The ROI of Physician Recruitment & Retention: The Understated Truth

The return on investment (ROI) for combatting physician turnover and improving physician recruitment and retention isn’t just good—it’s surprisingly impressive. Let’s dive into how you can calculate yours.

In a recent conversation with Dr. Paul DeChant, former CEO of Sutter Gould Medical Foundation in California and an expert on organizational resilience and clinician burnout, the discussion turned to the cost of burnout and resulting turnover. It struck me that I had never quantified these costs or considered the potential ROI of investing in retention. This led me to wonder about the ROI of physician recruitment programs as well. The results? Truly astonishing!

Methodology

Average Net Revenue per Physician

To calculate ROI for both physician recruitment and retention, start by consulting your Chief Financial Officer to determine the average net revenue generated by each physician in your organization. This figure should encompass both net inpatient and outpatient revenue derived from hospital admissions, tests, treatments, prescriptions, and procedures performed or ordered by physicians. (This is also referred to as “total downstream revenue”) Note: It’s important to also consider net margin but for this exercise we focused on global net revenues.

According to a survey conducted by Merritt Hawkins, the average net revenue per physician across all specialties is $2,400,000. Source: Merritt Hawkins CFO Survey

Average Cost Per Physician Hire

I conducted a survey through my LinkedIn network to gather data on the comprehensive cost per physician hire, including recruitment expenses, benefits, marketing, relocation costs and recruitment incentives. The weighted average from the responses was $50,300 per hire. You’ll need your specific cost per hire for your ROI calculations.

Time-to-Fill

For retention ROI calculations, you’ll need your organization’s average time-to-fill for physician positions. This metric helps determine the lost revenue during recruitment, relocation, and onboarding periods.

The Formulas and Results

Physician Retention ROI

Retention Revenue = ($2,400,000/12 months) * 8 months (time-to-fill)

Total Retention Revenue Opportunity = $1,600,000

Retention Cost = (average annual salary + benefits)/12 months * 8 months

Total Retention Cost = $400,000/12 months * 8 months = $266,666

Substitute your organization’s average physician salary + benefits.

The ROI is calculated as $1,600,000/$266,000 = times 100 (to get the ROI as a percent) or 600%.

This means for every dollar spent on retention efforts (on average), you’ll get back $6. Quite impressive!

Note: The $400K is the cost of salary + benefits. Therefore, by maintaining the status quo and keeping physicians on the job, the organization receives $6 in net revenue for every dollar spent on salary & benefits. What’s not captured is when a physician leaves, the status quo is disrupted, and the organization is now losing $200K a month in revenues. Unrealized revenues do not show up in a balance sheet or income statement. That negative impact is often invisible to leadership, but represents significant opportunity to improve financial performance. This also does not take into account the increase in turnover that often happens when one physician leaves creating a domino effect causing others to question their own situation which results in additional physicians and other staff to depart.

Physician Recruitment ROI

Net Financial Gain per Recruited Physician = $2,400,000/12 X 8 months = $1,600,000

Total Recruitment Costs = $50,300

Recruitment ROI = ($1,600,000/$50,300) * 100 (to get the ROI as a percent) or 3,180.91%

This implies that for every dollar spent on physician recruitment activities, you’ll gain $31.80. Truly remarkable!

Note: Remember, relocation and on-boarding time can add months to the overall turnaround. If you hire graduating residents and fellows, they often sign 6 months to a year before graduating, relocating, on-boarding etc.

Summary:

Yes, the ROI on both retention and recruitment efforts is significant but what do you do with the information? Share it!

Once you plug in your specific numbers so the results accurately reflect your organization, We highly encourage you to create a presentation for your system leaders touting the benefits of investing in your recruitment and retention efforts. This is great information and shouldn’t be kept secret. It creates value and respect for the job that recruiters and recruitment leaders do and the positive impact they have on your organization.

For any questions or comments, feel free to reach out to Kurt at [email protected] or Dr. DeChant at [email protected]. We’re eager to hear about your findings too. Please share!