Developing need estimates for physicians has a high degree of subjectivity to it. When developing a business plan for a practice, whether for internal use of for a loan, I look at the area demographics and then construct a model for the number of physicians “needed” for the particular population. There is, admittedly, a degree of softness to this process, but it does give the physician(s) and potential lenders important information for their respective decision-making.
Several years ago, there were predictions of a physician surplus in the US. Today, however, there is a shortage developing in many areas. An article in US News and World Report tells us that key drivers of physician demand include the growing senior population, people living longer with chronic conditions, and the rapid increase in medical technology and capabilities. Imaging services are a good example, as MRI scans have supplanted other scans that, although cheaper, do not offer the same degree of “visibility” that MRI scans offer. As MRI units have dropped in price and the number of installations has spread, the cost to consumers and insurers has dropped as well.
The article also noted the demand for advanced practice nurses, including nurse anesthetists, nurse practitioners and so on. Practices often find that nurse practitioners do a very good job and engender high patient satisfaction, particularly for chronic and less complex situations.
The Health Workforce Personnel Factbook presents historic physician to population ratios. This data is a good starting point. The DHHS Bureau of Health Professions’ 2005 report suggest large increases in need for physicians, particularly in general medicine and certain specialties.
Increasing demand, however, is balanced against the output from US medical schools and immigration. The US News article reports that physicians coming out of residency programs are in high demand, reporting high numbers of offers and jumps in compensation offers. It’s this last point that concerns me: we’ve already seen what happens to new lawyers, as salaries keep jumping. Lawyers, however, can perform billable work without any support staff present – physicians generally don’t. Law firms have raised the number of billable hours required of the junior associates to 2,200 hours to compensate for the jumps in salaries. Physicians, however, work under price controls, which limits the ability to raise revenue. This is where the PAs and NPs (nurse practitioners) come in – you pay them a salary, you carry the overhead, and there is still room to earn some profit. Overhead, by the way, is largely fixed, so the additional cost of an additional provider is smaller than your current average cost per provider. (I use the term “provider” only as a generic term for anyone who can provide direct care and bill for it). Always build a financial projection for at least three years for the new provider, allowing them to pick up some of the existing patient load immediately, and to build up from there.
So – as you plan for your future, look at bringing on PAs and NPs in lieu of a physician, or in addition to a physician. Now is really the time to start planning to recruit for a July, 2007 start. By fall – only 6 months away – the recruitment season will be getting into gear. You are facing a very competitive environment, so be prepared to offer some sweeteners to the deal. Moving expenses are a must, but do use any discounts (such as from MGMA) so you will not be paying retail rates – you should save 30-40% at a minimum. A signing bonus and/or salary advance helps tide over the cash needs of the first few weeks. Talk to recruits about how you will promote them so that they will build a practice. Offering a bonus based upon measurable productivity (collections works, RVUs can work) as well – if they exceed targets, share some of the profit with them. Finally, sell your community – this is for the long haul, so they will be looking for all the things you want in a community as well.