Not All Physician Compensation Should Be Average!

I recently negotiated physician employment agreements for most of an entire department at the flagship hospital of a local health system. Although I’ve negotiated hundreds of physician employment agreements, this negotiation was an eye-opening experience! Although I was able to get quite a few major concessions in contract language, the physician compensation model that was offered still has me shaking my head.

Under the guise of “quality,” this health system is putting a major portion of the physician’s salary at risk. So, although modest salary increases were proposed (roughly equal to the cost of living), a physician’s guaranteed salary is actually reduced by almost 20%.

The “quality” hoops that physicians are required to jump through to “earn” this final portion of their compensation include things like meeting attendance, “good citizenship”, and documentation and coding (along with a few criteria that might actually relate to quality, such as clinical quality and patient experience). Some physicians in other departments have productivity requirements as part of the “quality” measures they must meet (because, as we all know, payors view billing more as an important aspect of quality!)

Believe it or not, the major potential haircut in physician compensation wasn’t what prompted me to write this screed. What really has my head spinning is this system’s treatment of more experienced physicians. 

As you would expect, physicians who have been with the system for many years are getting paid more than newly minted physicians. The system is addressing this “discrepancy” by freezing the compensation of these senior physicians until their compensation hits median compensation for all physicians in their specialty.

I call this the “Reverse Lake Wobegon Effect.” Whereas at Garrison Keillor’s fictitious hometown of Lake Wobegon, “all the children are above average,” this health system apparently believes that all of its physicians are perfectly average. Years of experience count for nothing, so apparently one person in a white coat is as good as any other (so long as the appropriate “quality” hoops are jumped through, of course).

Not surprisingly, as soon as the compensation freeze for experienced physicians was announced, one of the most senior physicians in the department jumped ship. Apparently, some health systems still recognize the benefits a seasoned professional brings.

I would like to think this physician compensation freeze is an anomaly, based on the monopolistic position this health system holds in its market. But as a physicians’ lawyer, I am concerned about two things.

First, given the pernicious effect of covenants not to compete in physician employment agreements, many physicians with kids in school may feel trapped at this institution.

Secondly, I’m very  concerned that this misguided health system might start a trend. If we are truly going to increase the quality of the healthcare in this country, we have to stop treating physicians as a commodity. As consummate professionals, physicians tend to deliver at peak performance no matter how they are treated by their employers. Health systems need to stop taking advantage of the professionalism of physicians, and start recognizing it as the valuable asset it is.

I thought getting this off my chest would make me feel a little bit better about this situation.  Instead,  I find myself getting more upset the more I think about it.  Hopefully, this post will stimulate some conversation, and maybe in some small way slow down the trend of treating physicians as commodities.  That would be best for all of us – physicians and patients alike.

To learn more about the critical issues to be aware of when negotiating a physician employment agreement, you can see my podcast of the 4 most common traps in physician employment agreements, my physician employment agreement checklist or, for the most extensive discussion of the topic, my  book on physician employment agreements. For specific information on topics you might be interested in, see my posts about physician productivity compensation, MGMA compensation analysis, medical record provisions in physician employment agreements, letters of intent in physician contracts, physician covenants not to compete, and call coverage requirements.

If you have a specific compensation issue you would like our help with, you can book a free consult.  If you have new contract you would like us to review, you can start your review here.