by Tim Sheley & Calvin Bruce

In establishing guidelines for physician recruitment and retention,
close attention should be paid to the composite worth of a top-notch physician.

The successful operation of any hospital or medical group depends on recruiting and retaining physicians (and other healthcare professionals) whose medical training and clinical skills support the organization’s mission to offer quality patient care. Although practicing physicians are among a hospital’s highest priced employees, their value to the organization in monetary and non-monetary terms is incalculable.

Discussion of what a doctor is worth can be viewed from three key perspectives:
a) the cost of not having a physician on board
b) the cost to hire a physician to fill a key spot
c) the return on investment in hiring a top performer.

Examining each of these perspectives will provide a more informed discussion of how medical facilities can attract a high caliber of physicians who make a significant contribution to the mission of the organization.

The cost of not having a doctor on board

A fully staffed hospital or medical facility is in a position to maintain its desired daily census, ensure continuity of patient care, and maximize service-line revenue generation. On the other hand, when a hospital loses a competent, productive physician, the consequences are far-reaching, as measured in terms of both “hard” and “soft” costs.

Each month a position is vacant, a hospital can easily lose $100,000 or more in revenue, according to an article entitled “The Physician Shortage,” published as part of the Physician Recruitment Report. For example, a hospital can expect to lose from $2,000,000 to $3,000,000 in annual revenues associated with certain surgical specialties. (1)

Along with diminished hospital / practice revenue, another consequence of losing an experienced physician is loss to the community of a valuable practitioner. As a result, the service area has one fewer healthcare provider whose clinical skills contribute to the wellness of individuals and families in the area.

Losing an established, well-regarded physician inevitably results in some amount of patient migration. After all, patients are consumers who attach some degree of “brand loyalty” to medical service providers who have competently treated them and their families over a period of time. Their loyalty is not so much to a medical facility per se, but to practitioners in whom they trust their physical well-being and, in fact, their lives. When their favorite doctor leaves to join a practice in the same or neighboring service area, it’s not uncommon for dedicated patients to follow them to their new place of practice.

In that instance, the hospital or medical group loses not only patients already loyal to that doctor, but also future referrals that might have developed from that continuing relationship between patient and doctor.

After all, the referral base of renowned physicians is considerable. Consider, for instance, the name and reputation of prominent physicians associated with U.S. News & World Report’s list of ”America’s Best Hospitals”: Johns Hopkins Hospital, Mayo Clinic, UCLA Medical Center, Cleveland Clinic, Massachusetts General Hospital, among others. (2)

The “pull factor” of distinguished physicians at these institutions should not be underestimated. Their presence on staff can pull into the medical network other well-qualified doctors with a sterling reputation, as well as patients drawn to leading practitioners in a certain specialty.

Hospitals and medical groups have long recognized the importance of protecting themselves from excessive patient migration occurring through non-compete provisions in physician employment contracts and other restrictions on practitioners who would “divorce” themselves from their hospital department or medical group.

One possible consequence of a medical facility losing a valued physician is an overworked staff, which leads to escalated patient dissatisfaction as patients feel that they are getting inadequate attention to their health needs and concerns. Like other consumers, patients are not hesitant to mention negative experiences with a doctor or medical practice. Consequently, the negative impact on public relations further intensifies the problems associated with not having the right doctor in place to provide reliable patient care.

Furthermore, the loss of a key physician can have a serious impact on a teaching hospital. Teaching hospitals often develop entire departments around the skills and reputation of a single physician. Losing, let’s say, a department head can result in a domino effect of other doctors exiting when their contracts expire. As the reputation of the training program diminishes, fewer medical students will be attracted to it, resulting in a reduced pipeline of doctors trained at that hospital who can be plugged into future staff vacancies.

On a more serious note, the loss of key physicians in residency or fellowship programs has risk management consequences. Should clinical errors arise due to compromise in the quality of medical training attributed to the departure of one or more senior physicians, the institution’s medical malpractice exposure could increase dramatically, and concomitant litigation costs and lawsuit awards could result.

Supply and demand factors

Discussion of what it costs to hire a doctor must, first of all, be placed in the context of understanding the supply and demand of licensed physicians in major medical specialties, given current demographics and market trends.

The nationwide demand for quality physicians is attributed to the widespread doctor shortage predicted several decades ago. According to the report cited above: “The physician shortage has come more quickly than many anticipated. Hospitals and healthcare systems now face significant challenges in physician recruitment and it has become a top priority for most medical facilities. Hospitals are constantly searching for physicians.” (3)

The cost of medical education certainly has a bearing on the long-term physician shortage. Pursuing a medical career has always taxed the wallets of medical students and their families, but the percentage increase in debt arising from medical education has jumped considerably during this decade.

According to statistics supplied by the Association of American Medical Colleges (AAMC), total debt of students in private medical schools jumped from $120,000 in 2001 to $160,000 six years later. This increase represents an annual cost escalation of 5.9%. Public medical school debt rose from $86,000 to $120,000 in the same time period, reflecting a 6.9% hike. (4)

One consequence of this trend in debt accumulation relates to the long-term impact on those who select medicine as a career. Specifically: “Many in the academic medical community worry that rising debts will not only discourage students from considering medicine, but will take—or is already taking—a serious toll on the existing workforce.” (5)

As medical education costs rise—and (as many health experts contend) it appears that equitable reimbursement for physician services is fraught with challenges—it’s predictable that fewer young professionals will opt for a career as a practicing physician, especially in the Primary Care specialties.

