What's A Doctor Worth To A Hospital?
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From Rich Webb's Healthcare Neutral ADR Blog. March 2010 |
In the ongoing symbiotic relationship between hospitals and members of their medical staffs, it is understood that the physicians generate hospital revenue by admitting their patients and ordering tests and procedures. But exactly how much is any doctor "worth" in this sense? Thanks to the HealthLaw Prof Blog, I saw that James A. White recently covered this issue in the Wall Street Journal Health Blog. Citing to a study of 114 U.S.hospitals by physician recruiters Merritt Hawkins, the WSJ produced a chart listing average hospital net inpatient and outpatient dollars derived from referrals, tests and procedures done in the hospital.
The chart showed average hospital revenue ranging from a low of $696,888 (from nephrology) to a high of $2,815,650 (for neurosurgery). The average for internal medicine was $1,678,341. The article doesn't talk about the hospitals' costs to provide the services that resulted in the hospital revenue described. Although some costs are evenly distributed among all patients, some are not.
Any hospital administrator will tell you that not many days go by without some physician on staff reminding the administrator of how much his or her presence is "worth" to the hospital. Unlike most other fields of endeavor, physicians by law cannot be paid by the hospital for what they are "worth" in business generation. But that doesn't mean physicians will not expect to be compensated for that value in some way. Nor does it mean that hospitals can afford to be oblivious to this calculation of value.
Whether in negotiating employment compensation, the structure of a joint venture, or the terms of a services agreement, a hospital should know what the physician across the table is worth in hospital revenue. Although this is not the only value of the physician to be assessed, and the hospital cannot base its offer on the value of physician business generation, the potential loss or absence of that hospital business is certainly a major factor in calculating what mediators call the hospital's WATNA (worst alternative to a negotiated agreement).
This analysis is complicated, and may yield unexpected results. But failing to do it is like ignoring the size of the pot on the table. You will end up paying too much, or folding on deals the hospital can't afford to lose.
[Image: Hole cards in a game of Texas hold'em, by Thomas van de Weerd, September 2, 2006]
Biography
In addition to providing alternative dispute resolution services, Richard J .Webb practices law as Richard J. Webb, LLC. He has been engaged in the private practice of law in New Jersey since 1978, focusing on the healthcare industry for the last 27 years. Before starting his own firm he was a senior partner in the Healthcare Practice Group of McCarter & English, L.L.P., a regional law firm of over 400 attorneys. Mr. Webb's legal practice is currently limited to serving as outside general counsel to several hospital-health systems. In that role, he handles the full range of operational, transactional and strategic legal issues presented by such organizations.
Mr. Webb is a graduate of Yale University (B.A., cum laude, 1975) and the Duke University School of Law (J.D. 1978). His additional alternative dispute resolution training currently amounts to 193 hours of classroom time, including 60 hours of advanced mediation courses at the Straus Institute for Dispute Resolution at Pepperdine University in Malibu, California. He has received a peer review rating of AV from Martindale-Hubbell, and has been recognized as a New Jersey SuperLawyer in the field of healthcare law.
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