Physician turnover and all its related costs and challenges can take a serious toll on the success, gratification, and bottom line of practices and departments. However, there are steps which can be taken to provide an edge in the recruiting and retention battle. After highlighting some provider staffing challenges, we introduce two often overlooked, no-cost ways to help your Total Rewards program stand above the competition. With budgetary constraints being a reality, the goal is to utilize strategies and designs that are cost neutral to your organization while delivering impressive results for the providers. If you can improve your recruiting efficiency and lower turnover, you will increase your bottom line, enjoy a recruiting edge, enhance provider morale and engagement, and ultimately improve the overall healthcare experience for your community.
Physician Shortages and Turnover
We live in challenging times to have the providers we need.
“AAMC Report Reinforces Mounting Physician Shortage”, “25+ Stunning Physician Shortage Statistics in the US”, and “Healthcare Workforce Challenges, a National Emergency, Hospitals Say”. are recent headlines appearing in Becker’s Hospital Review. These type of headlines can be found daily and correspond to what Laura Dyrda, Editor in Chief, Becker’s ASC Review determined as she spoke with many healthcare leaders: The #1 conversation theme was labor shortages, and it is not getting better. According to a report last year from the AAMC (Association of American Medical Colleges), the United States could see a shortage of 37,800 and 124,000 physicians by 2034.
Unfortunately, as the healthcare industry struggles with growing provider shortages, the need to retain current talent increases the pressure. Competition for talent is intense. Studies suggest that in most cases, providers leave because they are not happy where they are. While that unhappiness can result from several factors, the American Association of Physician Leadership recently reported that “the need or desire for better compensation tops the list of reasons why physicians leave their position.”
If better compensation is often among the top reasons for losing a physician, then it follows that better compensation would enhance the recruiting and retention of key talent. As we will discuss, “better compensation” does not necessarily equate to an increase in cash expense for the employer.
As health organizations deal with the effects of shortages, increased provider burnout, and an overall decline in provider morale, thinking outside the box for provider recruiting and retention becomes paramount.
The Cost of Physician Turnover
According to Christine Sinsky, MD, FACP, vice president of professional satisfaction for the American Medical Association (AMA), it costs anywhere between $500,000 to $1 million to replace an existing physician.
A study by Meritt Hawkins calculated the potential cost to recruit a family medicine physician totals $342,000.
Calculating the true cost of turnover to your organization is not an exact science. However, most will agree that the direct financial costs can be in the hundreds of thousands of dollars per provider, with the indirect costs to related staff and operations yielding additional challenges.
Research by the Association of Staff Physician Recruiters showed that recruiting a permanent physician averaged 239 days or nearly eight months, and that was prior to the recent pandemic. With all the resources exhausted to fill vacancies combined with growing shortages, utilizing innovative and cost effective strategies to improve recruiting and retention efficiencies has become critical.
Reduce Turnover Through a Total Rewards Program that Shines
Using the definition provided by the Society for Human Resource Management, “a total rewards strategy is a system implemented by a [healthcare entity] that provides monetary, beneficial and developmental rewards to employees who achieve specific business goals. The strategy combines compensation and benefits with personal growth opportunities inside a motivated work environment.”
A stand-out Total Rewards program can spur physician retention and be equally valuable in attracting new talent. A Total Rewards approach includes the common benefits like medical insurance, workers compensation, PTO, etc., but it also includes items such as ongoing recognition, professional development, child care, and flexible work hours.
In a recent article, Indeed listed employee benefits to consider. Unfortunately, 24 of 25 benefits listed require additional cost to be borne by the employer. Certainly, the list of 25 benefits is not complete, but the list confirms that most provider benefits require a cash outlay from the employer. Since health entities are subject to budgetary constraints – yet need to offer a Total Rewards program that is enticing -they often wrestle with determining which benefits to offer and how to differentiate their organization from their competitors. In part due to significant student debt loads, national surveys have shown that more and more providers are placing a higher premium on having more cash in hand today, at the expense of other benefits. The old saying “cash is king” has never rung more true.
