According to the most recent Health Tracking Physician Survey, published in September by the Center for Studying Health System Change, there's a decided trend toward physicians abandoning independent practice and opting to be salaried employees of a hospital or health system instead. When weighing the pros and cons of such a move, physicians must carefully examine retirement and tax implications.

 

"Clearly, we are seeing much more integration between the independent medical staff and the health systems and the hospitals," Anthony D'Eredita, senior vice president at Nashville-based Southwind Health Partners, said. Physicians are drawn to the model by several lures, including consistent compensation and an improved lifestyle based on the promise of more structured hours. Yet, be aware — benefit packages vary, particularly with regard to pension and retirement plans and how income is deferred into those plans. Take a measured look at those differences, D'Eredita advised, particularly when compared to plans typically used by independent physicians.

 

The professionals at Southwind, founded 11 years ago, are in a position to appreciate the changes a physician accepts when he or she makes the transition to hospital-employed status. "We sit right at the intersection between hospitals and physicians, and we bring them together in all different types of structures,"

 

D'Eredita said. He added that the idea is not just for hospitals to employ doctors, but to "truly integrate them into the system so the business starts to look much more seamless. ... We're designing the structures to make that happen and actually, in a lot of cases, are on the ground making it happen as interim operators in those systems."

 

When it comes to hospital-offered benefits, physicians typically see a combination of two pension plans. As an example and since Southwind specializes in serving non-profit institutions, D'Eredita explained the combination of the 403(b) and 457(b) plans offered to physicians by many tax-exempt hospitals, health systems and academic medical centers.

 

First there's the 403(b) offered all employees, which typically features an institutional match. For 2009, employees may contribute $16,500, which is up $1,000 from last year. The 457(b) offers a similar opportunity – another $16,500 deferment. Both plans offer a "catch-up provision" for physicians who are over 50, allowing a maximum $5,500 additional contribution tax-free. "When you look at the plans, depending upon the physician's age and taking into the account the IRS allowance for contribution plus the system's matching or profit sharing, you typically see something that approaches $40,000 to $45,000 in pension opportunity," D'Eredita said. "That's comparable to what most of the docs are doing now in private practice, so they're able to maintain some consistent contribution level."

 

He then added a word of warning about the 457s. "They're just not as secure as a 401(k). Some of those plans carry some risk associated with the financial solvency of the institution so some of that contribution into a 457 could be at risk. They should understand what, if any, risks are surrounding that 457 that are different than the other programs."

 

Giving up some version of self-employed status has other tax implications, too, including what D'Eredita called loss of some "flexibility" – an automobile allowance or writing off continuing medical education.

 

In offering other tips to physicians making the move to a hospital, he recommended that they pay close attention to their new employer's vesting schedule (four or five years is common), and investigate whether they can get credit for prior years served with an existing practice. Yet another consideration when it comes to a physician's bottom line is malpractice insurance. Some doctors may have professional liability policies that are a little more favorable than the hospital's – and they may elect to hold onto that policy and pay for it out-of-pocket. They may also be successful in negotiating the continuance of their existing policy at the hospital's expense.

 

D'Eredita said that, when evaluating whether to make the move to employee status, physicians should consider two top measures:

"I truly believe that because now they're partnered in that health system, they have the better opportunity to negotiate and preserve their reimbursement rate in the market," D'Eredita said. It's one thing for five physicians to negotiate with BlueCross BlueShield of Tennessee and quite another thing for an entire health system to be at the bargaining table, he explained. While he acknowledged the reimbursement does go to the hospital, it's that reimbursement "that's still underlying and providing the financial basis for the physicians' comp. That's still what drives the economics of the business."

 

From the perspective of a hospital or a health system, physician employment is a wise business move. "When the core business is dependent upon a fragmented collection of independent businesses which range in size from 10 physicians or even less, that tends to look, in a difficult environment like ours today, like an insecure future," he said.