Hospitals and health systems are increasingly employing physicians in an effort to enhance physician alignment, improve quality, grow market share and increase revenue. This labor market trend has focused attention on physician benefits, which may differ from benefits offered to other employees.
Employers of choice establish differences between themselves and competitors in key benefits, such as life insurance, disability, paid time off and retirement, as well as certain physician-specific benefits, such as continuing medical education (CME) expenses, licensing and medical malpractice. This article explores the types of benefits being used by hospitals and health systems to attract and retain employed physicians in today’s marketplace.
Findings in this article reference two major surveys Sullivan, Cotter and Associates, Inc. (SullivanCotter) conducted in 2017 among hundreds of hospitals and health systems. Survey results were supplemented with SullivanCotter’s extensive knowledge and experience with physician compensation and benefits.
The pace of hospital and health system employment of physicians has sharply increased in recent years. Three-quarters of health care organizations surveyed by SullivanCotter said they plan on increasing the number of employed physicians and Advanced Practice Clinicians (APCs) by 8% to 11% within the next 12 months. This development is being driven by several notable factors:
Medicare physician reimbursement: Complex new rules implemented under the Medicare Access and CHIP Reauthorization Act (MACRA) will work to the advantage of systems that can accommodate bundled payments, adapt features of (or transition to) accountable care organizations and avoid penalties for such outcomes as preventable hospital readmissions. Hospitals view physician employment as a way to prepare for reforms shifting reimbursement from fee-for-service to reimbursement based on patient outcomes and quality of service.
The desire to capture market share, and to improve quality and efficiency. Consolidation is rapidly occurring in the marketplace, and acquisition of physician groups and practices is one way hospitals and health systems can garner a bigger share of the market. In addition, the expectation is that physician employment can facilitate quality improvement by encouraging better integration of care and communication among clinicians.
Changing market dynamics. Both private-practice physicians and hospitals and health systems are facing an environment of decreased utilization by privately-insured patients, a changing payor mix, and downward-trending reimbursement rates. At the same time, the cost to maintain a contemporary physician practice is increasing. To adjust, physicians in private practice may see more patients with loss of personal time and an increase in stress. Employment with a hospital or health system may offer a better work-life balance and relief from the burden of operating and managing a difficult business enterprise.
As the employment of physicians by hospitals and health systems increases, strategic decisions regarding physician benefits must be made. Key considerations include program costs, market competitiveness and the ability of programs to attract, motivate, reward and retain physicians.
THE STARTING POINT: A STRONG BASIC BENEFITS PACKAGE
The foundation of a competitive benefits program is a strong basic benefits package. Core physician benefits include medical and dental insurance, with competitive cost sharing, short- and long-term disability insurance, life insurance, paid time off, qualified retirement, CME/professional dues and malpractice coverage:
Medical and dental coverage. Typically, physician health care coverage is the same as the coverage provided to the general workforce (i.e., no special provisions), and generally, newly hired physicians are immediately eligible. Many organizations offer several medical plan options; PPO/POS plans are the most common, followed by HMO/EPO plans. High Deductible plans, continue to rise in usage. Most organizations require a contribution for physicians and dependents. Typical cost sharing is an 80-20 employer-employee split (70-30 split for dependents). Dental coverage is also typically provided (with typical cost sharing being a 70-30 employer-employee split or a 65-35 split for dependents). Despite health reform related changes, most surveyed hospitals and health systems say they remain committed to providing health coverage to employees.
Paid leave. The market trend is to provide a single bank of paid time off (PTO) that may be used for any purpose (rather than providing separate leave for vacation, personal days, holidays, short-term sick leave and continuing medical education). Typically, annual PTO benefits provided to physicians range from 25 to 35 days, and may vary by length of service. Carryover and cash-in amounts are typically limited to control liability and ensure that time off is being appropriately used.
Short-term disability. Employer-paid coverage is typically provided in the event of short-term illness. Around half of organizations provide a different short-term disability benefit for physicians than other employees, which may include full salary continuation. The method of coverage varies by employer, and may include paid leave, separate sick leave days, short-term disability insurance or a combination of paid leave and insurance.
Life and long-term disability (LTD) coverage. Employer-paid basic group life and LTD coverage is provided to physicians by most employers. Higher levels of life insurance and LTD coverage may be needed when the basic group coverage does not adequately meet the unique coverage needs of the physicians. Employers often address physician needs through a carve-out classification in the basic group plan (if amenable to the insurance carrier). Where supplemental life and LTD coverage is provided, coverage is typically employee-paid.
Qualified retirement. A strong qualified retirement benefit can make a real difference with recruiting, and can help reduce turnover. The market norm is a defined contribution plan (e.g., 401(k) or 403(b) plan) with employer-matching and/or non-elective contributions and salary deferral opportunities. On average, contributions range from 3 percent to 7 percent of salary (limited to the pay cap, $270,000 in 2017). Although organizations are not allowed to discriminate in favor of physicians, some organizations use Social Security integration formulas to deliver a higher retirement contribution to their physician group (e.g., a contribution of 5 percent of pay, up to the Social Security taxable wage base, plus 10 percent of pay over the wage base). Defined benefit plans, which have experienced a decline in use in recent years, are still seen in the marketplace (particularly account-based programs like “cash balance” plans).
CME/professional dues. Most organizations provide an allowance and time off for continuing medical education (CME) activities. Annual allowances for CME typically range between $3,500 and $5,000, with paid time off between five and ten days. The majority of organizations pay for a portion or all professional dues and medical licensure fees (either through separate reimbursement or as part of the CME allowance).
