Lower Salary Equals Higher Pay… Really?

Last month, we dug through a sample set of Hospitalist Compensation and Productivity data.  That column excited two people, maybe three, to get out a slide rule and some actuarial tables for the sheer joy of the experience!  Meanwhile, my partners insist that everyone else had to grab a drink and find something better to do with their time.

OK, point taken!  But, I’d like to hit on some information that even non-numbers nerds found intriguing in the SHM-MGMA Survey this year.  That information is the correlation between lower base salary and higher overall productivity for hospitalists.  See the graph below.

In summary, it appears that those with base salaries that comprise less than 50% or 51-70% of their total compensation earn more money and perform more patient care than those who have 71-90% or more than 90% of their compensation structured into their base salary.  Looking back at my nauseatingly numerical blog from last month, we already know that the basis for this effect stems from the law of diminishing marginal returns such that each unit of work done earns a bit less money while still adding to their overall bottom line.  When we work more, we make more.  Yet we make a little bit less for every unit of work we perform.  (This is especially apparent for the less than 50% base salary crowd who performed 18% more Work RVU based work, yet only earned 1% more than the 51-70% base salary folks!)

This brings us to the controversial aspect of the data.  That is, how do we feel, individually, about the correlation between working more and earning more?  I will explicitly state that I believe there is NOT a single best answer to the question.  There are at least two main camps out there, and there may be more than that.

Some hospitalist groups value individual productivity and flexibility as more important than a stricter sense of equality.  They choose to allow members to work more or less in return for the ability to earn more or less.  In return, their members report a high degree of satisfaction with their ability to choose how they structure their lives to meet their income needs and attend to their personal lives as well.  Simply, such systems allow those who want to work more and make more to do just that.  Meanwhile those who want to work less and make less can still earn a good living and provide a productive contribution to their group enterprise WITHOUT FEELING GUILTY that they didn’t work as hard as others.  After all, the hard workers made more money for their labor!  What’s the potential downside?  The compensation incentives are harder to understand than simpler salary structures.  And some people can’t get past the idea that someone else made more money than they did.

Meanwhile, other groups value equality higher than flexibility because it appeals to their sense of fairness.  It is reassuring that everyone has a fixed schedule, number of patients, and salary.  Some physicians may take more time to complete that work than others, but everyone gets the same thing at the end of the day.  This is reassuringly fair when it comes to the numbers.  The downside here?  Equality constrains individual productivity and slows adaptive change. There is no opportunity to excel for those who actually are more efficient and who could do more work for more money.  There is no opportunity for others to do less work and scale back, UNLESS the group develops some part time structures that allow such activity.  (And if the group allows some members to shirk work at the expense of others, things can get ugly… watch out!)

At present, I believe these groups are two separate animals.  The high base vs. low base salary equation falls out based on the choices a group makes to foster a particular culture.  But beware, change is afoot!  The increasing pressures for all sorts of quality and patient satisfaction incentives (and future penalties) pressure our ability to earn more for the same work we do now.  The need to meet alignment goals with hospitals pushes base salaries downward to allow room in our total compensation structure for performance based pay that measures more than how many patients we see.

(Graphics used with permission from the Medical Group Management Association, 104 Inverness Terrace East, Englewood, Colorado 80112.  877.ASK.MGMA.  www.mgma.com.  Copyright 2010.)

2 Comments

  1. Mike Radzienda on December 30, 2010 at 7:13 pm

    Troy,
    I cherish your posts. They are insightful and educational. IMHO, the downside of higher volumes is illustrated here by the Malthusian theory of the diminishing marginal productivity of labor:
    http://www.youtube.com/watch?v=4wp3m1vg06Q
    Should hospitalists be more productive or more effective?
    It’s hard to be both.

    • Troy Ahlstrom on December 31, 2010 at 12:00 am

      Mike, I had to “Google” Thomas Malthus to figure out what the heck you were talking about! As far as Hospitalists’ productivity vs. efficacy, I strongly believe we need to provide value. For some institutions, that value is more productivity driven and for others it lies in the quality measures. Most struggle with the balance, as do I. I think our value comes from nailing the quality measures first, and then being as productive as possible while doing so. Placing some of our pay at risk for quality and for productivity means we’re willing to put our money where our mouth is on both issues. We should work out the structure in a way that makes sense for the hospitals and patients we serve. If we fail at either, it’s time to go back as reassess our value equation, our goals, and our incentives.

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