Pity the physician.
Once, their incomes were well-guarded secrets. The only clues were the outward signs. The big house. The cars. The Hogan irons.
But as the healthcare world turns, an increasing number of physicians are becoming employees. An estimated one-third of the nation's 653,000 physicians are working for hospitals, group practices, managed-care plans, foundations and other organizations.
That means they have bosses. Welcome to the real world, doctor.
In the real world, most employers don't want to pay their employees any more than they have to, whether they're physicians or orderlies. And like employers in any profession or trade, healthcare employers want marketplace data to help them decide how much to shell out for the help.
Rushing to fill that void are benefits consulting and physician recruitment firms as well as traditional physician trade groups armed to the teeth with physician compensation data. At least 10 groups are marketing or supplying physician compensation data to healthcare employers (See related story, p. 48).
It's not known how many other firms are doing the same thing, but many of the 10 organizations identified by MODERN HEALTHCARE have entered the market within the past five years.
Salary suppressant.The mushrooming supply of physician compensation data has had a number of effects on healthcare employers and physician employees.
Most noteworthy, compensation experts and employers say the abundance of physician compensation data acts as a suppressant. It limits growth in physician income by telling employers what everyone else is paying, and it's in no employer's interest to recklessly bust through historical salary ranges.
It's like price fixing, but it's legal.
Physician income data from the American Medical Association support this theory. Physicians' average net income rose approximately 82% to $177,400 in 1992 from $97,700 in 1982. However, most of that earnings growth occurred in the mid- to late-1980s.
During the four-year period from 1986 through 1989, physicians' annual net income grew an average of 8.6% per year. That dropped nearly in half to an average of 4.4% per year from 1990 through 1992, when much of the physician compensation data started becoming readily available.
Of course, other factors such as the recession, lower inflation and healthcare cost-containment efforts have played larger roles in holding physicians' income growth to the annual average of 4.4%. That's just slightly above inflation, which averaged 4.2% annually over that same period.
Still, the discrepancy between the net income of employed vs. self-employed physicians is noteworthy. According to the AMA, some 31.1% of all physicians were employed in 1993. That's up from 23.4% in 1983.
Salary raises slowed.The average net income of self-employed physicians rose 5.9% to $202,300 in 1992 from $191,000 in 1991, according to AMA figures. By comparison, the average net income of employed physicians inched up just 1.8% to $136,400 in 1992 from $134,000 in 1991, nearly half the inflation rate in 1992.
"Survey data have a tendency to stabilize the marketplace," said John Zabka, director of the Hospital and Healthcare Compensation Service, an Oakland, N.J.-based consulting firm that's published an annual report on physician compensation for 18 years.
He said growth in overall physician income has slowed in part because salary ranges for specific medical specialties for employed physicians have become better defined and tend to move up incrementally.
"Physicians know what dollars are available and what they should ask for. Employers certainly know," Mr. Zabka said. "Of course, you'll always have the maverick who's hellbent on being the top-paid doctor. Eventually, one employer will cave in and break through the salary range by 15% to 20%."
The increased availability of physician compensation data has helped physician recruiters like Emily Emmerman avoid overpaying physicians. Ms. Emmerman is the director of medical staff development at 531-bed Ingalls Memorial Hospital in Harvey, Ill.
The hospital has about 365 physicians on its medical staff but only recently has joined the race to hire physicians as employees. Ingalls formed a not-for-profit foundation in February and has hired six physicians as employees. Its goal is to have a 20-physician primary-care network in place by the end of the year.
"I use as many sources of data as possible," Ms. Emmerman said. "But the figures don't really change much. I'll have 10 different surveys, and they'll all be within $10,000 for the same (medical specialty) category."
Informed discussions. Compensation data set the stage for reasonable negotiations between the physician and hospital because both sides know what the salary should be, Ms. Emmerman said. And, if a physician asks for more than the hospital initially wants to pay, the hospital can move up in price but stay within reason because it has the data, she said.
But make no mistake, "We're going to get them for what we can get them for," Ms. Emmerman said.
The increased availability of physician compensation data clearly helps employers more than physicians, said James Schmidt, managing partner in charge of physician and executive searches at Cejka & Co., a St. Louis-based healthcare search firm.
