According to at least one healthcare compensation expert, because of a shrinking supply of doctors and increasing demand, some physicians may soon see their services turn into a barrel of oil, meaning they could become a commodity being priced so high that healthcare organizations have to get creative in order to afford it or use less of that commodity.
Some data from Modern Physicians 2008 Physician Compensation Survey seem to fuel that contention.
Alternatives to higher physician salaries have grown to include establishing joint ventures between doctors and hospital systems, loan forgiveness agreements for medical-school debt, research opportunities, and payment for on-call duties and administrative services.
As healthcare becomes more volatile in terms of supply and demand, stability is also becoming a valued commodity. For hospitals, it means multiyear employment commitments that keep them off the recruiting treadmill. For physicians it can mean shift work, leaving administrative hassles to someone else and giving them more control of their daily schedules.
Although theres downward pressure on reimbursement while expenses continue to rise, of the 21 specialties tracked in the annual Modern Physician Physician Compensation Survey, 10 had salary ranges that topped the $400,000 level at the high end.
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For purposes of Modern Physicians annual survey, figures are for total cash compensation, including salary, signing bonuses and other incentives.
One major difference between the 2007-08 data for this years survey and last years survey, however, is that compensation increases overall were not as high. Last year, three specialties registered double-digit percentage increases over the previous year: oncology, 13.9%; pathology, 12.7%; and psychiatry, 10.9%. This year, that feat was achieved only by plastic surgeons, whose compensation grew 10.9%. The second- and third-biggest increases were pathologists at 9.2% and radiologists with 6.5%. Oncologists followed with a 6.2% increase. (This year, radiation oncology was counted as a separate specialty for the first time.)
Based on survey data, the average compensation for two specialties decreased: Psychiatry saw a decline of 5.6% and obstetrics/gynecology saw a dip of 0.6%. Several specialties saw their compensation increase by less than 2%: hospitalists, 1.9%; internists, 1.6%; noninvasive cardiologists, 1.4%; orthopedic surgeons, 1.1%; dermatologists, 0.8%; and pediatricians, 0.7%.
Kim Mobley, a Detroit-based principal with Sullivan, Cotter and Associates, says she believes the significant drop for psychiatrists compensation was probably a factor of the particular samples available and not necessarily market forces.
Phil Villacci, a principal with Weymouth, Mass.-based healthcare consultant Beacon Partners, says that there is one market force that cant be discounted. The amount of available money is diminishing, says Villacci, who compared physician services with barrels of petroleum. New levels of physician compensation may be unsustainable going forward.
Thats where the new models of compensation come in, Villacci says. As physicians seek higher incomesin an environment of tighter reimbursementopportunities to enter into joint ventures, participate in research trials or receive payment for administrative services become attractive alternatives for hospital executives.
Villacci says hospitals and systems are hiring doctors as a defensive strategy that includes creating stability and professional fidelity that leads to fewer recruitment demands while keeping patient referrals in-house.
For physicians, Villacci says hospital employment means a reduction in liability risk, workload relief and, often, unambiguous productivity-based compensation formulas that allow them to be paid for what they do.
In terms of lifestyle demands, Villacci says he knows a 48-year-old hand surgeon who, in addition to six weeks of vacation, takes every Friday offwhich is the equivalent of 10 weeks of vacationmeaning he takes 16 weeks off each year.
In addition to such flexible schedules and other perks, orthopedic surgeons are receiving higher financial compensation than most of the other specialties. According to the Modern Physician survey, compensation for orthopedic surgeons is between $372,400 and $512,500 annually. The only specialties in the survey having compensation with higher dollar amounts at both ends of the scale are invasive cardiologists with pay ranging between $389,000 and $561,875, and radiologists, whose pay ranges from $386,755 to $600,000.
For orthopedists and invasive cardiologists, Villacci says organizations are willing to pay more because of the revenue they earn for the system. What hospitals look at is what comes in at the bottom line, he says. Theyre willing to spend the money for the return.
