Executive Update
June 2008

Hiring a New Physician — Answers to Some Key Questions
Richard C. Koval, MPA, CMPE

At one time or another, most practices face the need to add a new physician, whether to meet increasing demand or maintain practice capacity. If you’re considering the addition of a new doctor, here are answers to some of the more critical questions involved.

How do I know if I can support another physician?

As you might imagine, your success will greatly depend on getting the new doctor busy as quickly as possible. A new doctor will likely be busy quite quickly if one of the following are the case:

• You or one of your colleagues is slowing down or retiring,
• Patient waiting times are excessive for routine exams and procedures, or
• A new satellite office or the doctor’s subspecialty fellowship provides access to new service areas.

This would suggest that recruitment may be feasible.

However, even in the face of such obvious demand, the practice must be able to provide the physical office space, surgical/procedural time at the hospital or ASC, staffing, equipment and other essential elements needed to support that new doctor. The question of viability is not just an issue of unmet demand, but also an issue of available infrastructure. Be sure both are aligned before proceeding.

How do I find the right physician for my practice?

Most doctors seeking new opportunities regularly consult the Professional Choices job-search listings on the Academy Web site (https://secure3.aao.org/professionalchoices/index.cfm), as well as the Web sites of other professional societies. Less frequently, jobs may also be publicized through printed journals, word of mouth, professional meetings or letters to residency program directors. Some practices also use professional recruiters, especially if the practice has limited resources for recruiting efforts or if the nature of the position makes it difficult to fill.

Potential candidates should initially be assessed for their ability to satisfy defined practice needs. You should outline your practice’s recruitment objectives in writing beforehand, noting those clinical skills and personal characteristics you desire of the ideal candidate. Although not every candidate may satisfy every listed requirement, certain essential needs should be satisfied before you proceed with further consideration of the individual.

Your first assessment of each candidate will compare his or her CV and cover letter to those predefined needs. The second level of assessment will judge the candidate’s response to predetermined questions based on those needs and as presented in a telephone interview. Avoid questions that lead to “canned” responses in favor of those that provide deeper insights into the candidate. These might include:

• What was the best part of your training? What specific skills make you especially valuable?
• How do you work best with people? What have been your biggest challenges in working with others?
• What are the characteristics of your ideal practice opportunity? How does our practice match?
• Where do you see yourself as a physician in five years? What steps will you personally take to ensure you meet those goals?
• What do you do to vent your work-related stress? Tell me about a stressful situation and how you coped with it.
• What are we likely to discover after working with you that won’t be obvious in the interview process?

The third level of assessment will evaluate the tangible and intangible aspects of the individual’s fit during the course of an on-site interview.

The “right physician” for your practice will satisfy the vast majority of the needs you identified beforehand. Beyond that, the individual also should be compatible on an interpersonal level, showing signs that he or she would work well with you, your colleagues and staff members. Compatibility will be subjective in many respects, but observe how the candidate interacts with others, expresses viewpoints consistent with the practice’s philosophy regarding patient care and work ethic, and shows enthusiasm for what the opportunity might offer. Of course, clinical competency is essential; your discussion with the candidates’ references should confirm that aspect.

What will I need to offer a new doctor in compensation and benefits?

Most physicians expect a combination of salary guarantee and an incentive-based bonus. The guarantee provides an appropriate financial foundation for the individual while he or she becomes established in the area. The proper guarantee amount will depend primarily on a) the nature of the individual’s training, b) the scope of practice to be provided by the individual and c) the circumstances of your practice and your local labor market.

For the most part, candidates with fellowship training will command higher base guarantees than those candidates without. However, base guarantees recognize that additional training only to the extent that it’s actually used in the practice. Consequently, if you are recruiting for a comprehensive ophthalmologist, a corneal or glaucoma fellow is likely to be paid at a level consistent with a comprehensive ophthalmologist with no fellowship.

Finally, base guarantees will reflect the reality of supply and demand within the local market. Practices located in less-desirable areas are often required to pay more than the salary levels required of practices located in more “desirable” areas. Costs of living affect competitive offers too. And of course, an experienced physician will typically command a higher guarantee than will a newly trained physician.

