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Today, our podcast will look at two sides of Physician Recruitment: The cost of recruiting and the often ignored cost of doctor turnover.
When the subject of physician recruiting comes up, we frequently focus on the cost of recruitment and the potential revenue a new physician can generate for the practice or the local hospital. Doctors, after all, are the essential economic trigger for the US healthcare business model.
Before we look at the critical issues of costs, lets briefly examine the history of physician recruitment.
Identifying and finding doctors has evolved over the years. The roots of today’s modern-day retained physician recruiting companies can be found in Atlanta where, as the story goes, Steve Jackson and Jack Coker sketched out a business model and strategy to take advantage of what was a fragmented market between Sunday school and morning worship at an Atlanta church. I have heard that story numerous times and while I have never been able to verify it, it is one of for the ages.
Their success in later years propelled former employees to form Merritt & Hawkins and a host of imitators. Today, there are officially more than 103 easily identifiable physician recruiting agencies operating in the US. They are joined by dozens of small mom and pop operations, also known as kitchen table enterprises. The larger firms work on a retained basis, much like their executive search cousins, while many of the smaller outfits use the contingency business model — meaning they get paid only if they place a doctor with a client.
Professional fees vary widely: from $10,000 to $12,000 a placement to more than $50,000 for some of the retained companies who also charge their clients expenses.
It is a highly competitive business. With an ample number of competitors, and a slowly shrinking talent pool, physician recruiting has become a commoditized industry.
With intense competition for a finite number of existing physicians along with new residents who are completing their training each summer, there is a mad scramble to capture the prize: a primary care physician or one of the more sought after subspecialties such as neurosurgery. Recruiters are literally tripping over one another to land a doctor.
This competition inevitably leads to a transactional approach to recruiting with an underlying motivation: Do or say what it takes to get a doctor’s signature on the dotted line of a practice contract. With that level of competition and pressure, mistakes will be made. And that leads us to one of the most unreported aspects of the process. Physician turnover. It is real and it is costly.
So, let’s talk about this hidden killer on a hospital’s income statement. But first, let’s take a step back.
Employee turnover has become a real concern for hospitals. The turnover cost for an experienced nurse in ICU or the OR, for example, is between $60,000 and $100,000 per nurse. This includes the cost of recruitment, overtime and/or an interim replacement. If a hospital with 1,500 employees has a turnover rate of 15 percent, well, you can do the math; not all will be nurses but if you assume a replacement cost of $20,000 per employee, that amounts to $4.5 million annually.
With physicians, the numbers are so much bigger. The time to hire and cost to hire are much higher. Analysts estimate that losing a primary care physician can cost your local hospital between $500,000 and $1.2 million in additional expenses and lost revenue. Rural and community hospital CEOs that I have talked with say the $1.2 million price tag is much more realistic.
And with a looming shortage of primary care physicians — the estimates vary between 34,000 to 94,000 by 2025 — this already dysfunctional facet of local healthcare delivery is rapidly becoming one of the biggest competitive threats.
Will the wealthiest of the hospitals and providers be the only ones able to financially compete for the dwindling supply of primary care physicians?
How will a critical access hospital in rural Texas or Kansas, for example, be able to compete, pay -wise, with the integrated health systems in Houston or Kansas City?
The good news is that not all primary care physicians want to work in the glitzy, more expensive metropolitan areas. There are residency programs, such as JPS Health Network’s famed family practice residency in Fort Worth, that consistently graduate physicians trained to work in secondary markets where they are allowed to deliver babies, perform surgery and conduct other diagnostic and profitable exams such as routine colonoscopies. But the demand for JPS graduates and from other similar family medicine residencies is significant.
To be successful in recruitment, community hospitals not only have to be competitive with their compensation programs — within the framework of the fair market Stark guidelines — but they must also do a superior job in knowing what they want in a physician and then conducting rigorous screening interviews. Trust me, the large physician recruitment firms, locked into their machine-like commoditized recruiting processes are more interested in closing the deal and locking up the candidate before an equally persuasive, fast-talking competitor can woo them away, versus being less interested in any issue that might slow down or kill their deal.
