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The physician as employee: Pros and cons

By Ian J. Alexander, MD

Are the scales tipping in favor of salaried providers?

These are troubling times for medical professionals. With wholesale changes in the U.S. healthcare system almost inevitable, it seems that providers—the true buyers of healthcare services and the largest beneficiary group in the current system—will eventually be targeted in any effort to control costs. The eventual dismantling of a system that rewards physicians for ordering more tests and doing more surgery seems unavoidable.

With salaried providers at some of the nation’s most respected institutions providing some of the highest quality of patient care at the lowest cost to the government and private insurers, it is likely that tremendous political and economic pressure is going to be brought to bear on the physician entrepreneur. In this environment, many private practitioners must be wondering if the time is right to become a hospital employee, with some chance of recouping their investment in services or facilities.

Being a hospital-employed provider is not nirvana. There are pitfalls for both the physician and the employing institution. Arrangements between hospitals and physician-owned facilities—such as selling price, joint ownership, and profit sharing—are even more complex. A physician entrepreneur who is considering these types of ventures should consult an attorney who specializes in these transactions.

The following attempts to outline the benefits of employment but, more importantly, to warn physicians who are considering this move of some pitfalls. It should go without saying that, any verbal promises by a prospective employer should also be in the printed contract—or they don’t count.

Positive aspects of employment
Probably the greatest advantage of hospital employment is that it eliminates concerns about the financial viability of a practice. Paying salaries and maintaining an adequate income are no longer daily concerns. Because most salaried, hospital-employed physicians are paid for services rendered independent of the patient’s ability to pay, caring for the underinsured and the uninsured is not an issue.

Another benefit is the end to administrative headaches frequently experienced in private practice. Hospital-employed physicians, however, should maintain some control of policy and personnel that directly affect patient care.

The unsolved dilemma for hospitals is how to determine appropriate salary formulas for healthcare providers. A straight salary without a productivity incentive may lead to physician complacency and leave the hospital without the services it expected. At the other extreme a salary that is totally based on productivity places the physician at considerable risk, as outlined below.

Pitfalls of institutional employment
Pitfalls of employment fall into the following categories: contract terms, compensation, staff, facility and resources, new physician hires, and benefits.

Contract terms: Physicians who are considering hospital employment should clearly understand who the ultimate decision maker is relative to practice issues, and to whom they report. Conditions of termination should be clearly spelled out. If possible, negotiate terms that make it difficult for the hospital to terminate the agreement but relatively easy for the physician to end employment and move on. The contract should also state that the agreement survives changes in hospital ownership. Physicians should be aware of and understand any restrictive covenant or noncompete clauses as these are probably the most frequent source of litigation related to physician termination of hospital employment.

Compensation: Especially in today’s healthcare environment, negotiating a substantial guaranteed base salary over a long period of time (5 years if possible) regardless of productivity is important. In a salaried situation, many factors related to productivity are out of the physician’s control, so it makes no sense to have a contract that is largely productivity-based.

If there is an incentive bonus for high productivity, know how it is calculated; if calculations are based on relative value units (RVUs), the RVU values should be locked in when the contract is signed. Physicians should also negotiate a guaranteed block of operating time. If on-call time is compensated, and this represents a substantial portion of the physician’s total income, the contract should specify a definite number of call days per month and a minimum rate of compensation for the term of the contract.

Staff, facilities and resources: The contract needs to specify the staff provided (include details about training and salary range), the exact nature of the facilities, and the resources that will be available (such as radiography, computed tomography, magnetic resonance imaging, and electronic medical records). Twice, I have worked in office space that was inadequate for a busy orthopaedic practice for more than a year before facilities were built or remodeled to meet our needs.

Who reads office radiographs is often a touchy issue in hospitals that contract with radiologists to read all films. If the radiologist reads all your office films, not only will you have to read all the reports to avoid legal entanglement, but you will also not get the RVU credits for work you did reading the office films. Stand firm on not having the radiologists read your office films.

Hiring and firing: Issues surrounding hiring and firing can be the most difficult. The physician should have the final say in hiring and the option to fire staff. Firing someone is much more difficult in the hospital setting where the legal intricacies are more involved than in a small practice. The physician should have some assurance from the hospital that it will deal with employees that don’t work out to the physician’s satisfaction.

New physician hires: The employment agreement needs to address what happens if the hospital hires new orthopaedic providers. These new hires may be “partners” or “competitors.” In either case, the physician should negotiate some say in this process. If compensation is productivity based, new hires may negatively affect compensation, reduce referrals, and compete for available operating room time.

Benefits: Vacation time, educational leave, insurance coverage, payment of professional dues, and allowance for educational materials all need to be negotiated and included in the contract.

You’re no longer in charge
Probably the greatest concern to an orthopaedist who becomes an employee is loss of control. Your employment situation may change drastically as the health system changes allegiances or ownership or strikes deals with competing outside groups.

For example, you may find yourself outside a deal between the hospital and a large orthopaedic group to establish an orthopaedic specialty hospital. If this happens, you may end up as an employee of the specialty hospital but unable to share in the profits and with your former competition as your boss.

Despite these potential downsides, I have enjoyed working as a hospital-employed orthopaedist. As an employed physician, I have flexibility and freedoms not available in private practice. However, with changing healthcare financing, hospitals may not be able to meet the terms of physician contracts and perhaps hospital employment may be no more secure than private practice.

Healthcare reform is inevitable. For orthopaedic surgeons, charting a course for a rewarding professional life with a solid financial foundation may be a real challenge in the next few years.

Ian J. Alexander, MD, is a hospital-employed physician in Ohio. He can be reached at alexandi22@gmail.com

AAOS Now
September 2009 Issue
http://www.aaos.org/news/aaosnow/sep09/managing4.asp