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Salary: Docs on the Payroll

Salaried Physicians

Dr. Jeffrey Carlson
Dr. Jeffrey Carlson and his partners sold their OBGYN practice to All Children’s Hospital in St. Petersburg last fall — driven, he says, by the rising cost of doing business, including malpractice insurance and providing employee benefits. [Photo: Michael Heape]

Dr. Jeffrey Carlson and his colleagues at OB & Gynecology Associates delivered more than 20,000 babies over the past 25 years, making theirs one of the biggest and busiest medical practices in Pinellas County. Last fall, however, Carlson and his partners decided to sell the practice to All Children’s Hospital in St. Petersburg — a move he says made economic sense.

“We were having our own difficulties as malpractice costs, the costs of doing business, paying our employees, kept going up and up. Managed care reimbursements kept going down and down. We had to see more patients, a higher volume, and it got to the point where it was affecting our ability to provide the kind of care that philosophically we wanted to provide,” explains Carlson.

Those same market dynamics have made hospitals eager to have physicians on salary. Since 1994, the percentage of hospitals employing physicians has nearly doubled to about 32%, according to a PricewaterhouseCoopers analysis of American Hospital Association data. Federal reform legislation should only further the trend.

A previous spike in hospital employment of physicians occurred in the managed care-era of the early 1990s, when hospitals gobbled up physician practices (often primary care practices) in an effort to expand market share and control costs. Too often, however, the hospitals overpaid for the practices and managed the compensation agreements with their new physician-employees poorly. By the late 1990s, hospital-based employment of doctors had waned.

Today, many hospitals are again hiring both primary care and specialty physicians — albeit with more carefully structured compensation models. Having salaried physicians gives the facilities more control over their resources — knowing an on-staff specialist is available, for example, to cover the emergency room when needed. And, of course, with a staff physician the hospital issues a paycheck, rather than managing the billing, paperwork and other issues that come with dealing with a host of independent practices.

Dr. Michael Wallace
Dr. Michael Wallace is a professor of medicine and gastroenterology at Mayo Clinic Florida, where doctors are paid a fixed salary that is unaffected by patient volume.
[Photo: Kelly LaDuke]

Cleveland Clinic's Gregory Gilot
Dr. Bernie Fernandez“Over the past three to six months, we have had a large number of phone calls from private practices looking for potential employment,” says Dr. Bernie Fernandez, CEO of Cleveland Clinic Florida, which has all of its doctors on salary. Fernandez says he believes the advent of bundled payments for episodes of illness will likely drive more physicians into closer alignment with hospitals.
Aside from the financial incentives, Kurt Mosley, senior vice president of business development for Merritt Hawkins and Associates, an AMN Healthcare company, says the arrangement works well for a new generation of physicians seeking a different balance between their personal and professional lives. Many, he says, are eager to practice medicine but are turned off by the business hassles of running a practice. Twenty years ago, says Mosley, young doctors were concerned primarily with “location, location, location. Now, it’s lifestyle, lifestyle, lifestyle.”

Patients may benefit the most. Dr. Michael Wallace is a professor of medicine and gastroenterology at Mayo Clinic Florida, where doctors are paid a fixed salary that is unaffected by patient volume. Wallace says the traditional fee-for-service model of practicing medicine creates an inherent conflict of interest. “One of our jobs as physicians is certainly to do the right thing for patients to make an accurate diagnosis and prescribe a treatment plan that is most likely to be effective, but when you get paid for each item that you do, it’s almost impossible to avoid the temptation to do more.”

Salaried systems, he says, partially remove that conflict of interest. “It’s not a complete separation because obviously our group as a whole gets paid by the number of things that we do, but you separate it significantly from the individual doctor-patient relationship.”

Cost Controllers

Dr. William Rupp
Having doctors employed on salary means “there is no incentive to do more tests or more procedures,” says Dr. William Rupp, CEO of Mayo Clinic Florida.

During the national debate over healthcare reform, Mayo Clinic Florida and Cleveland Clinic were often recognized for their ability to keep costs down while providing excellent care. Both say a key to their ability to control costs is the fact that their physicians are employed directly by the clinics and receive salaries. The system, says Dr. William Rupp, CEO of Mayo Clinic Florida in Jacksonville, keeps the focus on the health of the patient rather than on maximizing the revenue in a given case. “By having our physicians on salary,” says Rupp, “there is no incentive to do more tests or more procedures. It’s just whatever is best for the patient.” Rupp adds that some physicians prefer being able to operate more independently and that Mayo’s approach doesn’t work for everybody. “If there was a perfect compensation system, everybody would use it. This is a system that has worked for us.”

Business of Healthcare

Dr. Cristina Mata Dr. Cristina Mata, an endocrinologist and assistant medical director at Holy Cross Medical Group in Broward County, has been fielding plenty of calls lately from doctors who want to join the hospital’s group practice. She says hospital-based employment of doctors is rising again for several reasons. “The doctors that are coming out now ... they’re not really taught the business of how to run a business or run a medical practice, so they want that security of knowing they’re going to get a paycheck, knowing they’re going to be in compliance, knowing that whatever needs to be done will be taken care of, that they’ll be treated fairly and get a decent salary and be able to pay their bills.” Holy Cross has 635 doctors on staff.