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Physician compensation outlook: Mostly positive

May 2010

By Bonnie Darves, a Seattle-based freelance health care writer.

Career Resources Editor’s Note: “Despite extraordinarily volatile economic conditions, salary and benefit packages for newly minted physicians in primary care and non-procedural medical specialties have remained either stable or have risen. There has also been a recent geographical equilibration of salary ranges, and hospitals are employing more physicians and offering higher initial income guarantees, sign-on bonuses, retention bonuses, and flexible work hours. However, for those in procedure-based or -dependent specialties, initial salary expectations must be realigned with flat or decreasing reimbursement rates. Physician compensation, especially in institutional settings, is increasingly being tied to performance and outcomes measures.”

— John A. Fromson, M.D., Associate Director of Postgraduate Medical Education at the Massachusetts General Hospital

The picture for primary care physicians is brightening considerably, but there may be hurdles ahead for certain specialties

For physicians making their first foray into a practice opportunity in 2010, the compensation outlook is mainly sunny. The shortage in several specialties, especially primary care, is translating into attractive overall packages and creative bonus structures as enticement. Median compensation in primary care specialties increased between 7 percent and 10 percent from 2007 to 2008, according to data from the Medical Group Management Association (MGMA) 2009 Physician Placement Starting Salary Survey; and by 10 percent in specialties as a whole. The median starting salary for primary care was $150,000 and $275,000 for specialties.

Other emerging trends spell good news for doctors just starting out. Hiring practices, hospitals and health systems are reaching into their pockets to help out candidates in nearly all specialties who are carrying hefty education loan debt into their first position. Benefits such as health and disability insurance, retirement and vacation are stable or increasing slightly.

On another note, the regional income disparities that have prevailed in the past, which meant that physicians in the Midwest and South often earned sometimes considerably more than their counterparts on the East and West coasts, are evening out. Specialists in particular can expect competitive compensation no matter where they land, reports Tommy Bohannon, vice president of hospital-based recruiting for Merritt Hawkins & Associates in Irving, Texas. “Physicians are just as likely to find a less desirable location in non-coastal California offering as competitive a package as a rural hospital in Nebraska right now,” he said. “Doctors will still make more money the further to the middle and north (Midwest) of the country they go, but that disparity is not as great as it once was.”

In addition, both relocation assistance and continuing medical education (CME) allowances are on the upswing, if only slightly, an overall sign that practices are willing to “invest” in their new physicians. And in certain hospital-intensive specialties in which demand is far outstripping supply, some prospective employers are offering training stipends of up to $2,500 a month for physicians in the final months of their residency.  

“Hospitals, especially, are reacting to what supply is demanding—higher initial income guarantees, flexible work hours, higher sign-on bonuses and even retention bonuses, to their top candidates,” said Brian McCartie, vice president of business development for St. Louis, Mo.-based Cejka Search, a leading physician recruiting firm. “Today, more and more hospitals are moving into employing physicians, in all specialties. Many are willing to pay more in initial income guarantees than private practices are,” he added, even if in the longer term employed physicians might earn less than they would in the private-practice sector.

Signing bonuses averaged $15,000 for primary care physicians and $25,000 for specialists, in the MGMA survey, but Mr. McCartie reports that high five-figure bonuses are not unheard of for high-demand specialties. He notes that retention bonuses, where offered, tend to be in lieu of loan forgiveness.

These trends toward increased physician employment and shorter-term guaranteed-income compensation structures speak to several concurrent developments that, combined, could be viewed as a potentially partly cloudy compensation forecast in the years ahead for some specialties.

William Jessee, M.D., president and chief executive officer of MGMA, offers his perspective based on his many years at the helm of the country’s largest physician compensation survey organization. “In general, the environment looks better for primary care than it has for many years. But for any specialty that has a significant amount of physician income based on ancillary services, whether it’s imaging or physician-administered drugs, as in oncology and urology, I would say that their outlook is less rosy,” Dr. Jessee observed. “It’s not bad, by any stretch of the imagination. But it’s not going to be as lucrative as it has been in the past.”

