Understanding the Physician Employment “Movement”
Published: Jul 23, 2014
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With increasing frequency, both practicing physicians and those graduating from training are seeking employed positions. Regulatory and economic forces as well as lifestyle preference fuel these significant changes. Institutions seek to reduce variations in care, improve outcomes, and reduce costs. This has resulted in high-volume recruiting activities, but uncertainty in developing new compensation models. Physicians looking for work/personal life balance and cultural fit in this setting must ask tough questions pertaining to salary and measured performance, expected workloads, business structure, source of referrals, and the competitive environment. Seek assistance from a professional or a mentor to clarify any uncertainties.
As health care economics and the private practice environment shift in response to market and policy forces, physicians are opting for direct employment with hospitals, health systems, and other entities in growing numbers. In addition, organizations that have not previously employed physicians are now adopting this model. This trend is producing a very dynamic practice opportunity marketplace for young physicians, but it also is affecting employment contract terms in new ways. In this environment, physicians should exercise considerable due diligence to ensure that contract terms are clearly defined, that prospective employers are appropriately positioned to offer a solid opportunity, and that the organization’s and physician’s values are well aligned.
Physicians coming out of residency are increasingly gravitating toward employed rather than private practice positions, as evidenced by both surveys and anecdotal reports. The trend is taking hold so rapidly that it is difficult to quantify it. Recent surveys conducted by physician and hospital organizations, and national recruiting firms indicate that between half and two-thirds of current physician practice opportunities or searches are for employed positions. Further, the number of physicians employed by hospitals grew by 34% between 2000 and 2010, an indication of the trend’s progression. A recent survey conducted by Jackson Healthcare, a staffing firm that also conducts research on physician practice and other industry trends, found that, between 2012 and 2013 alone, hospital-employed physicians increased from 20% to 26%.
The reasons for the shift away from the traditional private practice and toward employment are myriad, and the trend is driven by both health care market dynamics and physician preferences. Continued uncertainty about the longer-term economic effects of health reform and declining reimbursement in several specialties are making it harder for small and medium-sized private practices to manage their overhead costs, much less compete with large organizations.
In this environment, some physicians are opting to sell their practices and move to employed positions. On another level, young physicians coming out of training appear, as a whole, to be more interested in focusing on their daily practice than on operating what is essentially an entrepreneurial enterprise — especially when the future economics of traditional practice are uncertain. The Accountable Care Act, for example, is already shifting reimbursement away from certain specialties and high-cost service areas to redistribute resources. As a result, some physician practices are feeling the pinch.
“What we’re hearing in our surveys and recruiting is that residents feel they haven’t really been trained in business and don’t necessarily want to run one. They’d rather focus on the practice of medicine,” said Kurt Mosley, vice president for strategic alliances at the national recruiting firm Merritt Hawkins. His company’s most recent survey found that 61% of residents planned to pursue fully employed positions.
Physician lifestyle preferences also figure in the shift toward employment among young and mid-career physicians, noted Shane Jackson, president of Jackson Healthcare. “This trend toward employment has been several years in the making,” he said, “but what we are seeing with this generation of young physicians is that most want to do what they went into medicine to do — to take care of patients — and then they want to go home and be with their families.” He added that these physicians do not want to cope with administrative and insurance issues. The company’s 2013 Physician Outlook & Practice Trends survey found that 42% of physicians surveyed chose hospital employment over private practice because they “did not want to deal with the administrative hassles of owning a practice.”
These young physicians also want positions that will enable them to have a relatively predictable work schedule, Mr. Jackson added, and they presume that employed positions offer a better chance of that than private practice might.
At the other end of the delivery spectrum, hospitals and health systems are increasingly hiring physicians to meet several objectives. Hospitals seek better clinical and financial alignment between their institutions and medical staffs, and in doing so hope to reduce care variations that can be costly. Furthermore, hospitals and systems are being pressed by government and commercial payers to improve care outcomes and reduce costs — or face penalties. And as they form or join accountable care organizations, hospitals expect the results to accrue more rapidly if their affiliated physicians are employed.
