Physicians vs. Administrators: The Value Imbalance

Dear CSS Members and Colleagues:

Enclosed is an article that might be of some interest to all in healthcare and especially in the business of Orthopedics. The final message might be, if you really want to succeed in the business of Orthopedics, get an MBA and go into Management. While that might seem cynical, numbers don’t lie and if accounting is “the language of business” as I was told at Harvard Business School, then the message is clear. We have a problem of incentives in this business.

At my own institution I analyzed 3 years of IRS returns for my hospital and observed the following: When I set an annual income threshold of $750,000 there were 7 physicians in all specialties with a cumulative income of $7.5 million. In comparison there were 22 Hospital executives with a cumulative income of $26 million in annual compensation. Moreover, there appears to me to be a drain of physician seniority and talent from the available pool in this academic institution (though perhaps I’m mistaken). That said, some of my brightest colleagues in Europe work in small academic institutions or private centers, and it appears to me that European AMC’s have suffered due to the economics of their own healthcare environments.

I’m sure this may lead you to think about your own work situation to some degree. Market forces never previously seen will influence the coming socioeconomic transformation of healthcare in the USA. This will include disintermediation of supply chain for services and implants, and more mergers and acquisitions by large hospitals that will reduce competitiveness in the marketplace. In fact, these large hospitals and AMCs can run on a very small margin (even negative) but can reduce competition through their own economies of scale, thus making it difficult for smaller entities (including physician groups) to compete. This is analogous to what Amazon is doing in retail, as they generate enormous revenue but drive relatively small margins. Scott Galloway in his book, “The Four” likens this to Amazon having a large oxygen tank and going under water while everyone else has to hold their breath and follow. When Amazon emerges it will own all retail. It could be the same with the mega-mergers and acquisitions of hospital systems that are driving healthcare. Just food for thought….

We’ll discuss some of this at our next CSS Meeting. I have also attached additional articles on the growing executive-physician wage gap and nonprofit hospital executive pay.

Kind Regards,

“JP” Warner, MD

Founder, CSS