The factors underlying Dr. Jessee’s prediction are myriad, ranging from the unknowns about how the Obama Care health-reform provisions will play out in the marketplace, to a growing array of national initiatives to reduce healthcare costs and streamline care. In the latter case, it’s a given that Medicare’s moves to rein in costs will translate into reimbursement decreases for practices in the years ahead, predicts Martin Osinski, MBA, president of the Miami, Fla., recruiting firm American Medical Consultants. In turn, he said, compensation structures and income guarantees for new hires may be adjusted accordingly.

“It’s hard for physicians to know what they will be paying someone in the future if they don’t know what they [themselves] will be making. If there is a Medicare sustainable growth rate cut of 21 percent, that could have a major impact on practice earnings,” said Mr. Osinski, a past president of the National Association of Physician Recruiters whose company specializes in nephrology recruitment and consulting. At the same time, the expectation that more Americans will receive health benefits under Obama Care could have a balancing effect, he added, but the many “unknowns” are creating a cautionary hiring environment in some sectors.

“We don’t know what will happen, and that uncertainty is figuring into opportunities. We’re seeing a reduction in the number of opportunities, and that may continue until there’s better clarity in the direction reform will take,” Mr. Osinski observed. “That doesn’t mean there’s not a need, just a hesitancy to expand. Some practices are holding off because it’s a difficult marketplace.” He suspects that there may be considerable pent-up demand at present, not only in nephrology but in other specialties as well, which could spark a hiring boom when the healthcare landscape smoothes out.

What is understood at this point, Mr. Osinski added, is that practices heavily dependent on Medicare and Medicaid will be pressed to improve services quality and report more, without a commensurate increase in income. Performance-improvement incentive programs such as Medicare’s four-year-old Physician Quality Reporting Initiative (PQRI) have potential to boost incomes; however, those programs’ overall effect on earnings is difficult to predict, he added, and may be minimal.

Specialties may see tougher times ahead

Dr. Jessee cites a vivid example of the changing landscape for heavily procedure-based or -dependent specialties. A few years ago, he explained, he began hearing from some high-dollar-volume practices like cardiology that many fellows coming out had “unreasonable expectations” for starting incomes.

“Some practices told me that after talking to some of the fellows, that there was no way they could meet their salary expectations. That requires a recalibration of expectations on the candidates’ side, or those jobs may remain unfilled,” he said. “Groups simply can’t offer more than they can hope to generate in terms of revenues, and some of those high-dollar-volume specialties are in the middle of the crosshairs in terms of the changes being made to reduce things like ancillary services.” Already, for example, Medicare has begun clamping down on imaging, and reductions in other high-cost diagnostic services and possibly non-medically necessary procedures are expected to follow.

As these national changes take hold, associated income declines are virtually inevitable in some areas, according to Glenn Loomis, M.D., president of the 120-physician practice St. Francis Medical Group in Indianapolis. “We’ll see primary care incomes continue to go up modestly over the next several years, but we may see a marked decline in reimbursement in several procedural specialties, like gastroenterology, orthopedics and other surgery specialties,” Dr. Loomis said. “No one knows exactly what will happen with health reform yet, but we know one thing: Reimbursement rates will not go up, so specifically the highly reimbursed specialties will feel a lot of pressure over the next five years.”
 
The evidence, he notes, emerges in recent MGMA income data showing that even if median compensation remains mostly unchanged for established proceduralists, many are working harder to maintain status quo. “The number of patient visits, surgeries or RVUs they’re having to generate to maintain the same income is going up—and that’s going to continue,” Dr. Loomis said. (RVUs, short for relative value units, are a standard measure or work.)  

On the flip side, Dr. Jessee points out, certain health reform provisions will make the income picture brighter for young physicians in primary care and certain under-supply specialties.  “Once that reform bill kicks in, it promises to make primary care and general surgery in medically underserved areas much more attractive because of the bonus money out there,” he said.

