Make smarter decisions with practice benefit dollars

September 10, 2016

How to build an attractive employee benefit package that doesn’t break the bank.

Attracting excellent employees to a medical practice should be relatively easy, in theory.  Practices can offer better hours and holiday schedules for nurses and other clinical personnel than a hospital, and the work is often seen as less stressful and more stable than a hospital setting for other employees.

As hospitals consolidate into larger organizations, however, they can more cost effectively offer a larger, richer set of benefits, and small practices have to compete with that as they find talent. 

Increasingly, medical practices are having to ramp up benefits offerings to compete for talent, despite having the hours and scheduling advantage, says Forrest “Bo” Olson, CPA, president of Oklahoma City, Oklahoma-based Olson Neaves & Co. 

“Traditionally, medical offices have been able to offer better working conditions and a more relaxed work environment than hospitals, and hospital workers were willing to earn less and have fewer benefits for that,” says Olson. Today, though, he says prospective hires are more reluctant to jump ship if a small practice can’t keep pace. 

Robert Berenson, MD, a board-certified internist and healthcare policy expert with Washington, D.C.-based Urban Institute, says he is sure some staff prefer a smaller, independent practice environment, but such an employer is “finanancially vulnerable.”

Earlier in his career, Berenson worked for 12 years in a group practice.  Small practices’ vulnerability will mean increased perceived job insecurity for their employees, he says, and budgets for staff benefits will have to constrict under continued demands for cost cuts and compliance with new regulations.

Happily, there are exceptions. Deborah Blalock, MD, a solo gastroenterologist in Oklahoma City, Oklahoma, says her practice has grown to the point where she recently decided to hire a second employee. She’s been interviewing candidates, and recently found one she says is excellent, but who told her she needs a retirement plan in order to accept the position.

Rather than bolting to the next resume, Blalock took stock of the financials of her practice, consulted her advisers and decided to offer the candidate-and her current staffer, a valued, longtime employee-401(k) plans. “I feel my practice has grown to the point I can afford to give benefits to attract the type of employee who will represent me and the quality I try to give my patients,” Blalock says.

New regulations

Another challenge: new U.S. Labor Department rules implementing the Fair Labor Standards Act will impact practice owners, says Christine Walters, JD, owner of FiveL, an employee benefits consulting practice located in Westminster, Maryland.

 

Beginning Dec. 1, employees earning below $47,476 a year will be considered non-exempt and must be paid overtime, Walters says. The previous threshold was just $23,660.  The change will hurt small businesses’ ability to offer flex-time benefits, a key retention tool, she says.

Practice owners can respond by bumping pay of workers close to the threshold up to the new exempt status, or by establishing a new mix of regular and overtime pay rates, she says, but many will lose the option of informally compensating longer hours one week with flex-time the next.

Many states also are considering predictive scheduling laws, mandating that employers pay a portion of wages to workers whose shifts are canceled due to low business volume or customer cancellations, she says. Those dollars also take away from an employer’s ability to provide flex-time.

 

Retirement plans

Many small practices have retirement plans known as Simplified Employee Pension–Individual Retirement Accounts (SEP-IRAs), he says, but those typically use at least a three-year schedule for qualifying for the plan, which often virtually eliminates most lower-paid medical office staffers.

“Most medical office employees don’t last three years,” Olson, who advises Blalock, says, and if they do, the funding requirements are often prohibitive. “My suggestion was to go ahead and establish a 401(k) plan for both workers.” The cost for small practices is about $1,500 to establish the plan, another $1,500 a year in maintenance costs, plus whatever matching funds are given to employees annually, he says. 

Plan costs vary widely depending on the provider and number of employees, but generally 401(k) plan costs have been falling in recent years, experts say, so offering retirement benefits as a way to retain good staff is becoming a bit easier.

A lot of medical practices today are using so-called “safe-harbor” 401(k) plans, says Eric Droblyen, CPC, president and chief executive of Mobile, Alabama-based Employee Fiduciary, a company that provides plans to small and mid-sized companies. Under those plans, practices can choose to offer a retirement-plan match of 4% of salary to employees who make their own contributions into the plan.

Alternatively, they can give a 3% match to all employees along with a New Comparability Plan, a type of profit-sharing plan that allows large contributions from practice owners nearing retirement while still providing benefits to lower-level employees.  Contribution limits in the plans are based on the projected level of benefits they will generate in retirement, allowing for smaller contributions from younger staffers because they have decades for the benefits to accumulate.

