The Price of Physician Leadership

Physician leaders are more valuable than ever. At least, that's what hospital and practice leaders keep telling me. While leadership in general is a point of emphasis in difficult times, executives realize that there are limits to what an administrator with an MBA can accomplish when it comes to working with doctors on quality improvement, joint ventures, call coverage, and a whole host of other pressing issues.

Doctors trust other clinicians, and a physician leader with a foot in both worlds—clinical and administrative—can get a lot done. So how much, then, is that worth to an organization?

It depends on the owners, according to results from a recent Medical Group Management Association compensation survey. Hospital-owned groups pay medical directors, with the exception of those in primary care, significantly less than private practices and other ownership models.

The biggest gap is for nonsurgical specialists, who earn $51,900 for medical directorships at practices that aren't hospital-owned and only $24,500 at hospital-owned groups (keep in mind that these numbers reflect only directorship compensation, and not total earnings).

Similar, but smaller, gaps were found for surgical specialists and subspecialists as well. Only primary care medical directors earned more in hospital-owned groups—$20,000 compared to $15,000.

The number of hours spent on directorship duties was fairly uniform, so productivity differences don't explain the payment differences, says David Litzau, MGMA survey analyst. And while the survey only covered medical directors, I suspect the results would be similar for other physician leadership positions. Physicians tend to earn less in hospital-owned practices in general, so while the size of the disparities may be surprising, the fact that they exist isn't.

A private-practice orthopedic surgeon—a physician without administrative or leadership duties—averages about $30,000 more annually than a counterpart in a hospital-owned group, for instance. A familiar practitioner averages nearly $20,000 more in a hospital-owned setting, though.

Still, it raises the question of why we're seeing a growing trend of hospital employment if private practices continue to pay better. The benefits of hospital employment tend to be nonmonetary—better work-life balance and freedom from business hassles—but I would be surprised if the gap doesn't narrow as hospitals look to offer more competitive packages to recruit physician leaders.

The real finding of the survey isn't just that there are differences between hospital-owned and private practices, but that there are disparities across the board when it comes to physician leadership compensation, Litzau says. In addition to the differences based on practice ownership, there were discrepancies by specialty and areas of responsibility.

Medical directors across all specialties earn more when involved with physician recruitment and education, according to the survey. In primary care, directors with those responsibilities earned almost twice as much as their peers.

It seems that hospitals and practices don't always have a solid grasp of how to reward physician leadership. This is the first year MGMA has conducted such an extensive survey of medical director compensation, and Litzau suspects compensation is often determined based more on physicians' and administrators' negotiating skills than market data.

But as recruitment becomes a greater challenge and hospitals seek closer alignment with physicians, we'll probably see physician leadership compensation in all settings continue to rise.