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What’s happening with hospitalist compensation?

October 2010

Published in the October 2010 Today’s Hospitalist Compensation & Career Guide

IS THE FAST-PACED GROWTH that hospitalists have seen in their compensation beginning to cool off? A look at the results of the 2010 Today’s Hospitalist Compensation & Career Survey suggests that the answer to that question may be yes “for now, at least.

The responses to this year’s survey from nearly 700 physicians paint a picture of hospitalist compensation that appears to be growing, but slowly. For hospitalists who treat adults, this year’s mean compensation was $214,075, which represents a 1.81% increase from our 2009 survey data. From 2008 to 2009, by comparison, survey results showed that compensation for hospitalists treating adults jumped nearly 8%.

While these numbers point to a fairly big slowdown in the course of a single year, hospitalists have it relatively good. Other recent compensation surveys, for example, have found that physicians in some specialties reported compensation decreases. Hospitalists have at least done well in an economy that continues to struggle.

And even if it’s true that hospitalist compensation isn’t growing as fast as a year or two ago, hospitalist pay remains a moving target in many parts of the country. Like politics, hospitalist pay is extremely local, and compensation packages in an area can vary by $50,000 “or more.

As a result, there are still questions about where hospitalist compensation is heading, what hospitalists can expect in their paychecks, and whether that income will grow, shrink or stagnate. Here’s a look at what experts in the specialty say is happening both nationally and in their local markets.

Supply and demand
If hospitalist pay is growing more slowly than in the recent past, one possible explanation could be the very success that the specialty has had penetrating American medicine.

“There are fewer and fewer hospitals that don’t have a hospitalist program that want one,” says Robert Bessler, MD, president and CEO of Sound Physicians, a national hospitalist company based in Tacoma, Wash. Fewer hospitals starting hospitalist programs means fewer openings for hospitalists, which dramatically changes the supply and demand equation.

“In the first two years of new programs,” Dr. Bessler says, “you see staffing growth that can approach 50% per year” “growth, he adds, that’s fueled by super-sized salaries. “But after that, you’ll see longer term growth rates of 6% to 10%.”

Dr. Bessler notes another factor that could be affecting the hospitalist workforce and possibly compensation: Over the years, he says, the pool of experienced internists switching to hospital medicine has gotten smaller, and many veteran internists who want to make the jump have already done so. While 65% of Sound’s hires used to be experienced physicians, for example, that’s now shifted to just less than 50%.

Data from the 2010 Today’s Hospitalist Compensation & Career Survey found that hospitalist earnings go up, based on several factors: how long they’d worked as a hospitalist, how many years they’d spent in their current job; and how old they are.

As hospitalist groups find new ways to financially reward experience and leadership, Dr. Bessler says, that pay differential for established hospitalists is likely to grow. (See “Pushing back on ‘salary compression.’)

Sharpening their pencils
While hospitalists have successfully penetrated U.S. hospitals, they’ve also helped hospital administrators weather some tough economic times. That economic climate is reflected in some hospitalists’ paychecks.

As a result of the recession, says Dan Fuller, president and cofounder of IN Compass Health Inc., a national hospitalist company based in Alpharetta, Ga., hospital administrators have gotten much more aggressive about demanding value from their hospitalist programs. “Every time we go into a meeting with hospital administrators,” he says, “we hear, ‘We are making cuts to reduce costs, and we need you to sharpen your pencils.’ ”

That scrutiny of the bottom line is now coming not from COOs or VPMAs, but from CFOs. “We’re seeing CFOs sitting at the table,” Mr. Fuller says, “which is not what we used to see. The CFO is bargaining with us, and the message is focused on finding ways to maximize productivity and reduce support fees.” In those discussions, he adds, “quality is a given.”

The good news, Mr. Fuller says, is that most CFOs fully understand that the true financial value of hospitalist programs and the return on investment lie in the money saved by reducing length of stay and unnecessary utilization. And while administrators don’t focus exclusively on reining in costs, they are trying to squeeze more value from their hospitalist programs “and salaries are a big target.

That means that individual physician salaries sometimes take the hit. “I’ve got physicians who are upset about their increase,” Mr. Fuller says, “but they’re already earning more than the program can support.”

Introducing risk
As administrators look for ways to get a better handle on hospitalist pay, they are turning to one obvious solution: putting more physician compensation at risk. Our survey results show a continued growth in the use of compensation models that combine salary and incentives, and many industry veterans say the use of such hybrid compensation plans is accelerating.

Mr. Fuller explains: “Every institution we go into, from the sole community provider to large multi-hospital chains, is telling us the same thing: ‘We want more dollars put at risk. We want the physicians incentivized.’ ”

Dr. Bessler from Sound sees a similar trend. “Instead of giving significant compensation increases,” he explains, “hospitals want to put more dollars at risk for performance.” He adds that the list of criteria for incentives isn’t surprising, with most hospitals focusing in on patient satisfaction, quality and resource utilization.

