Maximizing Financial Rewards of Physician Recruiting

By Michael Broxterman, COO and Nanette Smith, Staff Writer

Investment. Return.

Simple ideas. A balance, really, that every business or organization needs to consider. But is physician recruiting always seen in these terms? Especially when you get caught up in all the other important factors of your search—the various personalities, the expectations, the negotiations? Even if you do manage to keep the “bottom line” in mind, are you sure you have included all the elements on each side of the equation? Before you make your next recruiting decision, you need to make sure you have weighed all the costs—the obvious ones and the hidden ones. Then, to assess your effectiveness, you need to look at the big picture and the long range. Not just the profits but the potential, not just today but a year from today. Below we offer some models and pointers to help you see quickly and reliably the costs and benefits of physician recruiting so you can make the best decisions for your searches and staffing planning.

Cost: Expect the Unexpected.

First, let’s look at the cost side. That’s your investment.

The Big Three

What are the obvious costs?

• Finding physicians
• The recruiting process
• The interviewing expenses

The dollar values will vary generally according to the method of recruiting.

Assumptions in deriving these figures are these:

• Direct mail is used to find physicians and costs from $1.22-$1.49 per piece in quantity.
• It takes about 350 man hours for the recruiting process (MGMA study).
• Interviews cost about $1,500 each.
• Miscellaneous factors go into the total depending upon method, as discussed below.

You’ll notice in the comparison of the three general methods of recruiting, the totals do not vary as much as you might have expected. The most you can probably save between internal and full-service is $10,000 and only $1,000 or $2,000 between contingency and full-service. This is especially true if we factor in some additional, less tangible–or hidden–costs.

The Less-than-Obvious Costs

Here’s where things can get scary, that is, unless you’ve planned for these costs.

• Advertising: A major reason for the wide range in recruitment process costs above, particularly in the “Internal” row, is advertising. It’s just plain expensive. It’s even more expensive when it’s ineffective. For example, to focus on the internal recruiting method, a common problem is that direct mail and ads go to an inadequate pool; so you’d be lucky to hit the first time. Fail at it and you’ll have to do it all over again. That’s your advertising budget x2! Another problem is simply lack of experience with advertising for recruiting. Sure, for your development program, you need that beautiful glossy piece that costs $4 per. But that would probably be overkill, even counterproductive, for recruitment.

• Man Hours: There can be a lot of hidden costs here, particularly with the internal method of recruiting. You might think if your in-house person is already on staff, his/her man-hours are $0. Not so, of course. You pay salary and benefits. If the salary is $50,000 and the 350 man-hours mentioned above are used, that’s $8,400 per recruited doctor. Said another way, that $50,00 per year salary allows your in-house person to recruit from five to eight candidates, tops. In all likelihood, your staff person does a lot more than just setting up interviews and arranging for advertising. So the more time spent on those basic tasks, the greater the “cost” to the other things that need to be done.

• Interview Costs: Another cost that can rise exponentially is the cost of interviewing candidates. The higher the number of candidates you see, the higher the costs, and not only in terms of airfare and hotel suites, but in terms of the man-hours of busy administrators and medical staff getting together however many times. Here’s where the contingency firm is likely to create those hidden costs you won’t see in the chart above. Despite the low up-front investment in sourcing, the contingency firm has a disincentive to keep the number of candidates you see down. The more doctors they send your way, the more likely one will hit. Your in-house person does not have a particular incentive for you to interview few candidates; only the retained/hybrid/full-service firm does have such an incentive. Why? Because it is looking for speed in the recruiting process.

• Turnover: Will your placed doctor be a happy doctor? Obviously, if you get a doctor who is a mismatch and ends up leaving quickly, you’re going to at least double your cost to start again. Even if that doctor stays, there will be costs in struggling to force a fit that’s not ideal. As every employer knows, turnover and personnel problems are expensive. But you can head off such costs in your physician recruiting. Realistic expectations and up-front honesty are key. For example, if you use an outside firm, you’re likely to get an objective representation of the opportunity to give to the physician. An outside recruiter may well be able to see your own strengths and weaknesses better than you. Also, the recruiting firm will want to win your repeat business by being honest with you about physicians. If you go to an outside firm, make sure it is reputable. Investigate its success rates with placed doctors. Consider, using one firm fairly consistently. That way, they know you well; they serve as your advocate; and yet they retain that degree of objectivity I mentioned above.

• Set-up Costs: Although not normally considered a part of the recruitment cost, let’s consider these because they may contribute to your hesitation in moving as quickly as you should in recruiting. Your costs to help the doctor set up practice, plus whatever signing incentives you offer, can be substantial–from $150,000-$200,000. Yet, the cost-benefit ratio is still in your favor, as we will see in the final section of this article.

• The Speed Factor: The final hidden cost we’d like to throw into the mix may be the most overlooked and the most important. It’s this: if you move slowly, you lose more. Intuition might suggest the opposite since it appears you’re saving money on the salary, overhead, income guarantee, and so on, until you hire the doctor. You might think this especially if you’re using a contingency firm, where the up-front cost is typically low. But look at the time it takes from your perceiving the need and your having the doctor, and then consider the revenue not gained in that time. It’s in the speed factor that the retained/hybrid/full-service firm usually does the best because its recruiters are so focused.

Return: Successful recruiting leads to financial gain.

Here’s the good news: Even estimating high in recruiting costs, you’re going to come out ahead when you get that right physician.

• A physician will recover for you the cost of your recruitment and set up in 1-2 years. In other words, he/she will have paid for himself in two years or less.

• Your search fees can be recovered quickly if the physician is in place in two months or sooner.
• Although the range is huge at between $25,000 to $2 million, if that’s the revenue you could get from having a physician in place, does it make sense to leave that place unfilled?
• If you don’t have that physician in place, don’t think you’re treading water at the bottom line. No, you’re actually losing potential income. Every month without him/her equals revenue lost–not only from his/her specialty, but from all the specialties and services that feed into it.

A 2002 MHA Revenue Survey shows the following revenue averages per specialty:

• Cardiovascular surgery $3,134,615
• Neurological surgery $2,364,864
• Vascular surgery $2,216,463
• Cardiology $1,879,870
• Orthopedic Surgery $1,879,870

What’s the Cost of Inaction?

When you consider the costs, it can be daunting to start that process of recruiting a new physician. And when you look at the hidden and subtle costs, it may scare you even more. But, it can’t be overstressed that the cost of NOT recruiting that physician is much higher. If the need is there for a service or specialty, which your hospital is not providing, patients won’t wait forever while you search inexpertly for a physician. They’ll go elsewhere to meet that that need and maybe others as well. In addition, the balance of physicians on your medical staff can be hurt, because referral patterns affect income of physicians and any physician not supported by the proper mix of specialties will go elsewhere. So if the good news doesn’t get you (all that potential revenue gained), the bad news certainly should (the potential for loss).

Bottom line: saving a few thousand dollars up front can kill you if your recruiting techniques are ineffective or slow. Placements can mean millions of dollars in revenue in your facilities. The most effective and aggressive techniques make all the difference.