David Nyman, manager of physician recruitment for the Marshfield Clinic in Marshfield, Wis., one of the country’s largest physician-owned groups with more than 800 physicians, concurs with Drs. Jessee and Loomis on the future picture. “What I am seeing—and I’m hearing it hearing from my colleagues throughout the country--is that with the huge physician shortage down the road as more doctors retire, those who will come out ahead will be the primary care physicians,” he said. “Their income will go up at a faster pace than the specialists’, simply because we will need a lot more of them.”
   
For the moment, the compensation picture is generally stable overall for physicians. But is a bit of a mixed bag among specialties, for both established physicians and those starting out, according to Crystal Taylor, MHA, MGMA’s director of survey operations. Between 2004 and 2008, median compensation increased roughly 14 percent for both primary care and specialties as a whole “At 14.9 percent for primary care and 14.3 percent for specialists, growth rates between the two have been fairly similar, even with the regulatory focus to narrow the gap for the primary care specialties,” Ms. Taylor said. In the 2009 Physician Compensation and Production Survey, all specialties with the exception of psychiatry, ophthalmology and urology saw increases, and the declines among the latter were modest.

“We didn’t see any huge shifts this year, but we know that there are definite concerns in the industry as a whole about where things will go—particularly in the specialties—in the next few years,” Ms. Taylor said.

Although preliminary, data from the MGMA’s next compensation survey reflects those concerns, according to Mr. Osinski, who serves on the advisory board. “It looks as if primary care will be up 6.7 percent to a median income of $160,000, but the specialists as a whole will be down 16.4 percent,” he said, to a median of $230,000.

The MGMA’s 2009 starting salary survey data also underlines those concerns. Following are among the key findings in that regard:

--Otolaryngologists’ median starting salary declined 17.2 percent, to $240,000;
--Invasive cardiology salaries dropped 1.4 percent, to $350,000; and
--Psychiatry, pulmonary medicine and urology were down 1.3 percent, 2.4 percent and 4.4 percent, respectively.

On the “winners’ side anesthesiology, emergency medicine, neurology and pediatrics all registered double-digit gains between 10- percent and 14 percent, as did both invasive and non-invasive cardiology. [Dr. Jessee predicted that the specialties’ salary increases will likely slow down next year. Mr. Osinski concurred, and added that the 2009-10 data will surely show a decrease in cardiology incomes based on current developments.

Trend toward hospital employment producing discernible income shifts

One of the biggest changes in physician placement overall, the movement toward hospital or corporate employment and away from private practice, is having noticeable ripple effects on the entire compensation arena.  In years past, it was pretty much expected that private practicing specialties would pay more in initial compensation than hospitals or health systems, according to Todd Evenson, MBA, MGMA’s assistant director of survey operations.

That’s changing—and quickly. Now, hospital-department practice salaries are either matching or exceeding single-specialty and multi-specialty group compensation in many cases. “Even if we often see the private groups outpacing the hospital ones down the road, it’s often reversed on the front end now, and that’s a shift,” Mr. Evenson said.

Following are a few compelling examples from the MGMA starting salary survey:

--For hospital-employed allergy/immunology and hematology-oncology specialists median starting income was $300,000 in the multispecialty group setting and $330,000 or slightly above in hospital departments.

--Hospital-employed family practice physicians’ median compensation was $150,000 in multispecialty groups but $162,000 in hospital departments.

--The disparity was even greater in orthopedic surgery, where median starting salary was $325,000 in single-specialty groups and $425,000 in hospital-employed structures.

“The hospitals have a few more places to get the money, and they still have deeper pockets than the groups,” Ms. Taylor observed. “There are times, especially for certain specialties that are the more important ones to the institution, when hospitals will reach into those deeper pockets to ensure they have the service lines they want and that the emergency department is covered. For some it’s cardiology, for others it might be oncology or obstetrics. That’s what we’re mainly seeing in the discrepancy, rather than differences in work or philosophy between the two.”

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