The good news is that the big firms win more than they lose. The bad news, at least for their hospital clients, is that their lack of transparency is the enemy of a successful, long-term placement.
So, let’s talk about specific turnover numbers. A recent national survey of physician practices with a total of more than 19,500 providers revealed that the turnover rate for primary physicians is approaching 6.8 percent, with an average cost to the hospitals of about $1 million per physician. Overall, that amounts to more than $1.2 billion loss to a business model that is struggling with today’s reduction in the rate of reimbursement and the cost of bad debt from those patients who either cannot afford, or refuse to buy, health insurance. And then there are the shrinking payments from Medicare and Medicaid.
The whole of the physician recruitment and physician turnover challenges are a big deal but not one that has reached the level of seriousness as to compel a Presidential comment.
However, if you talk to rural and community hospital CEOs, they will tell you that the physician manpower issues — from the significant shortages to the high cost of recruiting and turnover — is a real and imminent threat to their future.
So, what are some steps hospitals can take to mitigate these adverse market forces? This is a challenge since the price of physician recruitment has been toxically commoditized. Hospitals must apply some of the lessons from the executive search side where it is not uncommon to be more deliberate and exhaustive in the recruiting process.
Here is one of the industry’s interesting ironies: hospitals apply more rigor to screening and evaluating candidates for jobs that have lower financial impact on an organization’s bottom line than that of physicians, than on hiring said physicians. The reason is that although competition for an open CEO position is intense, it pales by comparison to the challenges of recruiting a PCP. Why? Supply and demand. There are more healthcare executives looking for work than there are physicians.
Here is another interesting factoid: health systems and hospitals invest more in executive rendition and onboarding programs for their executives, and even lower level supervisors or staff personnel, than they do for physicians. No wonder 54 percent of physicians who are recruited leave within the first five years.
For hospitals to succeed in this highly dysfunctional physician recruitment environment they must be systematic in their approach. Here is what we recommend:
FIRST. If you use a contingency firm, understand you are only getting a resume, not the same type of in-depth candidate evaluation you will get from a retained firm helping you find a CFO, for example. So be prepared to be through in your screening interviews. Be less worried about alienating a physician who is not a good fit for your organization and be more focused on the costs of finding a replacement when that first candidate leaves.
SECOND. Do a thorough evaluation of the candidate’s background. Do NOT depend on your contingency recruiter to be that diligent in conducting in-depth background checks. Remember, this is a commoditized market and they are incentivized to close deals, not to worry about the details.
THIRD. Know your fair market value limits for each specialty. Trying to be frugal in a hyper competitive recruiting market makes no sense at all. You do not want to violate Stark, but there are ways to maximize the front-end cash value of your offer and remain safely on the right side of the legal line. Have a good healthcare lawyer advise you on the can dos and no ways of your offer. This will be money well spent.
FOURTH. Do not be afraid to walk away. If the candidate sounds too good to be true, but keeps pushing the offer envelope to get more, remember that over the long term, this pushing the envelope behavior will not stop. The “No” will end up with a better “Yes” in the future. You must be disciplined and stick with your plan.
FIFTH. Find a recruiter who is committed to transformational recruiting. A transformational recruiter will be a partner, working to find the right candidate and being patient enough to say no to the wrong match. Get them to put some skin in the game. A one year placement guarantee is really NO GUARANTEE since few physicians leave within the first 12 months. No one will give you five years, but ask for 18 months. Even if you pay more, that skin-in-the-game commitment will be worth it.
Physician recruiting is not going to get easier. Hopefully hospitals and recruiters can develop a more effective business model that will be mutually beneficial.
That is it for today. I hope you will join me tomorrow for my weekly career management blog post, and on Saturday for our latest career management video.
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