John Andrew Estialbo, Staff Writer; Craig Fowler, VP Training and Business Development; Ursula Stancill, Staff Editor
Physicians should consider what compensation arrangement will work best for them as they review and analyze practice opportunities, especially newly-trained doctors.
Income guarantee and employment arrangements are the prevalent compensation structures being offered in today’s market. Loan forgiveness, overhead allocation, revenue sharing and call coverage as well as productivity-based incentives are some of the items being factored into doctor’s paychecks.
Is being employed advantageous?
Recent reports by the National Association of Physician Recruiters (NAPR) and the Association of American Medical Colleges (AAMC) agree that practice trends, productivity changes, work/life balance and generational differences affect the Physician’s decision making process. Graduating residents, particularly in specialties like Anesthesiology, Diagnostic Radiology, Cardiology and Neurology, eschew a risky, business-minded approach to practice in order to receive a secure paycheck. Medical Group Management Association’s recent survey also notes that this is becoming a popular model as operation costs for private practices increased by 65%.
Younger physicians, of whom 18% have an average loan debt of $200,000, will find being employed an appealing compensation structure. These physicians enjoy productivity-based incentives as well as freedom from administrative hassles. Practicing in an integrated delivery system can also create significant roles for physicians in consolidating health care to communities by aligning providers with competitive reimbursements from managed care firms.
In Las Vegas where physicians are mostly contracted due to low reimbursements, being employed might be a good idea, especially for sub-specialized doctors. An orthopedic surgeon recalls, “A lot of my colleagues were relocating to Texas and Florida, maybe because of tax and malpractice issues. I relocated from Hawaii because, simply put, I’m just not paid enough.”
Philadelphia healthcare attorney Alice G. Gosfield comments that successful employment arrangements depend on the relationship between physicians and their employers, and this is also true for doctors coming from private practices. Gosfield observes that healthcare groups have developed employment models that empower physicians to be flexible with their service and aligned with the facility’s practice environment.
The older generation of physicians, for example, can view employment arrangements as a bridge to retirement in this tight economic environment. As compensation trends edge toward transparency and quality of service, healthcare facilities establish productivity and admission-based compensation structures to develop good professional relationships. Whether facilities employ physicians out of necessity or to improve their financial performance, the employment compensation model is resurfacing with a new vigor in practices overseen by hospitals.
Do income guarantees really work?
Income guarantees help business-driven and independent physicians establish their own practices by guaranteeing income through loans from the hospital for an initial startup period. Although income guarantees are generally for up to 18 months, physicians can opt to stay in the community for the hospital to forgive the loan. More than 70% of all income guarantee arrangements work by loaning physicians an income comparable to an employed counterpart.
Income guarantees may not be as popular to primary care physicians as to other specialties. It is a common misconception that these arrangements mostly exist in rural areas. Craig Fowler, Vice President of Training, Recruiting and Business Development for Pinnacle Health Group, furthers, “There’s actually more hospitals offering income guarantee in metropolitan areas, because it is a good retention strategy. Healthcare groups usually offer them to deter patient outflow to other facilities. These hospitals consider income guarantee an advantageous arrangement because it caps losses from an employed staff, which requires quite an investment for the facility.”
For instance, healthcare systems in New York, Nevada and even Canadian cities use income guarantees as part of a physician’s financial incentive. Fowler comments further, “It can also be an effective retention strategy for hospitals, and it’s usually based on productivity. Income guarantees aren’t typically offered to hospitalists, but we’ve had searches from facilities offering these arrangements to them in order to keep the practice in the community.”
A Cardiologist from Atlanta, Georgia, who is guaranteed a two-year income, comments that “unlike employed staff, I don’t have to go through the complex politics and lose my professional autonomy.”
An Ophthalmologist who responded to PHG’s survey commented, “The current job market is so bleak that most practices are offering very little guarantee and asking for huge buy-in’s. Poor compensation coupled with high debts make bankruptcy a distinct possibility. Security is worth a lot now since with young ophthalmologists it is the exception rather than the rule that income will be quite unsure.”
Employed doctors are relieved from the risks of setting up practices unlike their income guarantee counterparts. On the other hand, they are also relieved from leadership and income opportunities. Although an employment compensation model has longer duration, it is not permanent. Prime physicians can take advantage of a five-year contract while fellows and residents, especially those coming out of training, are normally offered employment contracts of two to three years. Physicians who are seeking an employment-based practice should look for at least a three-year agreement, it ensures salary while giving allowance to seek better practice opportunities.
Doctors who are guaranteed an income risk that the practice may become unsuccessful and more so after the guarantee period ends. These physicians, however, are empowered with decision-making capabilities for their practice. An income guarantee agreement also allows physicians to be flexible with how they want to run the practice and where they want to run it. Physicians working under an income guarantee generally earn 10% or more versus their counterparts working under an employment agreement, if the practice is profitable and highly needed in the community.
Whether working under an income guarantee or employment agreement, a physician must still consider various factors that will affect his or her practice, such as license regulations, malpractice insurance requirements, personnel, overhead, and taxes, among others. Under an income guarantee there are currently no restrictive covenants, unlike employment contracts. Physicians must assess the double-edged effect of independently setting up a practice under income guarantees or choosing the relative safety of employment.