The Employed Physician Business Model

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Employed Doctors Enjoy Several Compensation Options

By Dr. David Edward Marcinko; MBA, CMP™

By Hope Rachel Hetico; RN, MHA, CMP™

biz-book1According to corporate medical recruiter Kris Barlow RN MBA, physicians can select from various employment models that may include fringe benefit packages (life, health, dental, disability insurance; medical society and hospital dues, journals, vacations, auto, and CEUs, etc.) equal to 25-40% of salary [personal communication]. 

And, this medical business model is fast growing as the various types below demonstrate. 

Independent Contractor or Employee 

A payer has the right to control or direct only the result of the work done by an independent contractor, and not the means or methods of accomplishing the result.

By contrast, anyone who performs services for another is an employee if he or she can control what will be done and how it will be done. Employed physicians are usually not compensated as independent contractors. 

New Practitioner Salaries: 

Published annually for new practitioners by The Health Care Group®, the Physician Starting Salary Survey collects and collates nationwide data on new physician employment compensation.

The guide reports first, second and third year of starting physicians’ salary and incentives, but with large high-low spreads. It also includes information about co-ownership provisions, benefits and restrictive covenants.

The survey is categorized by specialty and results are based on information provided by medical practices, health care advisors, physicians, and health care consultants across the country. The figures represent basic elements of the bid/ask process for establishing optimal salary and benefit amounts for new physicians entering private practice.

Available for no charge from the Health Care Group (800.473.0030 or www.HealthCareGroup.com) 

Public Equity Relationships 

The public equity roll-up model of medical partnerships in the late 1990s offered employed physicians experience within a large group whose decisions were made by managers.  Compensation was controlled and replaced with the stress of investor expectations, as Physician Practice Management Corporations (PPMCs) needed to grow revenues by 10-15% annually to maintain price-to-earnings ratios. If stock was held in a growing PPMC, physician employees shared in both practice and corporate compensation

But, by 2007, a survey of the Cain Brothers Physician Practice Management Corporation Index of public PPMCs, revealed a market capitalization loss of more than 95% since inception.

Newer Healthcare Delivery and Physician Compensation Models

Today, whether independent or employed, physicians can pursue several creative compensation models not available a decade ago:

MSO Contracting: 

According to consultant Jeffrey Peters, physicians maintain private practice in this model, but contract with a management services organization to relieve administrative burdens. Physicians maintain control with less stress, but, as MSO contracts are expensive (18-45% revenue), compensation diminishes, and rests on MSO competence.

Locum Tenens Practitioner:

Locum Tenens (LT) is an alternative to full-time employment for most specialties. Some younger physicians enjoy the travel, while mature physicians like to practice at their leisure.

Employment factors to consider include: firm reputation, malpractice insurance, credentialing, travel and relocation expenses (which are negotiable).  However, a LT firm typically will not cover taxes. 

Cash Based Compensation:  

A Cash Based Compensation (CBC) model attracts patients who pay cash for desirable services, such as surgeons who dispense scar reducers or in areas such as pain relief, weight loss, aesthetic procedures, and natural health.  

Any well-rounded CBC program should include: patient demand; low entry cost; little marketing costs; existing employees to administer the program; and an operational plan. With time and effort, profit for physician compensation may increase 10-20% annually.

Values Based Health Insurance Model:

According to some pundits,instead of the one size fits all approach of traditional health insurance, a “clinically-sensitive” cost-sharing system that supports co-payments related to evidence-based value for targeted patients seems plausible. 

In this model, out-of-pocket costs are based on price and a cost/quality tradeoff in clinical circumstances: low co-payments for interventions of highest value, and higher co-payments for interventions with little proven health benefit. Smarter benefit packages are designed to combine disease management with cost sharing to address spending growth.

Global Healthcare Model: 

American businesses are extending their cost-cutting initiatives to include offshore employee medical benefits, and facilities like the Bumrungrad Hospital in Bangkok, Thailand (cosmetic surgery), the Apollo Hospital in New Delhi, India (cardiac and orthopedic surgery) are premier examples for surgical care. Both are internationally recognized institutions that resemble five-star hotels equipped with the latest medical technology.  