We don’t want to discount the value of benefits like recognition, strong communication, building morale, etc. as valuable to a Total Rewards program. But for purposes of this article, we want to focus on financial benefits (salary, wages, benefits, etc.); specifically addressing this premise: Physicians, like the rest of us, want to keep more of what they earn to spend it when and how they want to.
Given your experience with compensation packages, how would you answer these two questions: What can you deliver that significantly increases how much of the provider’s compensation she keeps but costs the employer little to nothing to deliver? Would an addition to your Total Rewards offering that is cost neutral yet can increase a provider’s take-home pay be a differentiator within your footprint?
A Total Rewards Package Can Stand Out and Not Break the Bank
Two cash flow neutral strategies that can enhance your Total Rewards are #1 Non-qualified Deferred Compensation and #2 Loan-Based Compensation.
Non-qualified Deferred Compensation
A non-qualified deferred compensation (NQDC) plan allows an employed physician to defer wages, bonuses, or other compensation in one year and receive them (and account growth) at a future point in time. It allows providers to defer a much larger portion of their compensation than they can contribute into qualified plans. The taxes on the money are deferred until vesting occurs. In brief, the plan is a promise by the employer to pay you later. Most may be familiar with NQDC as an employer-funded arrangement, generally for executive leadership. However, NQDC can be structured on a voluntary basis, allowing providers the opportunity to reduce their current tax liabilities.
Since this is simply a deferral of when the earnings are paid out, the NQDC requires no funding from the employer. The plan design and document will determine when vesting occurs. Most health entities that provide NQDC plans for providers do so to augment the relatively low contribution limits of 401(k) and 403(b) plans.
While the deferral of current taxation is quite appealing, there are regulatory guidelines that must be followed which may limit how many physicians would choose to take advantage of this opportunity. For example, unlike 401(k) plans, you cannot take loans from NQDC plans, and you can’t roll the money over into an IRA when your NQDC vests.
Additionally, the NQDC must be subject to a substantial risk of forfeiture.
NQDC plans are not just for retirement. A properly structured plan can allow providers to vest at certain key dates. Many providers will utilize this type of staggered or rolling vesting schedule as a way to have funds for known expenditures like tuition.
A properly structured NQDC can have appeal for those providers who have contributed the maximum to their qualified plans as well as those who prefer the flexibility of shifting tax liabilities to the future.
Loan-Based Compensation – Innovative, Simple and Powerful
Heard of this one? Maybe you have heard of it by another name: Alternative Compensation Arrangement.
A properly structured loan-based compensation plan is an innovative, simple but powerful way for providers to keep more of what they earn. The premise is straightforward: A healthcare employer and a provider mutually agree to restructure compensation. Instead of compensation being paid the traditional way, subject to federal, state, local taxes and FICA, funds are delivered as a loan through a loan regime split dollar arrangement: thus, taxes do not apply to those funds The loaned amount, funds which would have been expensed as compensation, are used to secure a properly structured, high equity life insurance policy. The tax benefits of life insurance provide for tax deferred account value growth and tax-free distributions via policy loans, while the death benefit provides the security and repayment of the loan back to the employer.
Unlike other deferral arrangements or insurance funded structures, an alternative compensation arrangement (loan-based plan) can provide current cash flow to the provider, generally more than would have been netted through traditional compensation. It also provides additional funds for retirement and family protection through the policy death benefit.
While there are design nuances to be taken into consideration, a properly structured loan-based compensation arrangement can reduce a provider’s personal tax liability allowing them to keep and utilize more of what they earn, deliver a no-cost recruiting and retention opportunity, while creating a significant future cash benefit for the healthcare organization.
Concluding Thoughts
Provider recruiting and retention has always been a hot-button challenge for organizations, but given the growing provider shortage coupled with physician burnout at a high point, recruiting and retention is reaching a critical level of importance.
A Total Rewards program that can differentiate itself from competitors is needed to navigate this challenging landscape. While the traditional suite of benefits is needed, it is important to think outside of the box and explore additional opportunities to deliver value and gain an edge.
David Clingo is Vice President of LifeSolutionz, a NC based firm specializing in the design, implementation and service of alternative compensation arrangements for healthcare organizations.
