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Employed Doctors Enjoy Several Compensation Options

By Dr. David Edward Marcinko; MBA, CMP™

According 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.

Conclusion

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?

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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