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 providersthe true buyers of healthcare
services and the largest beneficiary group in the current systemwill 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 nations 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 facilitiessuch
as selling price, joint ownership, and profit sharingare 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 contractor they dont
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 patients 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 todays 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
physicians 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 physicians 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 dont work out to the physicians 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.
Youre 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
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