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Valuing physicians: A look at physician compensation, incentives and benefits. (Your Money).

In a recent roundtable discussion, chief medical officers from around the country gathered to tackle the critical issue of clinical caregiver shortages.

One physician interjected and said the tone of the discussion sounded like what he hears from his physicians as well. Others in the room agreed as the discussion turned to how the stress of increased volume and complexity, increased service requirements and more controls cause physicians to feel professionally undervalued.

Although physicians want to make a difference for their patients, they question how long they can continue to work under the current conditions. So, they either move on to a different role, possibly a different profession or become part of what we call the "walking wounded"--loyal and committed to their profession and patients, but worn out and discontent.

From our work with physician groups we know addressing this challenge is a key leadership issue. It requires a commitment to understanding the dimensions of what makes a compelling practice climate for physicians and striving to implement strategies designed to meet physicians' changing needs.

Reward is one such strategy. Although reward is not always the primary motivating factor, it can be a real distracter if certain expectations are not met.

An effective reward strategy recognizes a physician's value. It clarifies performance expectations and delivers remuneration a physician deems market competitive and commensurate with effort. In addition, the reward must be delivered in such a way to meet the physician's current life/work balance needs.

To help physician organizations establish the "right" reward formula, The Hay Group surveys the compensation practices of a number of group practices, HMO's, integrated health systems, non-teaching hospitals and teaching hospitals.

Outlined below are a number of highlights and trends from the recently released 2001 Physician Compensation Report. The report covers 100 physician specialties, including 35 pediatric specialties and 38 allied health positions. Data is reported as of May 1, 2001.

The survey included 10,865 physician incumbents and 24,719 allied health incumbents from 51 participating organizations. Also highlighted are a few of the best practices we have identified through our work in developing performance-based reward strategies for physician groups.

Base compensation

Base compensation is the primary element of a physician's total reward.

It can be a measure of success for physicians and so they focus on the market competitiveness of base pay, gathering comparative data from multiple sources including recruiters and colleagues.

Base pay represents that aspect of total pay on which the physician can make spending and investment decisions. In some settings, even this amount may be subject to risk adjustment for performance and expense measures.

Providing physicians a sense of stability and predictability of base pay allows them to effectively order their financial life.

Incentive compensation

Annual incentives continue to be an essential element of many physician reward packages.

The prevalence of annual incentive plans remains high in group practices and HMOs (80 percent and 75 percent respectively). Hospital-based facilities reported using annual incentive plans only 58 percent of the time Incentive plans are more prevalent in the for-profit participants.

Critical to the success of annual incentives are their clarity, their attainability and their alignment with the business objectives of the practice.

Although performance goals should be a stretch, they should be attainable and involve areas that physicians can influence.

Linking incentive goals to the business objectives of the practice ensures funding and practices results. Incentives must be supported by accurate collection and reporting of performance data and ongoing leadership feedback.

Feedback helps physicians know where they stand and provides a sense a control to physicians over their final compensation.

Survey highlights

A few highlights from the incentive data are outlined below.

* The average target opportunity for primary care physicians was 14.7 percent with the maximum opportunity being 24.4 percent. For specialties the average target opportunity was 14.5% with the maximum being 17.1 percent.

* For group practices and hospital-based facilities, individual performance based on productivity is the most common basis for determining incentive payout. Individual performance based on productivity accounted for 66 percent of the weight of the incentive in group practices while it accounted for 56 percent in the hospital-based practices. Patient satisfaction and utilization management were the next most widely used measures. Other measures used were seniority; individual performance based on factors other than productivity and organizational/department-wide performance.

* The actual percentage of incumbents receiving the incentive payout was higher in group practices (62.0 percent) than in the hospital-based facilities (25.9 percent). This may be an indication of the continued challenges in operating hospital-based physician employment models.

Benefits and perquisites

Flexible benefits and perquisites offer innovative opportunities to reward physicians beyond traditional cash compensation.

This element of total reward can be tailored to meet the diverse needs of physicians.

More flexible benefits may be called for in addressing future life/work balance and retirement/savings issues of physicians.

Programs such as flexible hours and four-day workweeks show willingness on the part of employers to tailor total benefit packages that are highly regarded by physicians.

The most prevalent retirement/savings benefit being offered to physicians was the Tax Deferred Annuity 403 (b). This was especially true with the hospital-based groups. Less prevalent was the 401(k) matching plans.

