Higher costs and lower pay deal hospital-owned practices a blow

Hospital practices still lag behind physician-owned counterparts

Hospital-owned practices still aren’t doing as well as their physician-owned counterparts in any of several key areas, according to this year’s crop of compensation, production, and cost surveys from the Medical Group Management Association (MGMA).

According to the Management Compensation Survey: 2001 Report Based on 2000 Data, the only place where a hospital or health system-owned practice does better than others is in how it pays its administrative staff. Physician CEOs, COOs, and CFOs all make more money if they work for a hospital practice. (See chart below for a sampling of compensation figures.) Of the 24 positions in which the MGMA had enough data to produce comparative figures, in only six of them did physician-owned practice staff make more than its peers in practices owned by hospitals or health systems.

Compensation for Selected Positions 
Hospital/Health System-owned Practices vs. Physician-owned

Position

Hospital/Health System-owned Physician-owned
Physician CEO/President $258,000   $245,845
Medical Director $187,811 $181,517
Chief Operating Officer $123,000 $90,046
Chief Financial Officer $81,311   $94,400
Director, Quality Improvement/Quality Assurance   $56,221   $52,335
Director, MIS/IS Manager $70,013 $53,001
Office Manager $37,772 $39,273
All figures are means.
Source: Management Compensation Survey: 2001 Report Based on 2000 Data; MGMA, Englewood, CO.

In the past year, several management positions — regardless of who owns the practice — have seen compensation declines. Physician CEOs saw a 5.58% decrease in mean compensation. Others had a bigger hit. Directors of managed care had a 14.09% decrease in average compensation, and directors of planning and development saw pay plunge by 13.61%. Some positions fared better this year, including medical directors, who saw an increase of nearly 4% in their annual compensation between 1999 and 2000. Most of the increases, however, were less than 4%, and closer to 2%.

Hospital-owned practices don’t generate the same level of accounts receivable per physician or per provider. (See chart below for more accounts receivable data.) And according to the Cost Survey: 2001 Report Based on 2000 Data, once there are bills to be paid, the hospital practices are not as efficient at getting the revenue in the door. Fewer bills are paid in zero to 30 days, and more of their bills remain unpaid after 120 days.

A/R Data – Hospital-owned vs. Non hospital-owned
Hospital-owned Non hospital-owned
Total A/R per physician $112,320 $147, 588
Total A/R per provider $99,427 $118,747
0-30 days in A/R 38.66% 41.52%
31-60 days in A/R 16.75% 16.89%
61-90 days in A/R 9.42%   9.11%
91-120 days in A/R 6.85% 6.29%
120+ days in A/R   28.32% 26.20%

All figures are means; multispecialty practices only.

Source: Cost Survey: 2001 Report Based on 2000 Data, MGMA, Englewood, CO.

Perhaps the reason is that hospital-owned practices have fewer support staff than physician-owned practices — 4.59 per full-time employee (FTE) physician in the former compared to 5.50 per FTE physician in the latter. Hospital-owned practices manage to keep costs per FTE physician lower than doctor-owned practices. But total gross charges and total medical revenue per FTE physician is also significantly lower. Medical revenue after costs per FTE physician is almost half the level in hospital-owned practices as it is in physician-owned practices.

The upshot: While physicians who own their own practices earn $479 in net income per physician (excluding any financial support that comes from parent companies or others), hospital-owned practice physicians make a net loss of more than $93,000. (For more production and compensation data, see chart below.)

Selected Cost & Revenue Data 

Hospital-owned vs. Non hospital-owned

Data Set  Hospital-owned  Non-hospital-owned

Support staff per full-time employee (FTE) physician 

4.59 5.50
Total gross charges  $616,239 $876,714
Total medical revenue $408,879 $591,232
Total support staff cost per FTE physician  $146,775 $181,726

Total general operating cost per FTE physician 

$136,281 $175,670

Total medical revenue after operating cost per FTE physician 

$125,485 $236,353
Total cost per FTE physician  $502,470 $599,863

Net income per FTE physician (excluding financial support) 

$93,174   $479
All figures are means; multispecialty practices only.
Source: Cost Survey: 2001 Report Based on 2000 Data, MGMA, Englewood, CO.

 

Physician Compensation and 
Production Data for Selected Specialties 
Hospital-owned vs. Non hospital-owned
Compensation Hospital-owned Non-hospital-owned
Anesthesiology $221,366   $281,297
Emergency Medicine $180,000   $200,505
Hospitalist  $174,186 $141,259
Surgeon – cardiovascular $500,000 $432,107
Gross Charges (tech component excluded)
Anesthesiology $783,513 $679,915
Emergency Medicine $456,539  $455,043
Hospitalist $349,765 $336,381
Surgeon – cardiovascular $1,060,305 $1,605,676
All figures are medians; multispecialty practices only.
Source: Physician Compensation and Production Survey: 2001 Report Based on 2000 Data, MGMA, Englewood, CO.

In all practices, regardless of ownership, medical revenue per FTE physician increased between 1986 and 2000 by 67.7%, from $293,842 to $492,648. Total operating costs per physician, however, almost doubled from $154,884 to $299,798 in the same period. The result is an increase in revenue after operating costs from $133,707 to $201,163, according to the report.

It isn’t just practices as a whole that show the difference that ownership can make. In 26 of the 47 specialties in which there is adequate data to make a comparison, the Physician Compensation and Production Survey: 2001 Report based on 2000 Data shows that non hospital based specialists’ compensation is higher than hospital-owned practice physicians practicing the same specialty. In terms of gross charges, only nine of the 33 specialties that have comparative data show hospital specialists out-performing their non-hospital based peers. 

Copies of the surveys are available from MGMA by visiting the web site at www.mgma.com or by phoning the association at (303) 799-1111. The cost for physician compensation surveys is $240 for MGMA member, $290 for affiliate, and $450 for others. The management compensation survey costs $90 for members, $120 for affiliates, and $150 for others.