Understanding the Real Costs of Recruiting

Minisite_RPT_FullPDFUnderstanding the Real Costs of Recruiting and Retaining Physicians
Source: Lori Schutte, president of Cejka Search, a national physician recruitment and executive search firm serving health care organizations exclusively for more than 25 years.

Today’s physician recruiters must juggle higher costs of turnover and tighter budgets for recruitment in addition to the ever-present challenges of finding, hiring, and retaining well-qualified physicians who will fit well and thrive within an organization.

In an industry increasingly driven by evidence-based outcomes, it is important to understand the real costs of an inefficient hiring process and physician turnover. Actively managing hiring and turnover will lower the risk of lost revenue due to prolonged vacancies, increase control over hidden drivers of recruitment costs, and build a business case for retention initiatives.

While it may be counterintuitive to medical groups that successful hiring rates can increase as the number of interviews declines, a health care organization can achieve significant improvement in hiring efficiency and results over time by (a) increasing the effectiveness of pre-interview candidate screening, and (b) engineering the interview process to culminate with a timely and competitive offer to the right candidate.

Turnover Today — The Landscape
As the Cejka Search and American Medical Group Association 2011 Physician Retention Survey reports, on a combined, adjusted basis, there was little change in overall physician turnover from 2010 (6.1%) to 2011 (6.0%).*

However, the 2010–2011 static turnover trend appears to track with general conditions in the economy and housing market. The 2008 retention survey indicated that a worsening economy and plummeting home sales were causing physicians to delay retirement and relocation, which are key drivers of turnover. A decline in the turnover rate in 2008 and 2009 was followed by an uptick in 2010 and maintained at that level in 2011, tracking modest economic recovery and leveling declines in the housing market. Current improving investment and real estate values may signal a return to higher turnover as more physicians retire or relocate.

The Business Case for Efficient Recruitment and Retention
The consensus from the medical groups responding to the 2011 retention survey indicates that hiring of physicians and advanced practice providers will accelerate through 2012. Nearly three-quarters (74%) of the responding groups reported that they would hire more or significantly more primary care physicians in the next 12 months than they did in the prior year.

A more competitive market can drive up costs and the time required to fill vacancies, fundamentally linking retention and recruitment. Groups that invest in hiring for cultural fit, invest in a proactive retention program, and maintain an efficient process will be well positioned in an increasingly competitive environment.

The on-site candidate interview, a key step in recruitment, can become the single largest driver of expense when valued for hard costs, recruiting team time, and lost revenue due to the position vacancy, which increases as the interview process is protracted.

The 2011 retention survey found that the total interview cost per vacancy averages more than $30,000. Based on the reported data and survey assumptions, medical groups can identify areas where greater efficiency and effectiveness could significantly reduce the number of interviews, increase the value derived from each interview, and lower the overall cost of filling a vacancy. For example, respondents reported data and insights about their interview processes relevant to recruiting costs that produced a blended hourly rate of $250 for human resources and lost productivity during the actual interview, as well as an average of two additional hours spent per interview in preparation, interaction, and debriefing.

The added benefit of implementing best practices for screening, interviewing, and hiring is reflected in debriefs with physician candidates who report that a focused, efficient recruitment experience is a future indicator of the operational and cultural reality of practicing with a group.

Considering the significant resources needed to hire, onboard, and start up new physicians, it is surprising that only one in four medical groups quantify the cost of turnover, according to the 2010 survey. Without understanding the cost of turnover, it is impossible to measure the return on investment in retention initiatives, and engaging in this calculation can provide a clear operating advantage over competitors who neglect it.

All of the groups who quantify the cost of turnover consider direct costs, such as sourcing and advertising expenses and interview travel costs. However, not all groups incorporate indirect costs, such as the human resource cost involved in recruitment, interviewing, and onboarding, not to mention lost revenue while the position remains vacant.

There are various components medical groups take into account when calculating the cost of turnover. Doing so reveals the economic benefit — or significant cost — that can result from an incremental change in the turnover rate.

Improving Hiring Efficiency
With estimated turnover costs as much as $1 million per physician when all recruitment, start-up, and lost revenue costs are factored in, investment in retention becomes a critical strategic priority for the financial health of an organization.

The majority of survey respondents indicated that they were changing the way they recruit. Overall, many were taking action to adjust to economic conditions, implementing more competitive incentives, and using more interactive sourcing activities through channels that are fast, efficient, and more relevant to physicians today. Medical groups also appear to be focused on becoming more competitive and creative with their offers.

The 2011 retention survey reinforced a key finding from previous surveys and from anecdotal reports: physicians are at greatest risk for turnover during their first years in practice. This trend correlates to the significant cost of turnover, given the investment in recruitment, relocation, and practice start up. Past surveys have highlighted that fit and family are the key drivers of voluntary separation. The persistence of high turnover in the first years of practice indicates that many physicians and hiring organizations may lack an accurate assessment of culture, career motivations, and satisfaction with the location on the part of the spouse or significant other. 

The Payoff
Physician recruiters can build a strong case for investing in retention when the organization completely understands the full cost of turnover and the impact of an inefficient recruitment process. Organizations that build a culture of “intentional retention” through creative and competitive recruitment produce a tangible return on these investments through the increased loyalty of their workforce, patients, and community.

Physician recruitment and retention will become increasingly important, and those groups who develop a best-practice process will have a competitive advantage in attracting and keeping talented physicians.

*AMGA Groups reported average turnover of 5.9% compared with 6.1% in 2010, and average turnover of 6.3% reported by non-AMGA members (adjusted to exclude 15.7% turnover reported by a 681-physician emergency medicine group). On a combined, adjusted basis, there was little change in turnover comparing 6.0% in 2011 to 6.1% in 2010.

This issue of RPT is sponsored by PracticeMatch.