O’Neil Pyke, MD, is a hospitalist and president and CEO of AMP Hospitalist Consulting LLC, as well as medical director for Medicus Hospitalist Solutions LLC, a firm that specializes in helping staff hospitalist programs. He agrees that incentive-based pay is a growing reality for many hospitalists. Big salaries for physicians, he explains, only get bigger with annual raises, making them unsustainable over the long haul.

“I have been advising clients to not succumb to high salaries that are only going to rise as years go by,” Dr. Pyke says. “When salaries start at such an aggressive level, hospitals might not be able to sustain them.”

Many hospitals, he adds, are only now figuring out that they may need to put more physician compensation at risk. While most programs set aside only 10% or 15% of physician compensation for incentives, Dr. Pyke urges the hospitals he works with to put up to 25% at risk to drive physician behaviors.

One challenge in switching to more incentive-based pay, however, is resistance from hospitalists themselves. “Doctors are still asking for “and to a large degree getting “the bigger base salaries,” says Dr. Pyke.

While he believes that incentive-based pay helps align hospitalist programs with the hospitals where they work, he acknowledges that programs having trouble recruiting are reluctant to move away from bigger base salaries. He describes one program he worked with that was offering a competitive salary that contained a performance incentive. Most of the physicians who came in to interview, however, asked for a salary guarantee.

The local picture
While there are many theories about why “and if “hospitalist pay is growing less quickly than in the past, the reality is that compensation tends to be very local. Our survey results show big differences by region, by practice setting and by just about every variable we asked about.

Take John Rooney, MD, medical director for the hospitalist program at Banner Gateway Hospital in Phoenix. He says that his group’s pay has remained relatively stable over the last few years, in part because Phoenix is a desirable area. His group hasn’t had to offer outsized salaries, he says, to attract and keep physicians.

But there’s a personal element to pay, which Dr. Rooney says is also reflected in his group. While Banner Gateway’s hospitalist group doesn’t pay as much as some private groups in the area, Dr. Rooney says it doesn’t matter to many of the physicians in his program. “Most of the doctors in our group would rather settle for a little less pay and fewer shifts so they can have better life balance,” he explains.

Mr. Fuller from IN Compass says he similarly sees some hospitalists choosing to earn less in exchange for lifestyle considerations. “We have hospitalists who come to us and say, ‘I was making $280,000, but I was working three weeks in a row and had no quality of life,’ ” Mr. Fuller says. “They may end up taking a job making $215,000 because of lifestyle issues.”

Professional migration
Experts point out, however, that many areas of the country and many markets still offer out-sized salaries. That continues to pose problems for groups in other markets that simply can’t compete on salary.

That’s the situation in some East Coast urban markets, according to Nadeem Anis, MD, medical director of the hospitalist program at Taylor Hospital in Ridley Park, Pa., a Philadelphia suburb. He says that internal medicine residents fresh out of training in the area take positions with programs to get a few years of experience under their belts. Those doctors then move to parts of the country that pay more, from the South to rural communities only 100 miles away from his hospital.

“Many residents spend a year or two working near an academic training area,” Dr. Anis says. “They’re comfortable with that because they have mentors from their training program nearby.” But after a couple of years, he adds, “they’re ‘seasoned’ hospitalists and leave because of the huge gaps in reimbursement.”

This is a major problem, Dr. Anis says, because it takes a hospital a year or two to get new hospitalists fully up to speed. “Just about when they’re doing well on patient satisfaction scores and quality measures, it’s time for them to leave. It’s really a big disadvantage when these candidates leave in a couple of years.”

With the compensation within his own group remaining relatively stable, says Dr. Anis, “it’s really hard to hang onto good talent when they know they can see a 30% increase in reimbursement by going to another part of the country.”

Edward Doyle is Editor and Publisher of Today’s Hospitalist.

Pushing back on “salary compression”

IN MARKETS WHERE COMPENSATION for hospitalists is cut-throat competitive, groups have had to deal with a problem known as “salary compression.” Put simply, young physicians don’t want to be paid less than more experienced physicians “and if they don’t get the same pay, the job market is hot enough that they can simply go across town and find another offer.

Robert Bessler, MD, president and CEO of Sound Physicians, a national hospitalist company based in Tacoma, Wash., remembers encountering the problem as a young physician himself.

“When I was straight out of residency, I thought, ‘If I’m working hard and seeing the same number of patients as a 55-year-old, why should I be paid less?’ ” Dr. Bessler recalls. “Now I understand clearly that the 55-year-old was a leader in the hospital, securing the contract and influencing outcomes.”

Dr. Bessler’s experience has helped inform Sound’s efforts to come up with a solution. The company’s Path to Partnership program rewards experienced physicians by giving them additional bonus money for their efforts in leading their groups. While other groups pay bonus money to physicians who sit on committees and help out with areas like recruitment, Dr. Bessler says that Sound’s model goes much farther.

