You worked both hard and smart for years and developed a successful practice, let’s say as a cardiac surgeon.
Although the expense of running an office is punishing, you’re actually running a true business and you’ve been able to make significant income. In fact, you’ve been able to make well over $1 million a year in personal income.
But now the hospital approaches you and says that they are building an ACO – won’t you join with them and become an employee of their sponsored foundation or medical group? The pitch in part is that you’ll no longer have to bear the brunt of running a practice and, especially, of paying for those administrative costs, as there is an economy of scale across the entire managed group of physicians.
When it comes time to discuss compensation, you calculate, consistent with the hospital’s pitch, that a share of the administrative cost savings should accrue to you. So, instead of earning $1 million it should be $1 million plus.
The hospital is shocked — or at least that is what they feign. You’re told that even your $1 million is a fluke – that at the 75th percentile of fair market value compensation pursuant to their consultant’s survey, the highest level at which they’ll do a deal, the most they can pay you is in the $700,000 range. After all, they state with claimed moral superiority (and the prospect of banking $300,000 plus of your money), you do want to be compliant, right?
But of course, $700,000 is not as valuable as the million dollars you earned before. In fact, $1 million from the hospital is not as valuable as $1 million from your own practice. That’s because even though you had the responsibilities of running the business you also had the authority of running the business — you were the captain of your own ship. And, the term of an employment contract comes to an end. If and when that employment contract is renewed, compensation tied to so-called fair market value will by definition spiral down as more physicians become employees of entities which are using valuation surveys to set compensation.
It’s a recipe for failure.