Cejka underwrites the annual physician compensation survey conducted since 1987 by the Medical Group Management Association, the Englewood, Colo.-based trade group representing group practice administrators.
"Four or five years ago, employers were paying too much for physicians because they didn't have the information. Their backs were against the wall, particularly for physicians in short supply," Mr. Schmidt said. "Now, employers know whether a physician's salary request is reasonable."
Because physicians generally aren't sophisticated negotiators, they tend to accept an employer's offer or counteroffer, Mr. Schmidt said.
"People know exactly what they can get away with," he said.
Other uses.Compensation data also
comes in handy when physicians don't accept the range of compensation that an employer is offering, said Rick Klos, head of physician relations at the Group Health Plan, a 125,000-enrollee HMO in St. Louis. The for-profit managed-care plan employs about 100 physicians in most medical specialties.
"Let's say a physician comes in with a high demand and still asks for a lot after you explain the range," Mr. Klos said. "Then you quote the data directly from the surveys."
If the physician still doesn't bend, the conversation ends, he said. "There's no sense trying to convince him."
But Mr. Zabka acknowledges that some employers attempt to stack the deck against physicians. When trying to convince physicians that their salary requests are out of line, some employers deliberately cite data from compensation surveys that historically are lower than data from other surveys.
Some physicians, though, are becoming more sophisticated and come in with data from compensation surveys that usually are higher than data from other surveys, Mr. Zabka said.
The fact that most physician salaries fall within an accepted range for a specific medical specialty has several other consequences, physician employers and recruiters said.
Perks become a big issue. First, with compensation levels almost a non-issue, the bulk of negotiations between physicians and employers deals with benefits and perquisites.
"There's definitely more squabbling over things like signing bonuses, continuing medical education allowances, automobile allowances, relocation expenses and loan repayment," said Ms. Emmerman. "These things are starting to be a bigger deal than compensation."
Reflecting the demand for non-salary compensation information, many of the firms that conduct physician salary surveys are starting to collect detailed information on physician perks and benefits.
For example, some 27% of the healthcare employers that participated in the most recent physician compensation survey conducted by William M. Mercer said they paid physician employees signing bonuses. Bonuses ranged from $1,000 to $15,000. The average bonus was $6,215.
Another byproduct of the increased availability of survey data and the corresponding consistency in physician compensation levels is goodwill among physicians, said David Kirschman, president of the Physician Executive Management Center in Tampa, Fla. The physician search firm has conducted an annual survey of physician compensation at group practices and HMOs since 1990.
Mr. Kirschman said there's nothing worse than an employed physician finding out that a peer in the same specialty has a higher salary. Second to that is a hospital knowing that it overpaid a physician, he said.
"The fact that physician compensation falls within the same range eliminates a lot of the same people having disproportionate salaries. That eliminates a lot of bad feelings," he said.
What doesn't make this price fixing is the fact that employers, to the best of anyone's knowledge, don't agree to adhere to the salary ranges outlined in the compensation surveys.
Under federal antitrust laws, competitors can't agree on prices for services and compensation paid to employees.
Utah case in point.That lesson was
learned by the Utah Hospital Association and nine other hospital or hospital system co-defendants, which settled charges earlier this year that they conspired to fix the salaries of nurses to avoid a compensation war in Salt Lake County, Utah (March 21, p. 3). The Justice Department accused them of exchanging budget information not publicly available, as well as information regarding nursing expenses and entry-level nurse wages.
Robert Bloch, who formerly headed the healthcare section of the Justice Department's antitrust division, offered a number of ways to insulate the generation and sharing of compensation data from antitrust charges:
A third party should collect the compensation data.
The data collected should be historic, not current or future data.
Participation in the survey should be voluntary.
The identity of the survey participants should be confidential.
Data should be aggregated in a way not to disclose participant-specific data.
And there should be no agreement among participants to adhere to the survey results.
Last fall, the Justice Department and Federal Trade Commission created an antitrust "safety zone" for healthcare compensation surveys that meet many of the same criteria outlined by Mr. Bloch (Sept. 20, 1993, p. 3).