Sullivan, Cotter: most MD employers raise pay, but many specialty levels fall

Sullivan, Cotter: most MD employers raise pay, but many specialty levels fall

About 70% of the 180, mostly large multispecialty organizations in Sullivan, Cotter & Associates’ (SCA) newly published 2003 Physician Compensation and Productivity Survey provided salary increases to employed physicians in 2002, but median specialty pay levels reported by the Detroit-based firm show no clear upward or downward trend (see table, p.10).

The physician employers in SCA’s survey that raised pay from early 2002 to early 2003 typically lifted compensation levels an average of about 4% (slightly more for specialists and slightly less for primary care physicians). Most respondent organizations in the SCA survey pay physicians by salary with production incentives. Kim Mobley, an SCA principal who heads the survey effort, says most of the pay hikes stem from individual production increases rather than base-salary hikes. In organizations with incentives, specialists receive a median of 20% of base salary via such awards, and PCPs receive a median of 15% that way, SCA reports.

Also in the salary-paying group, about 26% of participants report cutting pay for selected specialties in 2002, a level similar to that in last year’s report. About 39% of the salary groups say they intend to cut pay levels for selected specialties in 2003.

“Organizations are increasing and decreasing compensation [for different physicians] at the same time,” Mobley says–and the usual measure of the pay changes is production. As production has become more important in pay calculations, time in service and time since residency have become less important because business necessity–the difficult revenue and cost environments–has forced the emphasis on production, she explains. Senior doctors with low production may lose pay, while relatively young ones with high production may gain. Signs of this trend in the SCA survey have been steadily increasing for several years, she notes.

The selected cuts in pay at some organizations, and the roughly half of specialties noted in the table that logged pay cuts from 2002 to 2003, are not signs that nonprofit hospitals cannot afford competitive pay levels to recruit and retain physicians, Mobley adds. (More than 90% of SCA respondents are nonprofit, and 58% are teaching hospitals.) Sometimes, she says, the ability and willingness to cut pay or even downsize reflects that a hospital is secure enough in its market to let a physician go or reduce pay if it finds that it is overstaffed or that a physician on staff is unproductive.

Hospital managers who let a physician go do so in part because they see no shortage in the physician’s specialty in their local market, she says. Of all 180 SCA survey participants, 16% reduced their physician work force from early 2002 to early 2003. The average reduction was 15%.

On the other hand, Mobley continues, when hospitals raise pay in today’s market, it’s because the physician is productive, or because the hospital needs to raise pay for a particular specialty to market levels.

About 28% of SCA respondent organizations pay physicians by formal grades and ranges. While these organizations did not cut pay levels in 2002 and are not planning cuts in 2003, roughly 30% did not raise pay levels in 2002, and about 33% are not planning increases for 2003. Many physicians in such organizations receive annual seniority salary hikes.

The median SCA pay level for ob/gyns took sizable “hits” in both of the last two surveys, down a cumulative 14% from $232,000 in early 2001 to $199,000 in early 2003. While many nonprofits pay all of their staff physicians’ malpractice insurance premiums, their pay levels may have suffered from premium-related losses of profitability in ob/gyn departments.

Net Charges Surpass Gross Charges

Incentive pay criteria are substantially different in SCA’s new survey compared with its 2002 report. Among the key changes are:

* Gross patient charges fell from the top individual production measure for specialists, from 37% of groups with pay incentives using it in 2002 to 33% in 2003. The new top criterion for specialists is net patient charges (gross charges minus contractual discounts) at 38% in 2003. Gross charges have two disadvantages that separate it from economic reality: They don’t recognize managed care discounts, and they don’t recognize collection problems. Net charges have only the second problem. Most nonprofits prefer net charges over collections (used by 25% of SCA respondents with incentives). That’s because, with the nonprofits’ charitable mission–and many nonpaying and Medicaid patients–they don’t want physician pay to vary according to collections. For PCPs, gross charges remain the top criterion, found in 50% of incentive plans in the 2003 SCA survey. Net charges are at 42%, and collections are at 32%. (Many groups use several criteria.)

* Work RVUs, at 38% of groups with individual pay incentives for specialists in 2003, and total RVUs, at 21%, remain popular in part because, like the charge measures, RVU measures do not take into account actual collections. Total RVUs are in a whopping 75% of group pay incentives for specialists. Clearly, nonprofits are trying to encourage their specialists to use ancillaries and physician extenders when appropriate, and to conduct procedures in-house when possible. (Of the organizations offering pay incentives, 8% use only group performance criteria in the new survey, and 32% use both individual and group criteria. The other 60% uses only individual criteria. These percentages are about the same as last year.)

* Of the 28% of incentive organizations that use group performance criteria for PCPs, a majority (60%) uses cost effectiveness/utilization. This suggests that such groups have large percentages of capitation revenue and want to encourage each department and site to be more efficient.

* Patient satisfaction has declined as a pay criterion. As an individual performance incentive standard, its usage fell from 27% for specialists in 2002 to 17% in 2003. Usage fell from 46% in 2002 for PCPs to 39% in 2002.

* Patient outcomes, a common type of quality measure, was used in 2003 as an individual performance measure for specialists in 12% of incentive-awarding organizations, and for PCPs in 21% of such organizations.

* Collegiality, or “group citizenship,” was used in 2003 as an individual criterion in 8% of these organizations for specialists and in 11% of these organizations for PCPs.

The new SCA survey was published in mid-September, about a month earlier than last year. Its physician sample size rose 6% from 18,324 to 19,500.

Contact Mobley at (313) 872-1760 or

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