Radiology Income Distribution: From Salary to Independent Practice to Megapractice

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A CPA offers his perspective on the past and future of radiologist compensation, based on 30 years on the business side of radiology

Hospital-based physicians (radiologists, anesthesiologists, and pathologists) were either compensated as salaried employees or were members of unincorporated entities paid by the hospital well into the 1960s. Historically, the role of radiologists in the delivery of care included departmental administrative oversight (Medicare Part A hospital services) and direct patient care (Part B physician services). Hospitals required completion of time reports that distinguished between the two roles in order to receive compensation for Part A and Part B costs that came out of different insurance-trust or risk pools.

1960s and 1970s

Two events hastened the transition to completely independent practice. First, legislation was passed that allowed licensed professionals to incorporate, thus availing themselves of the significant tax benefits for employees of these entities. Second, the Health Care Financing Administration (HCFA) approved separation of fees for the technical and professional components of radiography for radiologists at Massachusetts General Hospital, Boston.

The first transition changed mindsets. Radiologists began to negotiate formula-based compensation arrangements, similar to a separate fee, in which monthly payments were made to their corporate entities. They determined their own compensation/benefit structures and began to view themselves as independent of the hospitals, much as office-based primary care and specialist physicians were. They still depended on the hospital as the income source, however. This changed with the advent of separate billing, in which a fee per procedure was established for direct patient care

The initial responses from hospitals were mixed. Some immediately required the physicians to transition to collecting a separate fee because they believed that it was possible to gain payor income, through arbitrage, that exceeded the fees paid to radiologists. Most continued to pay an administrative stipend, believing that the payors had carefully structured the separate fees to cover only direct patient care.

Those hospitals expected the physicians to help govern the departments, and felt that they needed to pay for this time commitment. The remaining hospitals initially resisted the change because they felt that a hospital-based income system gave them control over the physicians’ coverage responsibilities. The fee-for-service system was so profitable, however, that groups tied to the hospital system could not compete in recruiting new candidates.

Part A payments disappeared when hospitals determined that there was no earmarking of independent fees for the hospital-based systems. HCFA originally set the reading fee at 40% of global payments to freestanding imaging centers. In all cases, this was well above the aggregate amounts paid under the hospital formulae, and this triggered dramatic growth in the individual incomes of radiologists nationwide. By the end of the 1970s, the average compensation package of a senior practice member was in the top 15% of all specialists.

It took about two years for payors to realize that these fees caused significant increases in cost for interpretations. They made numerous modifications in both the method and extent of payments; however, during this transition stage, new technologies also increased caseloads. Payors did not understand the caseload that a full-time radiologist could handle.

There is more than one generalization to be made about how groups structured their compensation plans after the transition phase ended in the mid-1970s. First, groups covering health care systems with relatively unfavorable payor mixes tended to have higher caseloads per FTE, but lower compensation packages (wages plus benefits). These practices still experienced gains in relative income, but not enough to change staffing patterns.

Second, groups covering systems with favorable payor mixes experienced very large increases in income. Initially, they kept staffing levels the same. This was followed by the decision to increase time off; radiologists have the most generous vacation packages in health care. This made productivity measurement difficult because the definition of FTE was a moving target. Third, income distribution was predominantly equal among senior members, regardless of the payor mix.

1980s, 1990s, and Beyond

The

Reference
1. Moorefield JM, MacEwan DW, Sunshine JH. The radiology relative value scale: its development and implications. Radiology. 1993;187:317-326.