The scramble by hospitals to employ physicians has worked out
pretty well for some of the region's surgeons.
Across the four largest hospital systems in central Indiana, six
physicians received more than $1 million in compensation in 2011
while two others received more than $900,000 and nine others
received $700,000 or more, according to the hospitals' most recent
reports to the IRS.
Those compensation figures include salaries, bonuses, fringe
benefits and contributions to retirement plans for doctors whose
primary responsibility is caring for patients.
At Community Health Network, neurosurgeon John Cummings received
total compensation of nearly $1.8 million in 2011 - about half a
million dollars more than the hospital system spent on its CEO,
Bryan Mills, that year.
At Indiana University Health, however, CEO Dan Evans'
compensation of $2.3 million was nearly triple that of the hospital
system's highest-paid Indianapolis-area physicians, a group of heart
surgeons called Heart Partners of Indiana.
In 2008, when Heart Partners had competing offers of employment
from both Community and IU Health, the group ended up striking a
deal with IU Health that paid at least four of them more than
$900,000 a year in salary, bonuses and benefits.
Two years later, a group of six orthopedic surgeons called Joint
Replacement Surgeons - whose doctors had leadership roles at both
Franciscan St. Francis Health and at St. Vincent Health sold their
practice to Franciscan. In exchange, Franciscan has been paying one
of the doctors more than $1 million a year and paying two others
about $900,000 apiece.
When Community Health hired neurosurgeon David C. Hall away from
the physician practice Goodman Campbell Brain and Spine, he didn't
come cheaply. Community paid Hall more than $1.2 million in salary,
bonus and benefits.
Those pay packages are at the high end of the range of
compensation paid to similar surgeons across the country, according
to data from Merritt Hawkins, a Texas-based physician recruitment
firm.
They point up the recent fear of local hospitals that if they
didn't "lock 'em up" - as one local hospital executive put it might
see their most valuable physicians scooped up by competing
hospitals, taking their lucrative stream of referrals with them.
In addition, hospitals wanted to employ more physicians and more
physicians wanted to be employed as the best way to navigate the
changes coming from President Obama's health reform law.
"It's been the land of acquisitions and mergers the last few
years. Is that having an impact on compensation? Yes. Not only
structure but also total value," said Travis Singleton, senior vice
president at Merritt Hawkins.
But a key question is whether the four local hospital systems
will be able to maintain the same high levels of compensation once
the health care system shifts from its traditional practices of
paying for high volumes of procedures to paying for keeping patients
healthy and out of the hospital.
That shift is happening as the 2010 Patient Protection &
Affordable Care Act takes full effect in 2014. In addition, the
budget battles in Congress already have started reducing the
payments hospitals receive from the federal Medicare program.
Hospital analysts expect more Medicare cuts to come - and to see
them mimicked by private health insurers.
"The greatest challenge facing the not-for-profit hospital
industry is the reduction in reimbursement from all major payors,
both governmental and private, as the health care industry remains
under pressure from policymakers, industry and the general public to
reduce costs," wrote Daniel Steingart and Lisa Goldstein, analysts
at Moody's Investors Service, in a Jan. 22 report.
Dr. Tim Story, an internist in Carmel, doesn't think the high
compensation packages paid by Indianapolis-area hospitals will
survive the full onset of health care reform.
"I find those salaries in general quite surprising in light of
the remarkable changes that are coming in 2014," said Story, who is
a physician in The Care Group, a large practice acquired by St.
Vincent Health in 2010. He added, "My suspicion is, there's going to
be a lot of retrenchment."
Revenue generators
Surgeons are especially valuable because they help hospitals turn
their enormous fixed costs - patients beds, operating rooms, nursing
staffs - into profitable revenue.
Each neurosurgeon generates an average of $2.8 million for his or
her hospital each year, according to a 2010 Merritt Hawkins survey.
Revenue generation averages $2.2 million for a heart surgeon and
$2.1 million for an orthopedic surgeon, the survey found.
Some hospital executives think high physician pay will be
sustainable longer term. Others acknowledge they don't know.
"It's too hard to predict that future," said Tony Javorka, chief
operating officer at Community Physician Network, the physician arm
of the Community Health Network hospital system. He added, "When it
comes to physician compensation, it has to be tied back to fair
market value, and that fair market value is going to go up and
down."
Javorka added Community's motivation in hiring physicians - even
at the highest salaries - was not to fill its operating rooms, but
to make it easier to transition to the new payment models coming
under health care reform.
Hospitals can run afoul of federal laws and regulations if they
directly pay physicians for referrals or pay them outlandish
salaries in order to recruit them. Hospitals hire consultants and
accountants to conduct fair-market-value studies to justify what
they pay physicians.
But fair market value for physicians is hardly a precise figure,
or an entirely stable one. For example, the average salary for a
heart surgeon last year was $512,000, according to data compiled by
Merritt Hawkins. But salaries ranged from $400,000 to as high as
$650,000.
Those numbers have come down from 2008 - the year Heart Partners
of Indiana sold a controlling stake of their practice to IU Health -
when cardiologists commanded salaries as high as $1 million.
Since that deal, IU Health has gradually reduced its overall pay
to the Heart Partners surgeons. All of them made less than $800,000
in 2011 - about 15 percent less than they did in 2009.
Work habits changing
Hospitals base their fair market value analyses not just on what
other physicians in the same specialty make, but also on how much
reimbursement a physician's work is generating under a system used
by the federal Medicare program called relative value units, or
RVUs.
Ed Abel, a hospital accountant at Indianapolis-based Blue & Co.,
said orthopedic surgeons who spend most of their time in the
operating room, and let other doctors handle office visits with
patients, easily generate enough RVUs to be paid more than $1
million.
Two of the orthopedic surgeons employed by Franciscan - Dr. Louis
Metzman in Crawfordsville and Dr. Jeffrey Pierson in Mooresville -
were paid $1.2 million and $1.4 million, respectively, in 2011.
Calls made to both physicians were not returned. Franciscan did
not make an executive available to comment for this story.
Abel thinks physicians' compensation might go down in the future,
but not because of health care reform. Instead, he thinks employed
physicians will produce fewer RVUs than they did when they owned
their own practices - a reflection of the fact that employed
physicians have been shown to be 17 percent less productive than
physician practice owners.
In addition, today's physicians are less eager to work the 60- to
70-hour weeks that baby boomer doctors commonly did.
"Lifestyle is driving this profession to work a little bit less
than what they used to," Abel said. "Our society today, they just
value their personal and private time, more than a generation or two
generations did before."
John Stewart, president of the St. Vincent Medical Group, which
employs 756 doctors, said changes in reimbursement will pressure
everyone in health care.
"The expense in health care is no longer sustainable," he said.
"And reality is, everybody will feel some pain."
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