I recently spoke with a colleague who was seeking some advice regarding their upcoming contract re-negotiation. We spoke about their value as a physician and what they planned to negotiate — but I also mentioned that one point in their favor is that the high cost of physician turnover means health care systems would rather keep their employees than hire new ones.
When I said this, my colleague was shocked. Why would physician turnover cost a lot? And what makes up these costs? Was this actually enough to make health care systems and physician employers keep their current doctors around, even when they ask for raises?
Let’s examine.
Multiple studies have calculated the estimated cost of replacing a single physician within a health care system. One range that comes up is $250,000 to $1 million. However, these are estimates that are often based on studies of primary care physicians.
Other studies show that, regardless of specialty, the cost of replacing a physician is two to three times that physician’s annual salary. That’s a huge amount!
This means that if your employer gets you to stay, they just pay your salary. But if they don’t, they have to pay double or triple your salary. That’s a pretty big incentive to keep you happy … even when you’re asking for a pesky raise!
Now, we’ve been focusing on the cost of physician turnover at the individual level. If you take a broader, systems-based view, the cost of replacing physicians for a practice or health care system is even more extreme!
How do we know this? Well, the AMA provides a calculator for practices to calculate the financial cost of burnout in their organization. One huge component of these costs is physician turnover. The calculator estimates how many physicians will leave in how many years and the cost of that exodus. As an example, imagine 60ish physicians leave a major health care organization within two years (a not unreasonable assumption). That would cost the organization a median of $30-40 million!
If you click here, you’ll find an example of this calculation using average numbers across the American health care landscape. You can see that on average in the U.S., each health care organization is losing ~$5 million due to physician turnover! And since that’s just burnout-related turnover, the actual cost is likely higher. Again: massive incentive for organizations to prioritize physician well-being.
Now, what makes up the enormous cost of physician turnover?
Physician recruitment: It costs a lot to find and hire new physicians. This includes advertising, travel costs for interviews, and recruiters if utilized.
Signing bonuses: Signing bonuses are a large lump sum, one-time cost of an employer for new doctor hires. When you keep a physician with a new contract, you usually don’t pay a signing bonus. But a new hire does need one. So, higher cost for a new doctor.
Onboarding costs: Materials and labor of getting the new physician on staff — things like making sure they are registered for insurances, training, etc. Not needed for the physician that stays but needed for every new one.
Lost billings: This is where maybe the largest chunk of the cost comes from. Whenever there is physician turnover, there are massive lost billings and payments for the employer, for reasons like:
1) When a physician leaves, they no longer are seeing patients and generating compensation for the practice. And no one else is until another doctor is hired, which takes time.
2) When a new physician is hired, it takes time for them to build up their practice, usually in the range of two years. During that time, billings are down.
3) The physician who leaves will likely have some patients follow them and never return. Those are lost billings in perpetuity.
4) Lastly, when a younger, less experienced physician replaces a more senior physician, there is loss of efficiency and expertise in practice. This also results in lost billings and profit for the practice.
And finally …
Future burnout: An organization or practice that loses physicians and experiences high turnover does not prioritize doctor well-being.
And it is unlikely that this will change in the future for such an organization. As a result, these places stand at greater risk of having more burnout, which will result in lost income and increased costs for their physicians who remain in the practice due to lower productivity. These places will also continue to experience higher turnover and increased costs to replace a higher number of physicians. It’s a vicious cycle.
So, why does this matter? It matters to doctors because it demonstrates just how much we do matter.
It is way too often that I hear physicians say they are sticking to a job they don’t like or that doesn’t value them because they feel like just another cog in the wheel. If they leave, they will just be a cog in another wheel. And if they ask to improve their situation, their practice will just get rid of them or refuse. Because they could always just find another interchangeable cog.
I’ll admit, it can be easy to feel this way. Because that is often the way we are made to feel. But it is not the reality! And you can see that illustrated in real numbers here. It is not to the health care organization’s benefit that you know just how difficult and expensive it is to replace you. But it is to your benefit.
Knowing this should empower you. The possibility of leaving gives you real leverage in any negotiation. Because it will hurt the employer where they feel it most … their wallet. So, you have the power to ask for what you want and to negotiate in good faith to create a working situation that is mutually beneficial.
It’s time to put this knowledge to use. If you are not happy with your current work situation, think of what would need to happen for you to be happy. And then meet with your organization or practice to make it so. Or, if you are happy currently, make sure that you are being paid your fair share — and don’t hesitate to ask for more if you deserve more. The massive cost of physician turnover is on your side. I’d also recommend demonstrating to your practice all of the things that you can do that other doctors can’t that further shows your value.
What you don’t want to do is go in waving this information in your practice manager’s face. Negotiate in good faith. But they have to do the same thing. So don’t let them make you think you are a cog. You aren’t.
How did your last contract negotiation go? Share your experience in the comments!
Jordan Frey, MD is a plastic surgeon in Buffalo, NY at Erie County Medical Center and the University of Buffalo. His clinical focus is on breast reconstruction and complex microsurgery. He is also the founder of The Prudent Plastic Surgeon, one of the fastest growing finance blogs. There, he shares his journey to financial well-being with a goal of helping all physicians reach financial freedom, practicing on their own terms.
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