Malpractice coverage. Employer-paid claims-made malpractice insurance is usually provided to physicians. If newly hired physicians had claims-made malpractice policies at their previous practices, they will need to pick up tail coverage to protect against potential lawsuits that may arise after leaving, which can be expensive. Although not common, employers may offer to pay for tail coverage to recruit and retain doctors; this can be an effective negotiating tool.
OTHER STRATEGIC BENEFITS CONSIDERATIONS
In addition to a strong basic benefits package, other components of a competitive physician benefits package may include the following:
Nonqualified retirement. Qualified retirement contributions for physicians are limited by the statutory pay cap ($270,000 in 2017) and qualified salary deferrals are limited to by federal limits as well ($18,000 in 2017). One way employers can address these issues and increase retention is to provide supplemental nonqualified retirement programs. Unlike qualified plans, eligibility for nonqualified retirement plans must be limited to higher-paid physicians and other highly compensated personnel. Currently around one-quarter of employers provide physicians with some form of nonqualified supplemental retirement contribution. Common approaches include a restoration plan (i.e., one that “restores” qualified benefit amounts limited by statutory caps) and a fixed-percentage contribution of salary (i.e., 3 percent, 5 percent, 7 percent). Typically, vesting requirements apply to employer supplemental contributions (i.e., future service is required before benefits are earned). In addition, most employers offer physicians the opportunity to make salary deferrals to a nonqualified plan (for not-for-profit employers, the maximum annual deferral is limited to $18,000 in 2017).
Long term care (LTC). Although LTC premium costs have risen in recent years, adding LTC coverage to the benefit package can make for a more attractive overall program. Many employers do offer access to LTC insurance, but typically coverage is only available if the employee pays. However, given the importance physicians place on retirement planning and asset protection, employers may wish to give employer-paid LTC coverage a second look. Employers can specifically target physicians with this benefit because LTC is a nonqualified benefit, and is not subject to ERISA or employee discrimination rules.
Repayment of student loans. Medical school debt is a significant problem for many physicians. However, less than 20 percent of employers offer programs to relieve student loans. Providing a loan repayment program to new hires can be a very effective recruitment and retention tool. This option can be particularly attractive in medically underserved areas; some physicians may even be willing to sacrifice a portion of salary for a structured loan-repayment system. When provided, such loan-repayment benefits typically range from $15,000 to $30,000 per year and are usually subject to a lifetime maximum amount (i.e., $100,000, $150,000). Employers may require that this benefit be repaid should the recipient leave the organization within a stipulated period (i.e., three to five years after receipt of the benefit).
Relocation assistance. Most organizations cover the expense of moving household goods and provide a travel allowance. Temporary housing allowances are provided by some employers in addition to relocation expense reimbursement. A few organizations offer guaranteed purchase of a home if it doesn’t sell within a certain time period. The total value of relocation assistance generally ranges from $8,000 to $15,000. The value of the relocation package is typically independent of the physician position level (although this amount does vary by position in some organizations).
Flexible work schedules. Today, new physicians are just as likely to be female as male, and more tenured physicians have postponed retirement due to the recent economic downturn. With these workforce changes have come greater interest in work-life balance and flexible, part-time employment schedules. Forward-thinking organizations recognize that they can do more to attract and retain today’s physicians by creating options for flexible work schedules.
Sabbatical. Less than 20 percent of organizations provide physicians a sabbatical benefit. However, providing a sabbatical leave can have a very positive impact on both physicians and employers, as physicians usually return revitalized and ready to provide better quality of care. Where sabbatical leave is provided, physicians are typically eligible only after several years of service to an organization (e.g., five or 10 years). Leave may range from one month up to a full year. During a leave period, compensation ranges from a percentage of salary to full salary and benefits (depending on the duration of the sabbatical).
Other benefits. Other benefits that may round out a benefits package may include insurance coverage for catastrophic medical events, prepaid legal services, wellness programs, discounts at local businesses and a physician lounge. As organizations look for ways to reduce stress and physician burn-out, physician lounges have been cited as a meaningful way to improve the work environment. Physician lounges are also great places for new practitioners to meet colleagues, and provide a place where collaboration can occur.
Providing physicians with a competitive and well-rounded benefits package can go a long way toward creating an engaged workforce. Yet, building a benefits package that is appreciated by the physician population requires informed decision-making by human resources and proper communication:
Know the needs of your physicians group. Depending on the demographics of the group, some benefit options will be more appealing than others. To understand which options physicians favor, employers may wish to consider surveying their physician group. In addition to group preferences, employers should also take the time to get to know the needs of individuals. Although many benefits offered have to be the same for all employees by policy or law, some benefits, such as CME leave, CME expenses and vacation, can be adjusted to meet individual needs.
Get the support of physician leadership. Human resources leadership should meet regularly with physician leaders to ensure benefit programs are perceived as being adequate, market competitive and meeting the needs of the physician group. Physician leaders may have insight into simple changes that can make benefits packages more effective.
Communicate the real value of your benefit program. While having a well-designed benefit program is important, programs won’t provide meaningful retention value unless they are well-communicated. It is critical that organizations carefully educate and communicate with physicians about the value of their benefits programs. An excellent way to do this is through a total compensation statement. A simple summary of a physician’s individual benefits and what they cost can be a very powerful communication device, and it can highlight the real value of the benefits that may otherwise be taken for granted.
Understand the applicable regulations. When designing a physician benefits program, employers must keep in mind that total compensation (value of benefits and cash compensation) must fall in line with physician fair market value standards. In addition, non-discrimination laws restrain employers from offering special benefits to physicians in certain areas (e.g., health coverage and qualified retirement).
As employment of physicians continues to grow, benefits programs will have an increasing impact on recruitment and retention. Well-designed and well-communicated benefits programs can give hospitals and health systems a meaningful edge in the competition for top medical talent.