Published in the December 2015 issue of Today’s Hospitalist
MY HEALTH CARE SYSTEM is in growth mode, which means I’m spending a lot of time on sourcing providers. Job offers have a lot of moving parts: compensation, duty hours and workload, just to name a few. This month, I thought I’d give you a window into my world and explore some of the nuances of provider compensation.
Survey says …
Compensation analysis, while ostensibly quantitative, involves more art than accounting. Most hospitals start with market data and then fudge from there.
Data from the Medical Group Management Association “or simply MGMA “is the old tried and true. It provides national and regional salary statistics by specialty. For hospital medicine, the 50th percentile for compensation is about $254,000 annually for internists and $245,000 for family physicians.
Why, exactly, are you worth this kind of money?
Those numbers comport well with the 2015 Today’s Hospitalist Compensation & Career Guide. According to that source, the average salary was $249,608 for all respondents, with full-time hospitalists who treat adults pulling down considerably more than pediatricians ($261,791 vs. $207,692).
So far, so good. But here’s a seemingly stupid question: Why, exactly, are you worth that kind of money?
P&L
When it comes to running a business (or a department within a business), here’s a key equation: Revenue minus expenses equals profit or loss.
How does this play out in hospital medicine? Let’s start on the expense side with your salary. Next comes employee benefits like health insurance, CME dollars and your retirement plan. Then there’s malpractice insurance and other overhead. The latter could be strictly departmental “for example, your white coat or the pens in your pocket “or something much larger like the hospital’s EHR. All of that adds up to total expenses.
On the revenue side, there are professional service fees, all those 99232s and other E/M codes that you rack up day after day. According to Society of Hospital Medicine (SHM) survey data, the typical hospitalist treating adults cranked out 4,297 work RVUs in 2014. Medicare is currently paying between $52 and $58 per wRVU for the E/M codes that you generally use. Assuming an average of $55, which is generous, that puts your annual production at $236,335 (4,297 wRVUs x $55/wRVU).
Rewind a few paragraphs. This kind of revenue doesn’t even cover your salary, let alone other expenses. What gives?
Subsidies
That budget gap has been around since time immemorial. As SHM noted in its 2014 survey, virtually all hospital medicine groups “a whopping
93.9% “reported that “they did not receive enough income from professional services alone to cover expenses for running the group.”
Enter the subsidy, or what SHM is lately calling the “amount of financial support per FTE physician.” This is the money that hospitals kick in to keep hospital medicine groups afloat. In 2014, according to the SHM survey, the average support was roughly $170,000 per adult hospitalist per year “basically the majority of your salary.
Your hospital no doubt loves you. However, this isn’t corporate benevolence. Someone in finance has crunched the numbers and determined that you’re worth keeping around.
Primary care is in a similar boat. According to MGMA, outpatient family physicians lose about $108,000 per year after you subtract their practice expenses from revenue. But primary care also creates tons of downstream revenue: lab tests, imaging and referrals that result in high-margin procedures and surgeries. Just how much? According to Merritt Hawkins, the physician search and consulting firm, a staggering $2.1 million per provider per year for their affiliated hospitals.
Your intuition tells you the same is true for hospital medicine: All those CBCs, chest films and stress echoes should turn into a pile of cash, which, in turn, justify the subsidy. This makes perfect sense but is basically wrong. The stuff that you order is actually costs and makes your finances worse, not better.
Voodoo economics
Medicare’s Inpatient Prospective Payment System pays your hospital per hospitalization, regardless of actual resource utilization. For example, a patient with “simple pneumonia and pleurisy with a major complication or comorbidity” (DRG 193), is worth about $8,421. You can either break the proverbial bank by keeping patients too long or doing too much, or “make” money by coming in under that number.
This was the original justification for the subsidy. Hospitalists were able to reduce hospital length of stay compared to community primary care providers. This reduced costs, allowing hospitals to net more revenue per DRG. Some of these dollars then circulate back to hospitalists in the form of subsidies.
In the years that followed, Medicare has been a veritable annuity for hospitalists: CMS core measures, hospital-acquired conditions, HCAHPS scores and readmission penalties, just to name a few. There was the occasional upside “as in new revenue “but mainly hospitalists controlled costs by protecting hospitals from financial penalties.
The Medicare Shared Savings Program (MSSP) is the latest iteration on this theme. Accountable care organizations that control costs and achieve targets for clinical quality receive MSSP payouts. It’s unclear if this represents incremental income or whether “shared savings” simply recycles dollars.
What’s in your wallet?
So what are you worth? A clever cost accountant could probably figure it out, but I’ve never seen that analysis (an MBA project, perhaps?). Until those numbers appear, here’s my advice: Shoot for a personal income based on market data and let someone else worry about the subsidy.
David A. Frenz, MD, is vice president and medical director for mental health and ambulatory services for North Memorial Health Care in Robbinsdale, Minn. You can learn more about him and his work at www.davidfrenz.com or LinkedIn.