Incentive-based compensation can be arranged in different ways. The most common approach is to pay a percentage of the individual’s net collections (i.e., gross collections less refunds) exceeding a defined threshold. The threshold is often set at a multiple of the base guarantee amount. The percentage used will vary among practices somewhat, depending on the practice’s overhead rate. Other options include paying the new doctor the greater of either the defined base guarantee or a percentage of total net collections or paying a series of defined bonuses based on reaching certain collections targets. Other alternatives to these plans are also possible.

Some practices will pay a salary alone without incentive-based compensation, which is viable if the parties are able to agree on a satisfactory salary amount relative to the work expected of the new doctor. However, most candidates like the idea of having increased compensation linked to their practice growth. On the other hand, few candidates will accept an offer without a guarantee in some form due to the uncertainty of compensation levels available under a performance-only structure.

In addition to compensation, you should expect to provide those fringe benefits common to physicians and other employees in the practice, which typically include health insurance and retirement plan contributions. Most contracts will offer two to three weeks of vacation in the first year, along with one week of education leave. CME costs for at least one major annual meeting are normally reimbursed — either in full or subject to a defined annual allowance. Most practices also provide partial of full reimbursement for relocation costs.

As a rule, those professional costs incurred by the new doctor in fulfilling terms of the contract will usually be covered in full by the practice. These typically include professional dues, journals, pager/phone costs, hospital/ASC dues, licenses, parking, mileage between offices/facilities (though this excludes any segment including the doctor’s home, since that’s not a deductible business expense), DEA registration and other such costs. Malpractice insurance is also included; although most contracts require the employee to pay tail costs upon termination, an equal sharing of premiums is more equitable.

How do I arrange for the new doctor’s eventual co-ownership?

The details of co-ownership are numerous and based on a number of variables specific to the practice and its circumstances. However, you should expect to address the following key issues if a co-ownership track is under consideration:

• The timeframe for the co-ownership offer (usually following one to three years of employment).
• The percentage of co-ownership to be offered (usually no less than the percentage owned by any other co-owner).
• The manner in which the buy-in amount would be determined (not a dollar amount, just the formula to be used).
• The terms of payment expected for the buy-in (i.e., the timeframe for payment and tax allocations involved).
• The manner in which net income among co-owners will be distributed (this affects the new co-owner’s cash flow and goodwill value).
• The way that co-owners are bought out when they leave (this affects not only the new doctor’s potential buyout but his/her obligation to buy out senior co-owners too).

Note that none of these terms should obligate the practice or the candidate at this point of the recruitment process and all references should specify that any co-ownership arrangement would be based on mutual consent. For that reason, buy-in terms are usually found in a separate letter or memorandum rather than within the employment agreement. However, outlining these aspects is highly recommended, since doing so tends to reduce misunderstandings later on.

Many smaller practices have difficulty developing this level of co-ownership detail at the point an employment agreement is to be signed. The absence of such details doesn’t preclude a successful recruitment, but does increase the risk that the parties may not reach an agreement when co-ownership is being finalized.

How do I make all of this happen?

That depends on how much help you need. Your accountant or office manager may be helpful in constructing projections for confirming the financial viability of a new doctor. A recruiter or consultant may be able to assist in establishing links to potential candidates and outlining essential terms for the employment period. An attorney is indispensable in constructing an enforceable employment agreement with solid provisions protecting the interests of both parties. And a consultant or accountant can help assemble the co-ownership elements for illustration to a potential co-owner.

Just as importantly, be sure you take advantage of available resources that will educate you personally about these different aspects of the employment process. Read pertinent articles, obtain copies of recent Academy lectures and be sure to attend relevant courses in Atlanta this November, designed to provide the key information you need. The more you know, the more likely you’ll be able to succeed in your recruitment efforts.

About the author:
Richard C. Koval, MPA, CMPE, is a principal/senior consultant at BSM Consulting. He will be presenting a course at the AAOE Program of the 2008 Joint Meeting in November titled “Hiring An Ophthalmologist for Your Practice,” #201. Member registration opens June 25.