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How Do I: Balance Rising Physician Comp with Lowering Labor Costs?

Analysis  |  By Amanda Norris  
   July 01, 2024

How do CFOs balance the rise in physician compensation with the need to lower labor costs?

Hospital and health system CFOs are facing a bit of a dilemma when it comes to recruiting and retaining physicians. On one end, physician compensation is rising. On the other, slashing labor costs is a priority. So how can CFOs balance the rise in physician compensation with the need to lower labor costs?

That reality necessitates that CFOs achieve a balancing act between employing top talent while keeping expenses in check. But hospitals' bottom lines aren't just affected by how much it costs to pay a physician. There are also opportunity costs and other expenses associated with physicians walking out the door in search of better compensation.

For that reason, cutting corners with physician salary isn't at the top of CFOs' to-do list. If anything, the opposite seems to be true, with hospitals acknowledging the competitive landscape for attracting and retaining physicians and showing willingness to invest in their workforce.

Getting physicians into your hospital is important—getting physicians to stay is essential.

Staffing turnover can be costly, so much so that giving a physician a raise in salary is often less detrimental to a hospital's finances than having to replace them.

That's a big reason why hospital decision-makers are eyeing ways to cut down turnover.

Scott Wester, president and CEO of Memorial Healthcare System, recently shared with HealthLeaders how the South Florida-based nonprofit created $200 million in savings by dropping about 80% of use of outside contract labor and reducing turnover from around 21% to below their historical average of under 14% in just a year.

"We did it with the intention of understanding we had to make sure that we had a better talent acquisition team, making sure that we played more offense than defense, and by reaching out to the work community to try to figure out what are things that are maybe are limiting the people to come join our organization," Wester said.

"We work very closely getting information, understanding we needed to do some market adjustments on individual pay raises for certain job classifications, and working closely with our university and educational facilities."

When a hospital isn't losing its physicians, it can be less dependent on contract labor, which boomed during the COVID-19 pandemic and put added stress on hospitals' margins.

Hospitals can still achieve profitability by paying their physicians while reducing contract labor costs.

As hospitals move away from contract labor, they must also try to incentivize physicians with bonus programs and other benefits outside of straight compensation.

David Koschitzki, CFO at MJHS Health System, spoke with HealthLeaders about solutions his organization has focused on to retain and attract talent, such as employee recognition programs and initiatives "that speak to the personnel side of their job responsibilities."

Koschitzki said: "Staffing is primarily the largest investment that we've been making. As I said, we have to address compensation issues, and we must address the competitiveness of the industry. So, we've enhanced staff salaries as an investment in our staff, and we've enhanced programs to attract staff."

This article is part of HealthLeaders’ How Do I? series. Read the entire article by Jay Asser here.

Amanda Norris is the Director of Content for HealthLeaders.


Hospitals must balance the rise in physician compensation with the need to lower labor costs, but how?

Hear how leaders are exploring strategies such as employee recognition programs and bonus incentives to retain and attract physicians while reducing the reliance on contract labor to achieve profitability.

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