Healthcare Practice Strategies - Spring 2014 - Employed Physicians: Is the Grass Really Greener?

Published: May 27, 2014
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This article is the second in a series exploring alternatives to the traditional private practice.

At some point in their careers, most physicians in private practice will ponder becoming an employed physician with a hospital or health system.

In fact, a recent survey by the Medical Group Management Association shows a nearly 75 percent increase in the number of active doctors employed by hospitals since 2000.

Who Wins What

Make no mistake, hospitals benefit from these acquisitions. More doctors means more negotiating power with managed care contracts, as well as a boost in Medicare and other government payments.

For doctors, hospital employment provides everything from management and billing expertise to cutting-edge information technology. Physicians can also tap into a hospital's often-substantial inpatient and outpatient facilities, as well as a larger referral and coverage network.

But as with most things, there are both pros and cons to making the leap from private practice to a hospital or health system:

Good News: Earning power can be greater. Contrary to popular belief, physicians who become hospital employees can enjoy higher earning potential than those in private practice – especially when factoring out malpractice costs, health insurance, overhead and other operating expenses. Certain specialties are decidedly in the driver's seat.

Among employed physician specialties, these five stand out, according to Mercer's Highly Compensated Physician Survey: noninvasive cardiology, ophthalmology, general orthopedic surgery, neonatal medicine pediatrics and neurosurgery.

Hospital-affiliated primary care physicians are also primed for higher pay, given the value placed on primary care under healthcare reform.

Bad News: Nothing is forever. That isn't to say solid salaries are a given. In an article that appeared in The New England Journal of Medicine, Dr. Robert Kocher and Nikhil R. Sahni, B.S. note that in the future, physicians should anticipate a shift from guaranteed salaries to more incentive-driven compensation linked to productivity and clinical behavior. While base compensation may be lower than their previous earnings, incentives can increase compensation to that level or higher. Likewise, hospitals aren't always a sure bet. Typical employment contracts last for three or four years, but they may allow either party to terminate the pact with six months' notice.

Good News: With employment comes new freedoms. Employed physicians enjoy flexibility and freedoms not available in private practice. In particular, the newest generation of doctors seem to be attracted by the promise of a better work/life balance offered by hospital employment — and are willing to trade higher incomes for lifestyle flexibility and administrative simplicity.

Bad News: You will be managed. With more emphasis on quality improvement and measurement, employed physicians must not only take good care of their patients, but they must also meet certain quality scores and performance metrics. In addition to a loss of clinical autonomy, employed physicians may also discover that their new employer has taken control of their former business functions – everything from physician billing and collections to how the phones are answered.

In the end, understanding the issues and economics of hospital employment can help physicians make wise choices.

Questions to Answer

Before you make any decision, ask yourself the following questions:

How much control do I want?" Will you be satisfied as an employee of a hospital? This new role may mean no hiring power and limited autonomy over the direction your practice takes. Are you interested in an arrangement where you have a seat on a governing board, giving you some degree of control?
How much flexibility do I need?" If you're not certain, give yourself an out. Structure the deal to include an opt-out provision that allows you to return to private practice after a stated period if you find hospital life isn't working out. Likewise, seek flexibility in changing payment terms and other features.
How much salary do I require?" Typically, take-home salary remains roughly the same or better, with one critical caveat: Hospital-owned groups often experience substantial cash-flow issues in their first year. Basically, they are starting with zero accounts receivable. Here, a transitional salary can help smooth out the peaks and valleys of first-year cash flow – especially if you are uncertain about how incentives or productivity payment models will work out.

Healthcare Practice Strategies - Spring 2014