 

Health benefits

Getting the right practice model in place also affects the quality and quantity of benefits that can be offered, says Clint Flanagan, MD, a primary care practitioner in a five-physician group in the Boulder, Colorado, area. In addition to the group’s traditional fee-for-service practice, Flanagan founded a membership-based direct primary care practice about six years ago, Nextera Healthcare. Nextera, a separate business, has about 20 affiliated providers in Colorado.

 

For his roughly 15 employees, Flanagan offers company-paid membership in Nextera for primary care, and offers a high-deductible health plan alongside that benefit. There’s also a 401(k) plan with an employer-paid match, vacation pay, bonuses for top performers and occasional social events to keep up morale, he says.

 

Ask Staff

Offering the direct-pay service to patients and other employers has resulted in enough growth to cover the costs associated with the more generous benefits, Flanagan says. In addition, he routinely queries staff members and monitors usage of the practice benefits to make sure employees are actually using them.

For some employees, paid time off might be more valuable than health insurance, for example. Get employee feedback on priorities through focus groups and exit interviews, he recommends.

That’s a key component of good benefit plan design, says Lenny Sanicola, CCP, spokesman for World at Work, a human resources association with offices in Scotsdale, Arizona, and Washington, D.C. Think about what kind of employees you are drawing when the “help wanted” signs are posted, he says. Depending on the demographic, they might actually prefer part-time work to full time. Or they may already have healtlh coverage through a spouse’s workplace.

 

Non-traditional perks

Small practices can also use their size to an advantage when it comes to certain benefits. Smaller employers might not be able to compete in the core benefits like 401(k) plans and insurance, but they often have the flexibility to offer spot incentives to recognize excellent work, Sanicola says.

“Appreciation and recognition is very important to some people,” even if the actual dollar amount is small, he says. Other ways to stand out, he says, include offering low-cost benefits that are essentially discounts on services.  Homeowners insurance at group rates, pet insurance and identity theft protection are all examples, he says.

 

Even just bringing in free breakfast once a week for staff members can go a long way toward making employees feel more invested at work, he says.  Those personal touches can stand out in markets where so many employers are offering standard benefit packages that they become commoditized, Sanicola says.

When in doubt, Flex

Workplace flexibility, letting employees have as much control over their schedules as possible as long as they get the job done, is a key challenge, says Walters. “Employers are spending a lot of time on this question of how much leave they can offer,” she says. What used to be standard five to seven days of paid holidays, for example, might now be seven personal days for employees and letting them decide when to take them.

To balance that flexibility with the realities of scheduling a medical office, more employers are giving their employees the responsibility of finding someone to cover the shifts they want off, she says.

 

Communicate

Once physicians decide on a level of benefits for their staff, many make the mistake of not articulating those benefits appropriately, says Ted Williams, JD, co-principal of The Williams Group, a human resources management firm in Des Moines, Iowa.

“You have to look at benefits as part of total compensation,” he says. “I’ve seen people leave their employers for a supposed raise, but if they factor in benefits they are actually taking a pay cut because their employer didn’t know how to fully explain their current package.”

Expressing benefits-even mandated ones like worker’s compensation and unemployment benefits-in actual dollar terms helps make that clear, Williams says.

 

 

Keep costs in check

Also, keep the general hiring climate in mind for your location, he says. Generally, workplaces in states without traditionally heavy union representation have lower benefit levels, for example, so there may be more room to incentivize workers, he says.

And to help keep an eye on total costs, consider capping the amount of unused sick time employees can bank, he says. He suggests alerting employees upfront that no more than two weeks can be saved. 

Customizing benefits to your specific practice is the best way to save money and maximize impact, he says. He believes a lot of small practices miss opportunities to leverage data, from informal conversations to staff polling that can quickly highlight what’s important to staff. “I don’t see employers paying attention to their demographics so they can recruit and retain, and budget in a way that gets them the biggest bang for the money spent on benefits,” he says.

Another common mistake: Failing to negotiate health benefits. “They just go lock-step and don’t negotiate with carriers, allowing carriers to dictate the offering,” he says. “We take the position that carriers are there to serve us and we will shop them, so don’t just present us with a 5% premium increase with an attitude of take it or leave it.”

Even if you’re shopping for benefits on your own, at least consult with other physicians to get a sense of what’s being offered, he says. “I encourage clients to exchange a lot of information with peers. I’m not sure physicians appreciate how much leverage they have as a group.”