Hospital Compensation Rates: PCPs Compensation Not Keeping Pace with Revenue-Generation

A key question for any physician or physician group to ask when considering selling to, merging with or simply taking a job at a hospital is: How do I get paid? If I bring in more business and grow the hospital's top and bottom lines, will my compensation increase to reflect this? Or, since many organizations do not pay for "performance", the question can be posed another way: Is my work, effort and impact on the organization valued properly? And how is it valued versus the work of my colleagues?

 As the absorption of primary care physicians (PCPs) into direct employment by hospitals or hospital-owned groups continues at a blistering pace, an annual national survey of hospitals reveals a sizeable gap in hospital compensation to PCPs compared to other specialties – and an even greater gap in revenue generation-to-compensation ratios.

The most recent version of the survey, published by national physician recruitment firm, Merritt Hawkins, examined both the revenue generated for the hospital by various specialties, and the average compensation paid by the hospital to physicians in those specialties.

The survey spanned 114 hospital CFOs, covered 17 specialties and included revenue and compensation rates. Revenue represented the inpatient and outpatient revenue generated for the hospital's facilities by one full-time equivalent physician. As the authors noted, "survey respondents were asked to determine revenue from direct admissions, procedures performed, lab tests, etc., not indirect revenue primary care physicians may have generated from patient referrals to specialists utilizing the hospital."

The table below shows the revenue and compensation for each specialty, with Internal Medicine and Family Practice specialties (whose rates were very close to one another) averaged together.

Specialty

Revenue Compensation
Neurosurgery $2,815,650 $571,000
Cardiology (Invasive) $2,240,366 $475,000
Orthopedic Surgery $2,117,764 $481,000
General Surgery $2,112,492 $321,000
Internal Medicine + Family Practice $1,650,587 $179,500
Hematology/Oncology $1,485,627 $335,000
Gastroenterology $1,450,540 $393,000
Urology $1,382,704 $401,000
OB/GYN $1,364,131 $266,000
Cardiology/Non-Inv. $1,319,658 $419,000
Psychiatry $1,290,104 $200,000
Pulmonology $1,204,919 $293,000
Neurology $907,371 $258,000
Pediatrics $856,154 $171,000
Ophthalmology $842,711 $282,00
Nephrology $696,888 $240,000

 

Physicians in the Internal Medicine and Family Practice specialties (which, for simplicity, we will hereafter refer to as PCPs) generated the fifth most revenue for the hospitals and were the second least compensated.

The closest corollaries in terms of revenue generation were General Surgery, which generated 22% more revenue and received 44% more in compensation than the PCPs; and Hematology/Oncology, which brought in 11% less revenue to the hospitals than the PCPs but earned 46% more.

Neurosurgeons had a 4.93-to-1 revenue-to-compensation ratio; for every $1 in salary and bonuses, Neurosurgeons generated $4.93 in revenue to the hospitals. By comparison, the ratio was nearly double for PCPs: 9.38:1 for Family Practitioners and 9.02:1 for Internists.

While physicians in only one specialty – Pediatrics – were paid less by the hospitals than PCPs, that gap in compensation was negligible; the average PCP, however, delivered double the revenue of the average Pediatrician. This pattern is elucidated in the table below, which compares the relative increases/decreases in revenue generation and compensation to that of PCPs.

 

Specialty Revenue vs. PCPs Compensation vs. PCPs
Neurosurgery 41.4% 68.6%
Cardiology (Invasive) 26.3% 62.2%
Orthopedic Surgery 22.1% 62.7%
General Surgery 21.9% 44.1%
Internal Medicine + Family Practice 0.0% 0.0%
Hematology/Oncology -11.1% 46.4%
Gastroenterology -13.8% 54.3%
Urology -19.4% 55.2%
OB/GYN -21.0% 32.5%
Cardiology/Non-Inv. -25.1% 57.2%
Psychiatry -27.9% 10.3%
Pulmonology -37.0% 38.7%
Neurology -81.9% 30.4%
Pediatrics -92.8% -5.0%
Ophthalmology -95.9% 36.3%
Nephrology -136.9% 25.2%

 

Here, we see that Neurosurgeons, whose revenue-to-compensation ratio was nearly double that of PCPs, delivered 41% more revenue but earned nearly 70% more in compensation.  At the other end of the spectrum, Nephrologists delivered 137% less revenue to the hospitals but earned 25% more than PCPs.

A further, final "hit" taken by hospital-employed PCPs or hospital-owned primary care groups was noted in the discussion of the survey methodology above: the survey did not count indirect revenue primary care physicians may have generated from patient referrals to specialists utilizing the hospital. In other words, the PCP-generated revenue reflected in the survey is verly likely underestimated, making the revenue-to-compensation ratio for PCPs even higher than reported.

That there is a discrepancy in primary care pay compared to that of specialists certainly is not news.  However, in times past, independent primary care doctors or groups had greater control over their incomes. Commitment to recruting more patients, adding more capacity, expanding in-office testing, getting more efficient, and adding more revenue-generating activities were all ways to grow the business and improve the bottom line. The resulting physician compensation could increase, as well, or at least was at the discretion of the practice's physician owner(s),

Today, as part of the hospital system, the disconnect between activity, effort and revenue-generation, and personal compensation for PCPs might be construed as the institutionalization of the hospital's devaluing the role and impact of primary care.

The Merritt Hawkins survey can be found  at http://www.merritthawkins.com/pdf/2010_revenuesurvey.pdf.

 

 

Sean Hanlon

 

Sean Hanlon is POR's senior diretor of professional communications. He has held senior marketing, reimbursement management and distribution management positions for diagnostics companies and has managed strategic marketing programs for Boston Scientific, Medtronic, Genentech, Bristol-Myers Squibb and other leading companies. He blogs for POR at blog.physiciansofficeresource.com and can be reached @poronline and @smhanlon on Twitter.