Newly minted physicians feel powerless when they negotiate their salaries for employment at hospital giants.

Nowadays, residents looking for their first job show a marked preference for hospital employment in stark contrast to earlier generations of physicians. The 2017 Merritt Hawkins’ Survey of Final-Year Medical Residents reports that only 9% of physicians in their final year of training prefer independent practice. They like the predictable hours of hospitals for work-life balance, relief from overly burdensome administrative responsibilities, and the perks.

The joy of the first offer, however, will be short-lived if they make mistakes in negotiating their salary—and rue the day for several years thereon.

Negotiate, Negotiate, Negotiate

Negotiation MATTERS far more than most physicians recognize. The disparities in salaries between male and female doctors illustrate the impact bargaining has on earnings. The psychological disposition to negotiate, even something as routine as a counter offer, is of paramount importance in salary determination. The consensus among HR professionals is that women hesitate or can’t bring themselves to negotiate.

Overall, residents underestimate their market value according to the Merritt Hawkins survey. They presume that their lack of experience bounds their earnings overlooking the market determinants of their compensation.

Doctors have leverage—the demand for their services exceeds supply by a wide margin. As many as 50% of residents reported that recruiters reached out to them for 100 or more job opportunities in 2017, a step up from 46% in 2014—the highest since 1991.

The rules of negotiation

The first rule of mastery of salary negotiation—don’t take the hospital’s offer as fait accompli. As a result of successive consolidations, the hospital employer is the only or one of the few options in a region. Even in such markets, telemedicine is a growing employer.

While larger hospitals are less willing to depart from standard packages, they are open to bonuses and higher compensation for night shifts. Accountable Care Organizations are also receptive to relative value units which reward the productivity and quality of physicians’ work.

Secondly, the hospitals’ capacity to compensate is more than what it appears from their profit numbers. The widely quoted figure for profits at hospitals is 3-4%. Hospitals also benefit from subsidies they receive for the unpaid care of the indigent from the local, state, and the federal government, discounted pricing of cancer drugs, etc. Don’t hesitate to ask your employer for the subsidy data while determining your salary expectation.

The salaries of management workers have risen faster than those in clinical functions over the last decade. While the compensation for management workers increased at the rate of 14% per annum, the corresponding rate was 10% for clinical workers. Physicians can make a case for higher salaries by using the compensation for management workers as a comparable.  

Non-profit hospitals are a class by themselves—they earn some of the highest profits which feed the lucrative compensation of their executives. Much of the profit comes from inflated pricing of charity care which is not transparent to employees. Physicians should inquire about how this lucre is distributed between executives and employees when they make their estimates for their salaries.  

No one network is like the other in the way it is compensated for services by insurance companies. Depending on the service quality expected by clients, insurance companies choose the networks, reimbursed at varying rates, for them and the corresponding premiums. Doctors ought to ask for information on the reimbursement rates for hospital services when they make their calculations for their salary.

Conclusion

Physicians have lots of cards to play with in their negotiations with their hospital employers--most of all is their goodwill with patients. They can press their advantage by learning about the business of hospitals, often not transparent to most stakeholders, and extract what is due to them.

Alexander Lakowsky, MD MBA

With more than 14 years of clinical experience in medicine, Dr. Lakowsky is an internal medicine physician running his own private practice in the SF Bay Area, creating a thriving professional medical environment that is advantageous for both doctors and patients.

After seeing a lack of business understanding among medical professionals in the various practice settings in which he worked, Dr. Lakowsky founded Reimbursement Rx to help physicians better understand how they get paid and to teach them how to navigate the complex business side of medicine to maximize quality patient care, compensation, and job satisfaction.