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Income Structure is Key to Physician Recruiting

Peter Cebulka and Tommy Bohannon, for HealthLeaders Media, September 28, 2009

Not so long ago, determining how much to pay physicians required some educated guesswork.

Because doctors were mostly independent, private practitioners who paid themselves, there was a limited amount of data available on physician compensation. As physicians increasingly became employees, hospitals, medical groups, and other organizations developed greater interest in knowing what to pay them. A growing number of professional associations, benefits consulting firms, and physician recruiting companies now track physician compensation trends. It is now possible to get a fairly clear handle on what physicians are making nationally.

However, how much physicians should be paid is no longer the only salient question when it comes to creating physician compensation packages. How physician compensation should be structured is an equally important issue. When it comes to physician recruiting financial packages, one size does not necessarily fit all. Certain types of income structures may be more strategically advantageous than others, depending on the nature and objectives of the organization doing the recruiting.

For example, some healthcare facilities may choose to offer physicians a straight salary. In this option, the physician is listed as a W-2 employee on a hospital's payroll and benefits are included. The straight salary formula is not widely used in today's market, but it can make strategic sense in academic settings or in searches where relatively low income-producing physicians are being sought (pediatric sub-specialists and psychiatrists often fall into this category).

These and other types of doctors, though needed in a community, may not collect enough revenue to cover their respective overhead, benefits, and salary. A competitive salary offers candidates in these specialties the security of a fixed bottom line and can be considered a loss leader by the hospital to secure needed services and to support service lines that produce positive revenue. In the last year, 14% of Merritt Hawkins & Associates' recruiting assignments featured straight salaries.

More typical is the salary with production bonus model (in the last year, 65% of Merritt Hawkins' search assignments featured this model). This financial structure offers physician candidates both a clearly delineated income base and a mechanism for earning additional income predicated on their personal production. There are four primary ways that production can be arranged depending on the type of physician behaviors hospitals and medical groups wish to reward.

Some compensation models are based on gross billings generated in the practice. The intent of the gross billings formula is to alleviate candidate concerns over whether or not the hospital has a robust collection rate for the candidate's medical specialty. However, the hospital should monitor what candidates have established as their billable rate per CPT code with local payers, to ensure charge amounts do not exceed the probable reimbursement amount.

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