By and large, Primary Care physicians are compensated in terms of insurance reimbursement associated with their daily patient load. By contrast, other physician specialists—such as Anesthesiologists, Neurosurgeons, Orthopedists and Cardiologists—are compensated according to the cases they handle, procedures they perform, and the advanced training and medical skill levels that contribute to their clinical competence.

Another factor related to physician shortage is the trend for older physicians to adjust their schedules to achieve a more favorable lifestyle / work balance, or even to retire earlier than expected. (6) According to some healthcare analysts, over the next several decades, the number of practicing physicians in the United States will not keep pace with overall demand for patient care, in part because of early retirements.

In fact, according to a study cited by the American Medical Association (AMA), experts “estimate that by 2020 the nation will need from 85,000 to 200,000 more physicians than the existing pipeline can produce.” (7) These figures represent a sizeable number of practitioners not available to provide medical care to an ever-increasing general population.

Add to the equation the geriatric factor of an aging population. As the Baby Boomer generation (78 million strong) retire, they expect more extended quality medical care throughout their lifetime, which represents an overall increased life expectancy.

Couple this prediction with the impact of implementing any sort of healthcare reform—i.e., “Universal Health Care”—that could eventually bring into the commercial health insurance infrastructure upwards of 40 million residents in the United States who are currently uninsured. (8)

Increasingly, the demand for competent physicians will place an added burden on our nation’s healthcare system—and the medical education community per se--resulting in increased competition from hospitals to recruit and retain doctors who are prepared to offer their valuable medical services on a long-term basis.

With demand exceeding supply in most physician specialties, many hospitals in metropolitan areas are willing to pay “whatever it takes” to procure the services of top producers to fill critical vacancies.

Similarly, hospitals in underserved areas have benefited from assistance by the Federal government in their recruitment efforts. Government regulations concerning J-1 and H-1B visa waivers for international medical graduates have been instrumental in addressing the severe shortage of doctors in rural communities.

The cost to hire a top-notch physician

Given the importance of maintaining a full roster of physicians who are top producers, hospital administrators are advised to put budgetary matters in proper perspective when designing and implementing their recruitment programs.

“The ultimate goal in managing recruitment expenses is not necessarily to trim budgets but to determine how physician staffing goals can be accomplished most efficiently,’ advises physician recruitment executive Susan Cejka. (9)

Formulating an acceptable employment offer must take into account a number of factors, as noted in an editorial for Pediatrics for Parents entitled “What’s your doctor worth?” (10). As this opinion piece points out, cost realism in determining appropriate compensation in an employment contract places importance on the following factors:

• Medical specialty
• Practice location
• Debt load
• Professional responsibilities entailed
• Clinical skills / modalities required
• General malpractice exposure.

Additional factors concern quality-of-life issues. In weighing employment offers, most physicians consider what enhances their lifestyle, time spent with families, call schedules, and similar important matters. Top-notch candidates typically seek a comfortable professional work environment and compensation package that meets their needs and expectations.

To attract the more desirable candidates, many hospitals and medical groups are prepared to offer outstanding candidates very attractive base salaries, sign-on bonuses, one- or two-year salary guarantees, a stipend for setting up their practice, marketing assistance in developing their patient base, generous allowances for subscriptions to professional publications and CME training, and equity participation (partnership) options as early as one year after joining the practice.

It’s essential for a healthcare employer to offer the selected candidate a competitive compensation plan that reflects the organization’s sincere interest in bringing the physician on board. The author of “The Physician Shortage” states the matter in these terms: “Good recruiting cannot overcome a bad offer. Review your compensation package to see if you’re competitive with the current market.” (11) Otherwise, serious physician recruitment efforts will be stymied from the outset.

Quite simply, if a hospital or medical group genuinely values the worth of its prospective physician hire, it is incumbent upon them to communicate that fact upfront in terms of tendering an offer that will put a smile on the candidate’s face and make the compensation package difficult to turn down.

An interesting article appearing on the website of The New England Journal of Medicine Career Center is entitled “Physician Recruitment Budgetary Planning: A Case Study”. The article succinctly provides a realistic breakdown of standard costs associated with physician recruitment: staff expenses, out-of-pocket expenses, interview expenses, relocation costs, and miscellaneous expenses. According to this analysis, the average cost per physician search is $23,771. (12)

This figure may be on the low side. As cited in “The Physician Shortage,” a more comprehensive breakdown of costs, following a Medical Group Management Association study, concludes: “The cost for one search generally falls in the range of $20,000 to $40,000 depending on the specialty, region of the country, and methods used for sourcing candidates. The average cost is about $30,000.” (13)

These estimates of recruitment expenses exclude starting compensation and other perks that generally comprise an acceptable offer. Suffice it to say, the cost to hire a competent physician represents a considerable financial investment in bringing a new provider on permanent staff. For this reason, it is important to hire doctors who can pay for themselves many times over in terms of reimbursable revenue generation.