Finally, the competitive environment has intensified in recent years, and inpatient volumes appear to be leveling off rather than increasing sharply as anticipated. This is prompting hospitals to take steps, including employing physicians, to keep referrals steady. “Hospitals and health care organizations are all competing for patients, and in some markets there aren’t enough of them,” said Chuck Peck, MD, a managing director of the health care practice at Navigant Healthcare, a global services firm. Hospitals are also battling with payers and employers about reimbursement, he added, and adjusting to the new bundled payments. As such, they’re trying to engage a solid corps of physicians to help them meet strategic goals.
Recruiting Activity “Brisk”
One sign of the recovering U.S. economy is exhibited in physician recruiting activity, which had been somewhat stagnant between 2009 and 2012, particularly in hiring for employed positions. Now, hospitals and health systems are not just shifting their staffing models toward employing physicians, but they are also engaging in high-volume recruiting activities.
The Merritt Hawkins 2013 Review of Physician and Advanced Practitioner Recruiting Incentives found that in the wake of both pent-up demand and increasing hospital consolidation, some organizations were recruiting 30 or more physicians at once for employed positions. Mr. Mosley noted that this is in sharp contrast to the traditional recruiting paradigm, in which facilities tended to recruit one or a few physicians at a time, on an ad hoc basis, to fill gaps in their medical staff. “This is not something we’ve seen before,” he said.
What does this all mean for residents and physicians coming out of fellowship, as they start their job search? On the plus side, it means that employed practice opportunities are plentiful, in most geographical markets and among many types of institutions and group practices with strong institutional affiliations. The trend also means that many hospitals and health care organizations that have historically operated on the “voluntary” medical staff model are new to the hiring business. That in turn translates into some uncertainty in developing effective compensation models — a dynamic that’s evolving rapidly in a constantly shifting marketplace.
“We’re seeing a lot of experimentation in employment contracts right now, as organizations try to figure it all out in a complex environment,” Mr. Jackson said. He added the number of new entrants to the physician employment arena (such as retail clinics, telemedicine companies, and concierge medicine practices) is adding to the complexity.
Provisions, Performance Metrics Confusing
In Mr. Mosley’s view, employment contract variations he and fellow recruiters have reviewed recently reflect this changing environment. “We’re seeing a lot of different models out there — from flat salary to salary plus bonus — and lots of variation among the contracts,” he said. Although that’s not a bad thing in itself, it does mean that physicians have to pay close attention to contract provisions, especially with organizations that may be new to hiring physicians directly. In particular, he cites the general area of performance expectations, as well as the metrics for gauging and compensating physician performance.
For example, because hospitals and practices must now meet governmental and commercial payers’ requirements for patient outcomes and satisfaction, they need physicians to help them meet performance targets so they can ensure adequate reimbursement and avoid penalties. As such, hiring organizations are increasingly structuring compensation plans — particularly bonuses — on their physicians’ performance on quality metrics, not just productivity. The issue is that some contracts don’t spell out how those metrics are defined and quantified.
“If you are going to be paid on ‘patient improvement’ or satisfaction, you need to know how that is measured,” Mr. Mosley said. “The same thing goes for metrics such as governance or citizenship, or even peer review.” He added that he has seen many contracts where these terms and expectations are not well defined. And if part of a physician’s compensation is “at risk” for such performance, which is becoming common, vague provisions can quickly become problematic. As such, candidates should ask whether any portion of their base compensation is at risk and if so, under what circumstances could compensation adjust downward.
Because of the current environment, physicians should be prepared to ask pointed questions during the interview. They should ask about expectations and how their performance will be measured, urged Lloyd Fisher, MD, a pediatrician from Worcester, MA, who is chair of the Massachusetts Medical Society’s communications committee. “Residents should definitely ask how much of their compensation will be dependent on metrics such as productivity, [care] quality, and patient satisfaction, and how those metrics are quantified,” Dr. Fisher advised. “They also should ask what support is available to help them meet performance [standards] or resolve issues that come up.”