Countries such as Finland, England and Canada are also catering to the English-speaking crowd, while dentistry is especially popular in Mexico and Costa Rica. Although this is still considered “medical tourism,” Mercer Health and Benefits was recently retained by three Fortune 500 companies interested in contracting with offshore hospitals and JCAHO has accredited 88 foreign hospitals through a joint international commission.  

To be sure, when India can discount costs up to 80%, the effects on domestic hospital reimbursement and physician compensation may be assumed to increase downward compensation pressures.

dhimc-book1Conclusion

Regardless of the salaried compensation model, its review and understanding is vital for long-term success.

How have the above compensation models affected your medical practice business model, and salary, if any? 

More info: http://www.springerpub.com/prod.aspx?prod_id=23759

Speaker: If you need a moderator or a speaker for an upcoming event, Dr. David Edward Marcinko; MBA is available for speaking engagements. Contact him at: MarcinkoAdvisors@msn.com

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9 Responses

  1. Laboring under a Misconception

    As an increasing number of physicians choose to work as employees, rather than independent practitioners, the number of physicians eligible to join unions is increasing.

    Do you think there will be a rise in the number of unionized doctors?

    Temo

    Like

  2. Temo

    More on Medical Unions.

    I just don’t see it happening, even with more physicians becoming employees of healthcare systems, organizations or corporations. Medical unions were first largely organized a decade ago and failed. And, times have changed since then with technology and Health 2.0.

    So, it’s just not going to happen. We need brain power and innovation; not “masses of asses.”

    Doctor Kirkland

    Like

  3. Physician employment by hospitals expected to accelerate

    The changing healthcare landscape and the increased need for hospital-physician alignment will lead to an acceleration of physicians leaving private practice in favor of hospital-based employment, according to two recent market reports.

    http://www.healthcarefinancenews.com/news/physician-employment-hospitals-expected-accelerate

    Fran

    Like

  4. On Wage Garnishments

    Of interest to hospitalists and employed doctors?

    http://plexuspayroll.com/welcome/garnishments/

    Perry Dalesandro CPA

    Like

  5. Complaints by Employed Physicians

    Perry – This is one of my hot buttons.

    Why? We docs, who are so fiercely independent in the beginning of our career – are not suited IMHO, to be employees or follow the company line or culture like a unionized worker-bee.

    IOW: The transition of physicians from private practice to hospital employment can be quite rocky. The biggest challenge is the loss of autonomy that many physicians experience when they become employed.

    And, physicians are being increasingly targeted when they get in the way of a hospital’s agenda. Think PHOs; most just want your patients.

    Always remember, the power who gave you the job – has the power to take it away!

    Dr. David Edward Marcinko MBA
    http://www.CertifiedMedicalPlanner.org

    Like

  6. Dr. Marcinko

    I agree with you. As long as you work for someone else, you are beholden to them and under their control.

    Being your own boss means being free. Colleagues, don’t give up your freedom.

    Dr. P. Smith

    Like

  7. Doctors Bail Out On Their Practices

    Doctors who own private practices are looking for a way out. Fed up with their rising business expenses and shrinking payouts from insurers, many are selling their practices to hospitals. Experts say the number of physicians unloading their practices to hospitals has risen to 40% in the last five years. Doctors who sell typically become employees of the hospital, as do the people who work for them.

    The reasons for the trend vary. Doctors are tired of the hassle of filing insurance claims and collecting payments from patients and want to only focus on medicine again, said Tony Stajduhar, president at Jackson & Coker, a physician recruitment firm. Obamacare has also created more fear of the unknown. Doctors are worried that new regulations will add to their administrative work and require them to pour more money into their businesses, Stajduhar said.

    Source: Parija Kavilanz, CNN Money [7/16/13]

    Like

  8. 42% of Hospitals Employed Their Physician Workforce in 2012

    The Annals of Internal Medicine recently published a study on physician-hospital employment relationships. Here are some key findings from the report:

    • In 2003, 29% of hospitals employed members of their physician workforce.
    • 42% of hospitals employed members of their physician workforce by 2012.
    • Switching hospitals were more likely to be large (11.6% vs. 7.1%).
    • 7.5% of major teaching hospitals switched to physician employment integration.
    • Switching hospitals were less likely to be for-profit (8.8% vs. 19.9%).
    • No association was found between switching to an employment model and quality.

    Source: Annals of Internal Medicine, September 20, 2016

    Like

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