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Physician executive compensation survey

By Carol Westfall

Improving quality in health care has been a leading topic throughout the decade since the Institute of Medicine (IOM) published the landmark report, “Crossing the Quality Chasm,” in 1996. Today we are seeing that the quest for quality has found its way into critical focus areas and business strategies – including physician executive salaries and bonus components.

Compensation linked to quality emerged as a trend among health care organizations in the 2005 Physician Executive Compensation Survey, published by Cejka Search and the American College of Physician Executives (ACPE). Our survey revealed that the Vice President of Quality experienced the highest percentage compensation increase (18 percent) over all other physician executive positions during a two-year period and the percentage of bonuses tied to quality measurements more than doubled – 107 percent – since the most recent prior survey published in 2003.

This trend is supported not only by the 2005 survey findings, but by other research data and our company’s direct experience with organizations across the spectrum of health care. Quality of care was also emphasized in the 2005 Hospital CEO Leadership Survey, released by Cejka Search and Solucient(r). That survey found the majority of hospital CEOs surveyed listed clinical quality/safety improvements as the number one critical focus area for an organization’s success over the next three years. Further, the top-performing hospital CEOs gave the same statistical rank of importance to both clinical and financial benchmarking.

Taken together, these findings make it clear that health care organizations are placing greater emphasis on quality outcomes, with boards and chief executives developing compensation strategies to recruit and retain physician executives capable of driving their organizations to achieve their quality objectives.

The rising demand for executives with advanced training and the ability to lead efforts to improve clinical, quality, financial, and operational outcomes is reflected in the steady increase in physician executive compensation. Physician executive compensation, on the whole, rose by an average of 6.7 percent – $225,000 to $240,000 – from the 2003 survey to the 2005 survey. This was down slightly from the percentage change reported in the 2003 survey, which had shown a 7.1 percent increase over the prior two-year period.

The trend toward pay-for-performance reimbursement, the rise of new specialty care facilities and programs, the race to stay at the forefront of new technology and services, and ongoing efforts to launch innovative research and development operations are a few of the key health care developments spurring the need for physicians in leadership roles.

The 2005 Physician Executive Compensation Survey compiles a wealth of information gleaned from the 2,422 participating ACPE members in 15 executive positions. Their answers enabled us to learn about physician executive compensation trends in a variety of categories, including compensation by organization type, group practice size, time allocated to administrative duties, geographic area, organization location, scope of operations, revenue, years of experience, scope of responsibilities, executive bonus percent, medical specialty, and post-graduate degrees.

Highest Versus Lowest Compensated

Reporting an average yearly income of $340,000, medical directors of single-specialty group practices are the highest paid physician executives. This finding is likely due to higher clinical compensation levels associated with single-specialty group practices, often composed of high-revenue producing specialties and sub-specialties.

The highest median compensation for all physician executives based on organization type is for those working in health system corporate offices ($302,000) and single specialty groups ($300,000).

The lowest compensated physician executives, overall, worked for government run institutions, with an average income of $170,000.

Compensation Increases and Decreases

Of the 15 titles that responded to the 2005 survey, three physician executive positions revealed double-digit increases – vice president of quality (up 18 percent), member/chair board members (up 11 percent), and program director (up 10 percent).

Associates/assistant medical directors in multi-specialty group practices experienced the largest pay decrease at seven percent, while chief medical officers in HMOs and multi-specialty group practices earned four percent less. In both cases, the decreases offset significant compensation growth reported between the 2003 and 2001 survey. Furthermore, a solid supply of candidates in the market for these more entry level positions may explain the leveling off of pay for the associate/assistant medical directors in multi-specialty groups.

Organization Location

Geographically speaking, physician executives in the Northeast and West regions experienced the lowest compensation increase – five percent from the 2003 to 2005 survey. Those in the North Central region are the highest compensated, experiencing a nine percent pay increase over the two-year period.

When comparing physician executives employed in urban, suburban and rural settings, those working in an urban setting are compensated at the highest levels, with suburban settings following closely behind. Chief Medical Officers and Department/Division Chair/Managers in suburban settings, however, are more highly compensated than those in urban settings. Rural median compensation lags behind $20,000 for all physician executives reporting in this category. But, it should be noted that physician executives in these settings may gain increased purchasing power from the lower cost of living, as has been shown to be the case for rural physicians in studies done by others.

Scope of Operations

Physician executives working in regionally operated organizations are typically paid more than those working for nationally or locally operated organizations. Regional health care organizations also experienced the largest increase in median compensation over 2003.

Furthermore, CEOs/Presidents working in regional settings are compensated higher ($350,000) than those in national ($261,000) or local ($275,000) settings. Medical Directors, on the other hand, are more highly compensated when working for national health care organizations.

Educational Degree

Higher increases in median compensation were seen in CEOs/Presidents and Medical Directors with MMM degrees compared to those with MBAs. MMM Medical Directors now earn more than those with MBAs.

Compensation Methods

Physician executives earning a salary plus bonus and other compensation are typically the highest compensated, earning an average of $278,500. Following closely behind are executives with compensation packages that include a salary plus bonus only ($260,000). Physician executives receiving a straight salary reported earning, on average, $215,000 per year.

In terms of bonus as compensation, organization goals and objectives are still leading bonus components for physician executives. The other top bonus components include organization profit, personal goals/objectives, quality measurements, and patient satisfaction. Quality measurements, as a bonus component, increased 107 percent over those reported in the 2003 survey. This finding likely reflects the ever-growing emphasis that health care organizations are placing on quality outcomes.

Compensation Components

The survey found the top benefits received by the physician executives surveyed were: 1) health insurance, 2) vacation/holidays/personal time, 3) CME/travel/paid time-off, 4) 401(k)/retirement, and 5) life insurance. A notable change from the prior survey is that the percent of physician executives receiving tax deferred compensation as a benefit increased from four percent in the 2003 survey to 25 percent in the 2005 survey.

The demand for physician executives is increasing. Health care organizations across the country are, in greater numbers, seeking highly qualified, effective physician leaders who can help their organizations achieve their financial, operational, clinical and quality objectives. Understanding physician executive compensation trends is important information for organizational leadership and boards wanting to recruit physician executive leaders, as well as physician executives seeking to propel their career and compensation packages and physicians seeking negotiation insight for executive positions.

Carol Westfall is president of Cejka Search.

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