990s, hospitals generally paid physicians a flat salary for their work. "In this second wave, physicians are being put on a productivity formula in most situations, and typically that is some sort of structure that entails work RVUs," Ms. Welch says. This means that most physicians now receive base compensation in addition to a bonus depending on their productivity, which can be distributed to individual physicians by the hospital itself or divided up by the practice. Ms. Welch says while work RVUs have become standard in physician employment compensation arrangements, the industry is also starting to see the rise of quality indicators tied to compensation.
According to Jim Farrell with Florida law firm Shutts & Bowen, the danger of basing compensation on work RVUs is that the system is "fraught with potential gaming." He says that historically, hospitals have run into problems because "you can get a physician who goes and camps out at the ER all week long and takes care of every indigent patient walking down the street in order to generate RVUs to get a bonus — without generating any money for the facility." He says bonuses based on quality indicators are more naturally aligned with the hospital's interests; to earn extra pay, the physician must increase patient satisfaction or improve patient care outcomes. These quality outcome bonuses can also be negotiated with third-party payors, he says. "Hospitals are now able to negotiate with managed care on outcomes for cardiac-related admissions and see some compensation for the third-party payors, which they're able to turn into bonus structures for the providers," he says.
2. On-call compensation is more common. Historically, physicians were expected to provide on-call coverage as part of their affiliation with the hospital, says Mark Folk with Shutts & Bowen. No longer: Physicians across the country have begun demanding compensation for their time on-call, and the trend is spreading rapidly. "As soon as one hospital started paying one subspecialty for call coverage, everybody came down with the flu," Mr. Folk says.
Mr. Farrell adds that in communities where call coverage is new, the trend generally begins with trauma and neurology coverage. "Neurology was one of the early ones that occurred because while neurologists can do just fine with an office-based practice, hospitals desperately need them for stroke patients," he says. "And now you're asking the neurologists to come in on the high risk matters. They don't really want to come to the hospital in the first place, and there's generally a national shortage of neurologists." According to Medical Group Management Association's Medical Directorship and On-Call Compensation Study: 2011 Report Based on 2010 Data, on-call compensation can vary widely by specialty. Invasive cardiologists reported the highest median daily rate of on-call compensation at $1,600 per day; general surgeons earned a median of $1,150 per day.
3. Physicians are increasingly involved in administrative duties. As physician employment seeks to align providers more closely with hospital initiatives, physicians are increasingly expected to dedicate some time to administrative duties, says Mr. Folk. The trend has only increased as the physician population ages and older physicians look to move away from clinical duties to physician executive or management positions. Ms. Welch cautions physicians to look carefully at their employment contracts to ensure they are receiving fair market value compensation for their duties "above and beyond" clinical practice, which the hospital may consider part and parcel of their employed compensation. "The hospital is going to be asking or expecting the physicians to do certain things above and beyond as it relates to strategic planning, service line management or on-call coverage," she says. "That should come with additional compensation and fair market values that would have to be separate from [base compensation]."
Compensation for medical directorships — an increasingly common position for physicians looking to fulfill administrative duties — varies widely based on specialty, according to MGMA's Medical Directorship and On-Call Compensation Survey. According to the study, the majority of participants reported median annualized compensation levels of less than $50,000, with only four specialties reporting levels of more than $50,000. The lowest annualized compensation was reported by internists and pediatricians at $7,500.
4. Subspecialty and practice size continue to impact pay. Mr. Folk says hospital-employed compensation arrangements can vary greatly based on subspecialty and practice size, as both factors impact how the hospital can expand its ancillary services. "The type of ancillary services you can pack into a physician practice obviously varies by specialty," Mr. Folk says. "I'll give you an example. Earlier in the year and late last year, cardiologists were really hurting because their reimbursement under Medicare Part B got cut so drastically, so a lot of groups around the country contacted their local CEO and said, 'You've got to help me or you're not going to have cardiology at the hospital anymore.'" He says the cardiologists could move their practice ancillary tests into the hospital, where the hospital could receive higher reimbursement for a test than the physician could have received in his individual practice. While the physicians could not share in that ancillary income after the machine was part of the hospital, the revenues could contribute to the sale price of the practice.
Physician compensation can also be affected by the size of a group practice, Mr. Folk says. "Going forward, doctors in a group practice generally fare better under employment with a hospital than the individual physician who operates a physician office in a strip mall," he says. "Because of what the acquiring entity can do to augment practice revenue by adding ancillary tests, the hospital can share some of that revenue with doctors." He says the addition of ancillary equipment is more difficult in a small, solo practice with limited space.
5. Hospitals guarantee compensation for up to five years. When hospitals acquire physician practices, they generally guarantee compensation for 2-3 years, according to Mr. Folk. "Obviously the hospitals want to keep the guarantee as low as possible and for the shortest amount of time," Mr. Folk says. This hesitance to guarantee compensation long-term is due to the uncertainty of reimbursement over the next several years, he says. Fair market valuators are usually unable to predict more than five years into the future because changes to managed care rates are unpredictable. "We know there are anticipated changes in reimbursement coming from the government, and when there are changes in government reimbursement, there will be changes in managed care rates," Mr. Folk says. Because of this, compensation levels for hospital-acquired physicians may change significantly over the next several years as reimbursement rates are affected by changes to Medicare.
Related Articles on Compensation:
10 Predictions on the Future of Hospital Executive Compensation
Compensation at Washington's Valley Medical Center Sparks Controversy
University Physicians Among Top Earners in Maryland