Both Dr. Fisher and Mr. Mosley agreed that physicians should also ask what kind of input they’ll have when performance issues are discussed and whether there is an appeal process if the physician disagrees with the performance evaluation.
An appeal process may be helpful for physicians new to a practice. For example, Dr. Fisher noted that new physicians, especially those in primary care, might find themselves given the “challenging” patients (new patients coming into the system who haven’t been receiving preventive care, or “doctor shopping” patients who aren’t compliant with recommendations) because colleagues’ practices are full. “This can skew the physicians’ [performance] metrics, even when they’re doing a good job,” said Dr. Fisher, who gives seminars to pediatrics residents on practice options and employment matters. “That’s why it’s important, in the interview, for young physicians to make it clear that they want to do a great job, but need to understand the expectations of them and how they’ll be supported.”
Even if the contract presented is boilerplate and mostly nonnegotiable, residents should still seek an attorney’s review and input from an advisor or a contact-savvy physician, said Dr. Fisher. “You might not be able to negotiate the provisions, but it’s helpful to have a lawyer with related expertise help you understand the terms,” he added.
Dobbin Chow, MD, director of the internal medicine residency program at MedStar Good Samaritan Hospital in Baltimore, reported that his residents are generally aware of the changes occurring in the hiring sector. That’s in part because they’ve been exposed to business of medicine seminars through his and other area residency programs. But most, in his experience, aren’t paying a lot of attention to contract nuances. Rather, most just want to ensure “that the contract is fair,” he said.
“Our residents primarily want someone to review the contract to ensure there aren’t any serious problems with it and that [the employer’s] expectations are clear,” Dr. Chow said. “Generally, residents appear to view the employment option as ‘safe,’ especially if they’re heard horror stories about unreasonable workloads in private practices.”
Personal Criteria Still Matter
Diana Pandey, MD, a child psychiatrist who recently completed her training at Cincinnati Children’s Hospital Medical Center, was more focused on location than on the employment model when she recently sought her first practice opportunity. “I knew that I wanted to practice in Minneapolis, so that was my main criterion,” she said. “Beyond that, I didn’t have a lot of preferences, except that I wanted to work with an underserved population.” For that reason, Dr. Pandey decided against private practice, where there would likely be less opportunity to treat that population. She also wanted a practice setting in which she could engage with other mental health professionals.
That limited the field to academic practice and employed positions. In the end, Dr. Pandey — who is triple-boarded in pediatrics, and child and adult psychiatry — chose the latter. She will work for Allina Health, a not-for-profit health system, and practice inpatient psychiatry at Abbott Northwestern Hospital in Minneapolis. In evaluating employed opportunities, she admitted that she had limited awareness of what to look for, or avoid. However, during the “transition to practice” course she attended during residency, she gained some exposure to employment contract provisions.
“The class was helpful, especially in terms of what to look for in a contract regarding [work] expectations, and understanding why one job pays so much more than another seemingly similar position,” Dr. Pandey said.
When she was offered the job, Dr. Pandey engaged an experienced financial advisor to review the contract. But what ultimately sold her on the Allina Health position was the opportunity she was offered to spend time with a prospective colleague in the practice environment. “It was very helpful to talk to him and to see the unit. I think that residents who are looking at opportunities should try to get in to the actual environment,” she said, “because you get a better sense of the job than you might in the interview setting.”
Ask Pointed Questions
Cheryl DeVita, a senior search consultant for Cejka Search in St. Louis, observes that residents are generally more proactive now than in the past, in terms of asking key questions about contracts and in obtaining expert review before they sign an employment agreement. But in the current environment, she thinks residents should be prepared to drill down even deeper. If they’re looking at a group that’s been acquired by a larger organization, for example, physicians should ask whether a call will be shared equitably.
