Competition Drives Big Salary Increases for Physicians

Ken Terry

June 16, 2016

Growing competition for physicians and shortages in some specialties have boosted physician salaries across the board, according to a new report from Merritt Hawkins, a healthcare staffing firm. The starting salaries of 19 of 20 specialties tracked by Merritt Hawkins increased this year, and many of the increases were in the double digits.

Annual starting salaries and year-over-year increases for select specialties include: family medicine, $225,000, up 13%; psychiatry, $250,000, up 11%; obstetrics-gynecology, $321,000, up 16%; dermatology, $444,000, up 13%; urology, $471,000, up 14%; otolaryngology, $380,000, up 15%; noninvasive cardiology, $403,000, up 21%; and general surgery, $378,000, up 12%.

Some of these starting salaries are higher than the average salaries that doctors in the same specialties reported in Medscape's recent compensation survey. For example, the average salary for family medicine is $207,000, $18,000 less than the average family physician's starting compensation in the Merritt Hawkins report; for dermatologists, the average salary is $381,000, or $63,000 less; and for general surgeons, it's $322,000, or $56,000 less.

The Medscape salaries include bonuses, whereas the Merritt Hawkins numbers don't. Moreover, compensation surveys have consistently shown that physicians in private practice earn more than employed doctors, and about 90% of the Merritt Hawkins' recruited physicians were going into employed positions (hospital, medical group, urgent care center, Federal Quality Health Centers, and other employers). So why were they making more to start than the universe of employed and independent physicians earned on average?

The big reason for the spike in salaries of recruited physicians is intense competition for doctors, Travis Singleton, senior vice president of Merritt Hawkins, told Medscape Medical News. "This market is absolutely bursting at the seams of capacity," he said.

The competition is not just between hospitals and healthcare systems, he noted. "In a given market, you're also competing against urgent care centers, federally qualified health centers, direct care, concierge care, and other delivery systems. And they all employ doctors. So you have to be in the ball park of what they're paying doctors, and it has leveled the playing field."

Additionally, Singleton noted, the new prevalence of the employment model has "drastically front-weighted physician compensation." In earlier years, physician salaries were largely production-based and hospitals paid relatively low guarantees. A physician's compensation was mostly determined by how hard he or she worked. "Now, the employment model has somewhat taken that away," he said. Hospitals often pay doctors generous salaries to start, figuring they'll recapture their investment in admissions, tests, and referrals. But those salaries don't budge much over time.

Consequently, he added, a family physician just out of residency who goes to work for a large healthcare system may not make much less than a physician who's been in practice for 18 years.

Mental-Health Needs Rising

The top five most-recruited physician specialties, the report showed, were family medicine, psychiatry, internal medicine, hospitalist, and obstetrics-gynecology. Primary care specialties have been high on the list for years, but the ascent of psychiatry to the number two spot surprised Singleton.

He ascribed the heightened demand to a severe shortage of psychiatrists that has sparked a crisis in mental health. In addition, he noted, there has been increasing recognition of the importance of behavioral healthcare in curbing overall health costs.

The big salary increases for primary care physicians (PCPs) shows that these doctors are more in demand than ever. One reason, the report suggested, is that the United States population has been growing faster than the doctor supply for the past 2 decades. Also, PCPs are essential to population health management, the delivery model for much of value-based care.

"Primary care physicians such as family physicians and general internists top the list of most in-demand doctors in part because of their key role as quarterbacks of the [care] delivery team," the report said.

Hospitals recognize they can't achieve their population health management goals without employing PCPs, who provide the medical homes for a large population of patients, Singleton commented. But that isn't the only reason or even the main reason they're hiring these doctors, he said. Nobody knows how far value-based care will go or what it will bring in relative to physician compensation. One indication that healthcare organizations are hedging their bets, he noted, is that only 6% of total compensation is tied to value today in the form of quality bonuses.

More Specialists a Sign of the Times

Merritt Hawkins attributed the jumps in specialist salaries largely to population growth and aging. Singleton noted that a small percentage of the population generates the majority of health costs, and seniors are a big part of that. So even if population health management results in people being better cared for, and they see specialists less, they will eventually need specialty care, whether that's cancer care or joint replacements or something else, he said.

Consequently, there will be a need for more specialists. Significant shortages of these doctors are emerging or expected, and that will make specialists even more valuable on the market, Singleton said.

Academic medical centers have also stepped up their hiring to accommodate recent growth in physician training programs, the report showed. Not only do these academic centers need more faculty, Singleton explained, but they're providing more patient care as well. In many inner cities, particularly, these teaching facilities are the main hospitals. Many academic medical centers have built provider networks to supply care to their population. At some of these facilities, physician faculty members must choose between remaining on the full-time faculty or joining one of those affiliated groups for a substantial increase in pay.

Recruitment of doctors by small or solo practices dropped to nearly zero in recent years. But the 2016 Merritt Hawkins survey found that 5% of searches were for these very small practices, up from 4% in 2015 and 1% in 2014. Some of the employers are hospital systems seeking to set up small offices in rural areas to support community hospitals they had bought. In addition, some small practices with a direct or concierge economic model are hiring physicians, the report showed.

"The fact that this trend has picked up shows that not everyone loves consolidation," observed Singleton.

The report tracked 3342 physician and advanced practitioner recruiting assignments the firm conducted between April 1, 2015, and March 31, 2016.

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