Despite a perceived shortage of doctors and increased demand for services in primary care, family-practice physicians, internists and pediatricians saw only modest gains in compensation. Family-practice physicians, for example, saw only a 3.2% compensation increase, which puts them 10th among the specialties for the largest average pay. Their compensation pay ranged between $150,763 and $204,370.
Were not starving, but you do look at it and ask How much longer do I want to do this? says Dennis OConnor, D.O., a family physician who describes himself as a county G.P. and has a 27-year-old practice in rural Hemlock, Mich. I feel silly saying this, becausecompared to the average guy in an officewe make a lot more, but the earning power is going down.
Reimbursement weighs toward the procedural specialists and thats not a criticism of themthats the reality, OConnor adds. For physicians doing cognitive services and spending considerable time with people who may have multiple issues, we still just get paid for a typical office visit.
In addition to a payment structure that is skewed toward rewarding volume of procedures, he notes that many of the physicians performing those procedures are not paying for the facilities they practice in. In order to cover his seven-person staffs payroll, plus expenses such as electricity, landscaping and malpractice insurance, OConnor says his accountant advises him that he needs to make at least $275 an hour, which translates to 30 patients a day.
But OConnor insists that personal satisfaction is more important than money, and he cant see giving up his independence at this stage of his career. I dont want to work for anybody, he says. Im too old, too opinionated, and too used to what Im doing to have some MBA come in and tell me Im doing it wrong.
One increasingly common way of compensating family medicine specialists has been to pay off their medical-school loans in exchange for multi¬year employment commitments.
They forgive the debt if you stay in town, says Mark Smith, president of Irving, Texas-based recruiter Merritt, Hawkins & Associates. Its a loan you dont repay financially but you repay with time.
Merritt, Hawkins spokesman Phil Miller says loan forgiveness, pro-rated over two to three years, is easier for a hospital to manage financially, but the savings is secondary. The main point is locking the doctor into the commitment, he says. It really is a retention strategy.
Internists are also in short supply, Smith says. According to the Modern Physician survey, their compensation ranges from $175,200 to $209,845 and they saw only a 1.6% increase in average compensation. But he says the demand is there. We need more internists, Smith says. With very few exceptions, there are very few easy searches.
In Merritt, Hawkins own survey of healthcare compensation, Smith says the big news was pay indicated for certified registered nurse anesthetists, or CRNAs. While the Modern Physician survey shows anesthesiologists being paid between $311,600 to $446,994, the Merritt, Hawkins survey has CRNAs earning an average of $185,000 per yearwhich Smith says is almost as much as his company found for psychiatrists ($189,000), and more than the compensation reported for family physicians ($172,000) and pediatricians ($159,000).
Smith says CRNAs are beating (pediatric physicians) like a drum. In terms of real shockers out there, that was something that screamed off the pages in this general marketplace, he says.
Robert Stiefel, M.D., a physician whos an expert on anesthesiologist contract development and a principal with Brentwood, Tenn.-based consultant HealthCare Performance Strategies, says compensation for both anesthesiologists and CRNAs has led to anesthesiology departments being decoupled from payers. He explains that anesthesia providers receive more compensation for their services than payers will reimburse, forcing hospitals to subsidize their pay by up to 50% to keep operating rooms open.
Among other trends, Smith notes a decrease in openings for radiologists in general, but growing demand for radiology subspecialists such as pediatric, interventional and musculoskeletal radiology. He says this has led to fewer opportunities, but higher compensation offered for the subspecialist who meets an organizations specific needs.
Despite a perception that hospitalists are being used more and more extensively, Smith says the number of searches for hospitalists his company has been asked to conduct has leveled off. Merritt, Hawkins conducted 208 hospitalist searches in 2007 compared with 194 in 2006, Smith says.
Like radiologists, places that were once asking for three are now only asking for one, Smith says.
Merritt, Hawkins Miller says that hospitalists are still the third-most requested search the company conducts, but the market has matured and systems are now more likely to be maintaining or expanding their hospitalist program rather than starting one from scratch. Theyre still in a growth mode, but the quantum leaps are kind of over, Miller says.