Benchmarks key in medical director pay-setting methods

Physician Compensation Report, Oct, 2003

He explains how this indirect benchmark method works. First, the hospital uses MGMA or other national or regional surveys to get the annual pay rate (median or 25th, 75th or 90th percentile). Then it decides how many weeks per year and hours per week are appropriate for the specialty in the local market, and divides the annual pay rate by the number of work hours per year. Finally, if a given administrative job is expected to take 40 hours per month or 480 hours per year, it multiplies the hourly rate times 480 to get the annual stipend.

Other hospitals use a standard hourly rate for medical directors regardless of position or specialty--often about $150--Cardinal notes.

Some hospitals assign physicians to projects rather than continuing medical-director duties, and use variants of the opportunity-cost method to set pay. A few hospitals will add incentives for specific accomplishments by the medical manager, he adds.

Cardinal says that hospitals can use the same methodologies to figure out call-coverage pay levels, which also can raise compliance issues of commercial reasonableness. Two important factors in setting such pay levels are the scarcity of needed specialists in the local market, and physicians'--especially GenXers'--increasing reluctance to accept call coverage without pay.

Business Strategies Also Relevant

Still another direct benchmark data source for physician managers and executives is Sullivan, Cotter & Associates. The firm's Physician Compensation and Productivity Survey contains pay information for department heads and division chairs in large multispecialty practices for most specialties and subspecialties (see article, p. 1). And the company's Survey of Manager and Executive Compensation in Hospitals and Health Systems tracks pay levels for a large number of physician and nonphysician administrators and executives, both at the health system and the hospital level. This survey plots graphs relating pay levels in various jobs with the annual revenue size of organizations. The physician pay survey also has direct call-coverage rate data.

Mobley of Sullivan, Cotter, who assists hospitals in setting and defending the pay levels of specific physician administrators and executives, says that still another indirect way to calculate appropriate pay levels is by using production as well as pay data. A hospital can figure out a physician's actual pay per RVU rate in dollars, or the ratio of the physician's pay to gross charges. Using her firm's productivity data, which are expressed in work RVUs, gross charges and collections, the hospital can figure benchmark pay rates per RVU and ratios pay to gross charges (median, 75th and 90th percentiles) for the physician's specialty and position, such as department head. Then, the hospital can compare the physician's productivity ratios with the benchmark levels. By this method, she notes, some physicians are likely to appear overpaid--and some underpaid.

Mobley adds that a hospital's business strategy and mission are legitimate parts of setting pay. If a hospital needs to raise its revenues from heart or oncology care, and the community needs such added care, then it may be a "justifiable business decision," she says, to hire a new head of oncology or cardiology at the 75th or 90th percentile rather than the median. This will broaden the range of possible candidates, and enable the hospital to attract physicians who are really on top of new developments and can bring new treatments to the hospital's region.