Key to attracting and retaining physicians in the future is viewing them as the primary asset to practice success. Successful leaders recognize one size does not fit all, especially when it comes to attracting, developing and retaining physicians.

Committing to meet the needs of physicians through a total reward strategy provides the opportunity for leaders to stay in touch with what matters most to physicians and convey the genuine value they place on physician contribution.

Gordon W. Hawthorne is managing director of health care for The Hay Group. Hawthorne specializes in assisting health care and physician organizations optimize organizational performance and results by aligning leadership and human resources with business strategy.
1998-2001 Average Total Annual Pay ($000) All Surveyed Organizations

Reflected in the table below is the compensation movement over the past
four survey years (1998 through 2001) in a few of the specialties. These
data include all participating organizations in each survey year, and
thus represent a fluctuating population of surveyed organizations. For
purposes of comparison, health care CEO's median base pay increased 6.1%
in 2000 with other healthcare top executives increasing 5.0%.

 Average Total Annual Pay
Specialty 1998 1999 2000 2001

 Family Practice $141.3 $145.4 $144.4 $145.5
 Pediatrics $143.2 $145.2 $152.4 $146.9
 Internal Medicine $149.1 $149.1 $155.6 $145.5

Non-Invasive Medicine
 Dermatology $187.8 $186.3 $198.1 $206.2
 Endocrinology $159.4 $160.1 $167.5 $160.7
 Rheumatology $165.0 $166.4 $161.7 $160.3

Invasive Medicine
 Gastroenterology $203.6 $200.1 $198.2 $210.4
 Nephrology $183.0 $182.5 $189.3 $188.5
 Pulmonary $179.1 $182.3 $177.5 $173.6

 Cardiovascular $387.7 $368.5 $409.5 $433.6
 Neurosurgery $316.9 $329.1 $306.4 $304.5
 Orthopedic $276.2 $272.6 $273.5 $278.5

 Percent Change
Specialty 1998- 2000-
 2001 2001

 Family Practice 3.0% 0.8%
 Pediatrics 2.6% -3.6%
 Internal Medicine 2.4% -6.5%

Non-Invasive Medicine
 Dermatology 9.8% 4.1%
 Endocrinology 0.8% -4.1%
 Rheumatology -2.8% -0.9%

Invasive Medicine
 Gastroenterology 3.3% 6.2%
 Nephrology 3.0% 0.4%
 Pulmonary -3.1% -2.2%

 Cardiovascular 11.8% 5.9%
 Neurosurgery -3.9% -0.6%
 Orthopedic 0.8% 1.8%
The following specialities exhibited the greatest average base salary
movement overt the 2000/2001 survey year:

Specialty Base Salary Increase

Oral Surgery 34.8%
Cardiology (Noninvasive) 18.4%
Radiology (Therapeutic) 17.1%
Anesthesiology 17.0%
Pathology 16.7%
The following specialties exhibited the lowest average base salary
movement over the 2000/2001 survey year:

Position Base Salary Movement

Emergency Medicine 0.5%
General Surgery 0.6%
Ophthalmology 0.7%
Neonatology 0.8%
Perinatology 2.0%
Prevalence of Annual Incentive Plans

 1999 2000 2001

Hospital Based 58% 58% 59%
Group Practice 80% 85% 74%
HMO 75% 80% 86%
All physicians' Survey Participants 63% 67% 69%

Note: Table made from bar graph
Prevelance of Benefits Policies and Trends

 Survey Genderal
 Participants Industry

Long-Term Care 16% 13%
Living Benefits 50% 53%
Personal Auto Policy 96% 87%
Tuition Reimbursement 89% 73%
Four Day Work Week 35% 60%
Child Care 85% 94%
Employee Assistance Program 78% 88%
Company Cafeteria 37% 22%
Smoking Policy 98% 96%
Drug Testing 62% 68%
AIDS Policy 19% 29%
Early Retirement Inducement 10% 12%

Note: Table made from bar graph

RELATED ARTICLE: "Your Money" is a new column inspired by ACPE members who asked for more information about physician compensation and benefits. In this first installment, Gordon Hawthorne of The Hay Group, Inc. examines the group's 2001 compensation survey data.
COPYRIGHT 2002 American College of Physician Executives
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Article Details
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Author:Hawthorne, Gordon W.
Publication:Physician Executive
Article Type:Statistical Data Included
Geographic Code:1USA
Date:Jan 1, 2002
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