To state the matter otherwise, hiring costs for a physician should be matched against the overall return on investment that can be associated with the practitioner’s tenure with the practice and exemplary clinical performance.

The Return on Investment

As discussed, the financial aspects of a hospital or medical group losing a top-notch doctor can be considerable, both in terms of hard and soft costs. Furthermore, hiring a suitable replacement must account for numerous factors that govern the success of the search, especially formulating a competitive compensation package that will meet the needs and expectations of the most desirable candidate to whom an offer is extended.

To put the matter of a doctor’s worth in more comprehensive perspective, it’s helpful to consider the overall return on investment (ROI) associated with hiring a top producer.

As a value-added service, Jackson & Coker has made available a “2007-2008 ROI Calculator” that enables hospital administrators to calibrate the estimated annual revenue associated with specific physician specialists. (The online version is accessible at www.jacksoncoker.com) Here are some examples of revenue calculation per medical specialty:

Clearly, employing a top-notch candidate will aid considerably in sustaining the stream of revenue associated with the doctor’s respective medical specialty.

Additionally, non-monetary benefits are also part of ROI—broadly understood--that needs to be duly considered by prospective employers when making an employment decision.

When a hospital department is fully staffed, administrators generally observe an improvement in staff morale and overall patient satisfaction. Consequently, there is less likelihood for patient migration because patients are assured that their medical needs will be met by well-qualified specialists and sub-specialists in a timely, efficient manner.

In addition, employing a competent, experienced doctor will improve the overall healthcare delivery within the community. After all, caring for healthier families promotes and protects the general public health.

It is also noteworthy that adding a “premier physician” to the medical staff enhances a hospital’s reputation and strengthens the organization’s physician recruitment efforts. Hospitals employing doctors who are well regarded in their specialty benefit from the public and professional recognition associated with that practitioner’s name and industry reputation. In short, the public relations value of hiring a notable physician recruit is an important component of Return on Investment.

Maintaining a suitable Return on Investment largely depends on successful retention efforts. An informative study on physician retention published by Healthcare Financial Management makes the following observation: “Recruiting primary care physicians can cost a large practice millions of dollars in recruitment expenses and lost revenue. And competition among practices to attract physicians can cause a position to remain unfilled for a year or longer. Thus, the ability to retain physicians is critical to the financial well-being of a practice.” (14)

According to the study, hospital administrators are advised to view physician employment in four aspects: recruitment, pre-employment, employment, and post-employment. Throughout these stages, suitably addressing the needs of the physician and his family—and helping them fit comfortably into their new community—is an ongoing process. When this objective is accomplished successfully, the likelihood that the doctor will be satisfied with his career decision and make a longstanding contribution to the medical facility that hired him increases significantly.

Conclusion

What’s a doctor worth? A top producer is worth the cost of recruiting, hiring and retaining a competent clinician who can guarantee continuity of patient care, sustain reimbursable revenue generation, maintain customer satisfaction, and contribute to quality healthcare delivery within the medical community. When measured against the hard and soft costs of not having a competent physician in place, the return on investment associated with the hire should certainly offset the expense of bringing the physician on board.

Notes:

(1) See the article entitled “The Physician Shortage” published at this website, p. 10.

(2) U.S. News & World Report publishes an annual listing of the top 100 hospitals considered to be “the best” in the United States. The 2007 listing .

(3) See “The Physician Shortage,” p. 1.

(4) AAMC statistics are noted in an article by Elissa Fuchs entitled “With Debt on the Rise, Students and Schools Face an Uphill Battle,” Recruiting Physician’s Today, Vol. 16 No. 2, March – April 2008, p. 3.

(5) Ibid, p. 3.

(6) See article written by Myrle Croasdale, “Older Physicians trim hours in lieu of retiring,” amednews.com, published March 17, 2008.

(7) Ibid, p. 2.

(8) This estimate is provided in an article entitled “U.S. report: 40 million cannot afford health care,” on www.msnbc.com, December 3, 2007.

(9) See Susan A. Cejka, “Physician recruiting: do you know where your dollars go? – hospitals can improve recruitment process through physician search plan,” published by Healthcare Financial Management, November 1991, p. 6.

(10) See Richard J. Sagall, “What’s your doctor worth?” – published as an editorial in Pediatrics for Patients, March, 1993, pp. 5-7.

(11) See “The Physician Shortage,” p. 5.

(12) Christopher A. Kashni, “Physician Recruitment Budgetary Planning: A Case Study,” published online at the NEJM Career Center.

(13) See “The Physician Shortage,” p. 9.

(14) See article by Kurt Scott, “Physician retention plans help reduce costs and optimize revenues,” published by Healthcare Financial Management, January 1, 1998.

Tim Sheley serves as Executive Vice President and Partner with Jackson & Coker’s Retained Search Division and has 13 years of physician recruitment experience. Calvin Bruce is Managing Editor of the Jackson & Coker Industry Report and has 18 years of experience working for firms with a healthcare recruitment focus, including Jackson & Coker.