What You Need to Know About Physician Recruiting Incentives

Successful Recruiting Depends on Optimizing Incentives

If you work for a large medical group or hospital system, you may be involved with recruiting physicians or negotiating employment agreements. It’s a set of skills worth learning because so many systems are on a recruiting binge. Salary levels have consistently grown at single digit rates for years. But the type and size of physician recruiting incentives have been more variable.

With the recent release of the Merritt Hawkins 2017 Review of Physicians and Advanced Practitioner Recruiting Incentives, I thought you might like a deeper review of that topic.

physician recruiting incentives to welcome candidates

When recruiting physicians and advanced practitioners (physician assistants and nurse practitioners), the primary determinant of success in attracting good candidates depends on:

  • Compensation offered;
  • Quality of life (location, hours, cultural fit, etc.); and,
  • Other recruiting incentives.

Inflated Physician Compensation Prompts OIG Scrutiny

Five Steps to Avoid an Audit

Modern Healthcare recently reported that Mercy Hospital Springfield and its affiliate clinic settled a case with the Department of Justice for allegedly submitting false claims to Medicare (Mercy pays $34 million to settle fraud, physician compensation claims). The case involved allegations of inflated physician compensation at an infusion center.

Modern Healthcare quoted the DOJ: “When physicians are rewarded financially for referring patients to hospitals or other healthcare providers, it can affect their medical judgment, resulting in a overutilization of services that drives up healthcare costs for everyone,” said acting assistant attorney general Chad Readler.

Inflated Physician Compensation DOJ

The hospital system acquired the infusion center from a group of oncologists. It was then able to charge hospital based fees and take advantage of 340(b) pricing for its medications. This is a common tactic used by hospitals to access favorable payments from CMS for hospital based services.

Inflated Physician Compensation

The DOJ alleged that the hospital paid the oncologists inflated amounts for management services following the transfer of ownership. This led to allegations of Stark Law and False Claims Act violations, ostensibly for exceeding fair market value and potentially encouraging referrals.

According to a National Law Review article regarding this case, the complaint alleged that “the compensation amount for the physician supervision work at the infusion center was approximately 500 percent of the wRVU for in-clinic work where the physician was actively involved in patient care… was not fair market value, nor was it commercially reasonable.”

Mercy agreed to pay $34 million to settle the lawsuit.

I addressed a similar issue in a popular post in 2016 (Physician Salaries and OIG Risk). I am re-publishing the content here for new readers. The previous article addresses inflated salaries. But the tactic of paying inflated management fees in order to maintain referral patterns has the same effect.


Pitfalls Involving Salary Surveys and OIG Allegations

I have been following news reports about recent OIG (Office of Inspector General) investigations related to physician compensation. These investigations have resulted in fines for alleged Stark Law and FCA (False Claims Act) violations. There seems to be more activity recently, including investigations in response to whistle-blower lawsuits.

OIG Inflated Physician Compensation

Here is my take: Hospitals and health systems that use survey data (such as MGMA and AMGA) to set compensation levels for newly employed physicians are under intense scrutiny. This scrutiny results because:

  • it appears that collections generated by the employed physicians do not support the salaries being provided, or
  • salaries of newly employed physicians significantly exceed compensation previously generated in their independent practices.

Why Demoralize Your Employed Physicians Over Tail Coverage?

Going to War Over Tail Coverage Is Self-Defeating

I was sitting across the table with a new family physician recruit for the third time. He was a particularly challenging recruit to work with, but we really needed family physicians. We had added several physician assistants and nurse practitioners and we needed qualified primary care physicians to collaborate with them. We were back to discussing tail coverage.

tail coverage battle

I had explained to the candidate that it was our practice to require tail coverage to be covered by the physician. It was one of the ways that we used to promote longevity of the relationship. We would be willing to waive the requirement in the event that we decided to terminate the agreement without cause, or if the candidate became disabled or died (to protect his or her estate). But those were the only exceptions.

He ultimately accepted the terms, after negotiating a higher sign-on bonus and student loan repayments. But I could tell he was unhappy about the tail coverage issue.

What’s Driving Physician Obsession with Compensation And How Can You Help?

Writings From My "Sister" Blog Site

Employed physicians are very concerned with their contracts and compensation. What sometimes seems like a legal formality to employers, is a document (employment agreement) that basically defines the legal boundaries of their professional lives. Newly employed physicians often ask me how to maximize their incomes under their current employment agreements.

compensation

As an administrator dealing with employed physicians, it is easy to become cynical about this topic. It seems as if some of our physician candidates and employees are concerned more with their compensation than with finding a positive, supportive practice, dedicated staff or satisfied patients.