“Partners in the practice don’t just show up for recruiting dinners, they serve as the recruiting liaison for the site,” he explains. “Partners in the practice don’t just show up for a critical care committee meeting, they lead the committee.” Partners also serve as site liaisons to primary care physicians.

In most groups, Dr. Bessler notes, partners are distinct from the program director. They tend to be hospitalists who have been at the practice for several years and have demonstrated leadership abilities.

When it comes time to award bonuses, partners get a bigger share of the pie. “A partner is worth twice as much as a nonpartner when it comes to our bonus plan,” Dr. Bessler says.

Making the jump to productivity

LAST YEAR, the hospitalists at Carolinas Hospitalist Group decided to make a bold move in terms of their compensation. Beginning in 2010, the group “which has nearly 60 hospitalists working at several hospitals owned by Carolinas Healthcare System “moved from the safety and predictability of a straight-salary model to a system where pay is based almost entirely on physician productivity.

Here’s how the group’s new compensation system works: It receives a sum of money from its owner, a large multispecialty physician network that is in turn owned by Carolinas Healthcare System. That sum is based on the total number of RVUs generated by the group. The hospitalists then use that money to pay its physicians, midlevel providers and other expenses.

The group uses a formula to split up the pay pool per physician. (The exception is new physicians, who receive a salary for their first two years.)

But the compensation plan also rewards other behaviors. To encourage participation in group meetings, for instance, the group uses its fund to pay physicians to attend. “You’re losing money,” explains John Scherr, MD, assistant medical director of Carolinas Hospitalist Group in Charlotte, N.C., “if you don’t go to the meetings.”

Another incentive pool rewards the group when physicians work more than a threshold number of RVUs per year. There’s also a quality component that focuses on core measures, patient satisfaction and referring physician satisfaction.

Almost immediately, Dr. Scherr says, the plan started paying dividends. While the hospitalists thought they might earn a little more money because of the plan, the group’s patient volumes unexpectedly jumped 40% in the last year. While patient volumes at times can feel high, Dr. Scherr says, the hospitalists can at least take solace in the fact they’re being paid more for working harder.

“Under our old payment method,” he notes, “we might have lost several physicians.”

And moving to a productivity-based compensation plan has given the group more autonomy. In response to this year’s spike in volumes, group members recently decided to hire more physicians, in part to bring down each physician’s census.

“We’ll probably make less money next year than this year,” Dr. Scherr says, “but the volume is sometimes more than people want to see. Everybody is willing to take a pay cut to get to a volume they feel is more reasonable.”

Less salary, more incentives

WHEN O’NEIL PYKE, MD, IS CALLED in as a consultant by hospitalist programs, he hears the same complaint over and over: Hospitalist compensation packages are broken.

Dr. Pyke, president and CEO of AMP Hospitalist Consulting LLC and medical director for Medicus Hospitalist Solutions LLC, a firm that specializes in helping staff hospitalist programs, points to a program he worked with recently that moved its hospitalist program to a compensation model that puts more physician pay at risk. Administrators were concerned not only about the amount of money they were spending on physician pay, but the value they were getting for their money.

Administrators were frustrated by what they saw as hospitalist salaries that exceeded regional and national benchmarks. “The amount they were spending on physician salaries had crept up on them over the years,” Dr. Pyke says.

More importantly, administrators wanted more value from the hospitalist group. “Some of the physicians weren’t meeting the standards that had been set,” Dr. Pyke recalls. “Executives felt they needed to hold some of their doctors more accountable.”

To do that “and to reward the high performers “the group first reduced the group’s base salary from the 90th percentile for the region to the 75th. It then instituted specific targets including RVUs, as well as patient and referring physician satisfaction survey results. “Targets were chosen based on deficiencies in the program,” Dr. Pyke says. “The prior incentives were too easily attained.”

Dr. Pyke says that under the new plan, physicians who meet an RVU threshold see a bump in their total compensation. They can earn even more money through the performance bonuses.

The preliminary numbers show that lower-producing physicians will likely earn less money. But higher performers “both in terms of RVU production and satisfaction survey data “will make more than they would under the old compensation plan. And that, says Dr. Pyke, was the goal.

The group lost one physician when the new compensation plan was ushered in. But the program has recruited several new physicians, and administrators are hoping that the new hires will perform better.

Dr. Pyke predicts that hospitalists will see more and more compensation tied to incentives “in part because hospital administrators are doing their homework and becoming more aggressive with performance expectations.

“Administrators are armed with better tools because they have knowledge of the market,” he says. With better data available from surveys, Dr. Pyke explains, administrators feel confident about setting expectations. “We have data that says, ‘This is what hospitalists in the 90th percentile are doing,’ ” he notes. “Physicians can no longer say, ‘That’s only one year’s worth of data.’ “