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Do we make too much money? Version 2.0

February 2009

Published in the February 2009 issue of Today’s Hospitalist

WHEN I WROTE “Do we make too much money?” as a Today’s Hospitalist blog entry more than a year ago, America’s economy was not on life support. The economic crisis, coupled with the fact that health care has long been suffering the equivalent of multiple, chronic and debilitating illnesses, has significantly transformed the playing field for physician compensation. So buckle up, fellow hospitalists, and get ready for wage stagnation or even wage (gulp) deflation.

Hospitalists aren’t the only physicians on this financial roller coaster. If misery loves company, I predict we’ll have plenty of both “though, thankfully, comparably less misery.

On what do I base my theory of physician salary compression? Before proceeding, let’s first acknowledge that every day, we witness the effects of the economic downturn on our patients. “Who is your primary physician for follow-up, and why were you noncompliant with your medications?” are now questions that elicit sorrow and remorse and, not infrequently, tragic stories of loss.

For a struggling family, food and shelter necessarily take precedence over concerns for personal health, despite the fact that the three are almost always intertwined. While the following is a call for hospitalists to rejoice in our specialty’s growing importance (read: job and salary security), it is also a reminder that we must not lose sight of the fact that it is our responsibility to do more for those who have less.

Revenue vs. value
There seem to be at least two evolving theories on how to predict the future of hospitalist compensation. We might call their proponents the revenue-side prognosticators on the one hand and the value-side prophets on the other.

One wing of the revenue-siders argues that growing subsidies will be the downfall of hospitalists. Led by hospitalist management group gurus like Adam Singer, MD, the claim is that financially struggling hospitals will no longer be able to afford “expensive” hospitalists who can’t pay their own way to play.

Of course, high revenues equal high patient volumes, and high patient volumes equal “¦ Because you are likely a hospitalist, you can fill in the blank. And hospitals will encounter even greater pressure to control costs “a near impossible task for high-volume hospitalists and traditional doctors alike.

Although political analogies may not be perfect, the more moderate argument from the revenue-side theorists comes from those who express alarm at Society of Hospital Medicine survey data that suggest that more than 60% of hospitalist group leaders have little understanding of their program’s finances. Failure to understand the financials, the argument goes, may ultimately lead to salary deflation when cash-poor hospitals abruptly claim that we hospitalists are no longer a financially viable option for $200K.

What follows from this line of thought is that knowing about the financial side of things would enable us to see such a collision coming and adjust our ways in advance. Yet, while ignorance may not be bliss, I would argue that given the fact that hospitalists are acutely aware of their personal revenue (their salary) as well as the personal revenue offered down the street, the current supply-demand mismatch will continue to protect our incomes for the foreseeable future, regardless of how well group leaders may understand a budget.

What salary meltdown?
The value team is generally not afraid of a subprime hospitalist salary meltdown. One subset of this group argues, “You can’t run a hospital without nurses, but how much revenue do they raise? Now try to run a hospital without hospitalists!” It’s likely that this can no longer be done, especially for hospitals that have already gone the hospitalist route. The days of a hospital being a free market are numbered; no one, subspecialists included, is going to show up for free anymore.

A more moderate faction of the value-siders calls for acknowledging that revenue matters, while looking for more effective ways to sell the “value-added” concept. Hospitals will be happy to disburse $100K subsidies when we can prove that we are saving $200K per doctor. In my experience, however, the power of this argument evaporates once the hospital accountant struggles to insert the value theory into his or her Excel P&L sheet. That’s particularly the case when data on hospitalists’ cost savings aren’t perhaps as hard as we would like.

A compensation plateau
So who is right, does it matter and, most importantly, will this tell us anything about the question as originally posed: Do we make too much money in an economic climate that mirrors the Great Depression more closely than any other time in our history? Here’s my thinking: I very much doubt we are going to see significant salary gains beyond inflation anytime soon. Hospitals are being hurt by the economic crisis and only time will tell how severe those wounds will be.

However, I believe it is very unlikely that hospitalists will take a pay cut any time soon either. Hospitals will make painful cuts elsewhere before they risk imploding a hospitalist team, so long as recruitment remains so difficult.

I suspect that hospitalists will continue to see increases in relative compensation, both relative to other physicians and to other professions. (As an aside: It has been at least a year now since I have heard a physician voice what used to be a common refrain: “Why didn’t I go work on Wall Street? I would have made 10 times what I make now!”). Just ask your local oncologists or even cardiologists what is happening to their salaries, and I suspect you will find it is not pretty. Subspecialists continue to see their incomes drop “and I doubt they’ve reached the bottom yet.

So, relax, we still don’t make too much money. But, then, you might want to make your own calculations. A quick glance at my 401(k) indicates that I might not be the best person to dispense financial analysis.

Erik DeLue, MD, MBA, is medical director of the hospitalist program at Virtua Memorial Hospital in Mt. Holly, N.J. Check out Dr. DeLue’s blog and others on the Today’s Hospitalist Web site at www.todayshospitalist.com.