However, we should remember that these physicians have taken delayed gratification to a new level. They postponed starting their careers for years as they pursued medical school, residencies and fellowships. They have seen their friends complete bachelors and masters degrees, begin their careers, and begin to live a “real” life. Your physicians feel like they have been postponing their “real” lives for years.

And when they’re ready to begin practicing, they’re facing the possibility of school loan payments that may go on for decades, with loan balances in excess of $200,000 that are still accruing interest. Young physicians can come to feel very uncertain about their families’ financial security. Under these circumstances, it is easy for them to appear to be obsessed with their salaries.

Health System Physician Employment Is Still Growing

Is It Sustainable?

Physician employment by hospitals grew 49% between July 2012 and July 2015, according to the Physicians Advocacy Institute. Many formerly independent physicians have sold their practices and become employed. A high percentage of newly trained physicians are also signing with hospitals and health systems.

contract

physician employment contract

“Let’s call it quits.” I said. “We’ve been negotiating this agreement off and on for three years.”

The CFO looked at me: “I’d like to.”

He was frustrated because he knew that the only way the deal we were offering would work out for us was if everything went just right for the next five years:

  • The physician we were recruiting would have to remain highly productive, generating over 15,000 wRVUS per year;
  • He would have to remain healthy;
  • There couldn’t be any unexpected crisis, like a death in the family or similar issue;
  • He would have to shift the work he was doing elsewhere to our facility;
  • His office would need to be run very efficiently;
  • Some of our employed PCPs would need to start referring to him; and,
  • Newly recruited physicians would have to accept his vision of the practice.

We were both concerned that we had spent hundreds of hours on this negotiation, which would seem a waste if we stopped now. But we were not as sure as the CEO that adding this physician to our already large network would be a good fit.

But, we scheduled another meeting for the following week. And we called our attorney to go over some of the latest requests from the physician.

Physician Salaries and OIG Risk

Five Steps to Avoid an Audit

I have been following news reports about recent OIG (Office of Inspector General) investigations related to physician compensation. These investigations have resulted in fines related to alleged Stark Law and FCA (False Claims Act) violations. There seems to be more activity recently, including investigations in response to whistle-blower lawsuits.

OIG

Here is my take: Hospitals and health systems that use survey data (such as MGMA and AMGA) to set compensation levels for newly employed physicians are under intense scrutiny. This scrutiny results because:

  • it appears that collections generated by the employed physicians do not support the salaries being provided, or
  • salaries of newly employed physicians significantly exceed compensation previously generated in their independent practices.

More on Understanding Relative Value Units (RVUs) in Employment Agreements

Creating a Sustainable Compensation Model

Some of you emerging executives may become involved in recruiting new physicians and negotiating contracts. For those, I am providing the following discussion about the use of worked relative value units (wRVUs) in that process. I previously posted an introduction to the topic here: Physician Employment Agreements.

Suppose that your organization is offering the following salary proposal: two years at a fixed salary, followed by a third year in which it converts to a fixed component PLUS an RVU based bonus. Let’s review the rationale and then look at actual MGMA (Medical Group Management Association) numbers upon which the offer might be based.

fine print about relative value units

Your Perspective (as Employer)

You know that you must offer a competitive salary, along with other forms of compensation and benefits, in order to entice a new physician to sign. For most specialties, there is still moderately fierce competition for solid, well-trained physicians. The number of established physicians available is relatively small in comparison, so most recruiting is aimed at physicians coming out of residency and fellowship training programs.

Physician Employment Agreements

Understanding Worked Relative Value Units (wRVUs)

physician employment agreementsI was working as CMO when the VP for the medical group left the organization. The CEO asked if I would temporarily take over administrative responsibility for the division. I knew all of the providers, and I enjoy working with contracts, so it made sense for me to step in. I would soon become well-versed in physician employment agreements.

I quickly found that there was a significant backlog of employment agreements that needed to be addressed. We had several physicians whose old contracts were due to expire. We were actively recruiting for several specialties as we tried to double the size of our medical group. Several candidates had contracts in hand and were contacting me with questions.

I quickly needed to understand contracting basics, especially compensation, productivity and how to calculate bonus payments.