Ms. DeVita said physicians also should ask whether they’ll have the same contract as their comparably experienced colleagues, and whether they’ll have the same performance expectations. She added that many organizations are wrestling with deciding on the benchmarks they’ll use for performance and productivity metrics, so physicians should ask about those as well.
Dr. Peck urges physicians to also ensure they have an understanding of the potential employer’s financial footing and competitive position in the community — especially if the organization is relatively new to physician employment. “You should ask about the organization’s vision, philosophy, and strategic plan, and ensure that their goals align with yours,” he advised. Candidates should also ask pointed questions about the business structure — the hospital affiliations (current and prospective) and referral base, and the primary source of revenue.
“You do need to understand their strategic plan. And if they won’t share this information, or if the conversation is all about potential income and not other important issues, walk away,” Dr. Peck said.
Most sources for this article also concurred that because the employment model, and performance metrics, are in such flux, physicians should ask about the timeline for review and adjustment, as needed, of any metrics that affect compensation.
Paul Gurny, MBA, managing director of the Maryland-based Essentials Seminars for Physicians, which provides physicians practical business skills to help them transition to practice, cited another potentially problematic metric: patient outcomes. “It’s important to know how this will be determined if it affects your performance measurement, and how patient non-compliance [with treatment recommendations] will be factored, if that’s an issue,” said Mr. Gurny, whose company gives seminars to residents and practicing physicians. He added that candidates should seek details on how other possibly vague performance factors, such as citizenship and patient-chart maintenance, are defined and quantified.
“Most contracts do not list out how these things will be measured. But it’s important for physicians to know this if their compensation could be affected,” he added, especially if their earnings could be “docked” for turning in 10 charts late a month, for example. “And of course, you also want to make sure the organization’s values are aligned with yours. “The way to think about this during the interview is that you’re on a high-information, high-intensity fact-finding tour, and that your values are important, too,” Mr. Gurny said. “And remember that no physicians will be upset with you if you want to know more about how they practice.”
Young physicians should exercise due diligence when they’re looking for an employed practice opportunity, but they shouldn’t lose sight of the other key component: whether the culture is a good fit. “The contract and employment structure are important, but at the end of the day it’s more about whether the organization’s goals are aligned with yours, and whether it feels like an exciting opportunity,” Dr. Peck said.
AMA guidance targets physician employment arrangements
In the wake of the groundswell movement toward employment of physicians by hospitals, health systems, and other health care entities, the American Medical Association (AMA) has issued guidance to help physicians avoid physician-unfriendly contracts, conflicts of interest, and ethical quandaries.
As the trend toward employed models increases, physicians are reporting difficulties in treatment and referral interference, vague contract language, compensation-associated performance metrics, and unrealistic productivity expectations. Some of the key recommendations in of the AMA’s “Principles for Physician Employment” include the following:
- Employed physicians should be free to exercise personal and professional judgment in voting, speaking, and advocating on any matter involving patient care interests and/or medical judgment.
- When physicians’ compensation is related to the revenue they generate, employers should clearly define the factors on which that compensation is based.
- Employment agreements should provide for dispute resolution and specify whether employment termination may result in termination of hospital medical staff membership or clinical privileges.
- Peer review should follow established procedures that are identical for all physicians and should be conducted independently of any human resources activities.
- Employed physicians should retain the right to be involved in employer negotiations with payers regarding professional fees or global billing rates, and they should be informed about the actual payment amount allocated to the professional fee component reflecting their services.
- Physicians should not be coerced into employment with hospitals, health systems, or other entities, and they should be free to enter into mutually satisfactory contractual arrangements, in accordance with established ethical principles of the medical profession.
Essentials Seminars for Physicians — This team of physicians and business professionals delivers seminars and publishes guidance on the business issues involved in the transition from residency to practice. For information, go to www.es4p.com.
“Principles for Physician Employment”—This American Medical Association document provides guidance on direct-employment issues that could prove problematic for physicians. It is available here.