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Physician Recruitment Budgetary Planning: A Case Study
May - June 2001
By Christopher A. Kashnig
Developing an in-house physician recruitment budget can be a daunting task, especially for someone with little budgeting experience or physician recruitment background. Physician recruiters have a wide variety of professional experiences. Many previously worked in a hospital or clinic human resource department where they recruited nurses, technicians, and clerical personnel. Others came from the for-profit recruitment agency sector where budgeting is totally different.
Since every hospital or clinic has its own unique requirements and concerns, this article makes a few basic assumptions to determine an “average” setting. This budget model assumes that the hospital is located in a non-urban area of intermediate population size. (Urban recruiters have the luxury of being located near numerous residency and fellowship programs. Their recruitment costs are likely to be below average. Rural recruiters have their own unique problems related to professional isolation, making recruitment especially difficult and expensive.)
Let’s assume the hospital is located in a city of 150,000 with a service area of 300,000. The department has one full time recruiter and a half time assistant. Also assume the department has been given the assignment of recruiting 14 physicians for a given calender or fiscal year. All recruiters know they will not complete every search. For this exercise, assume the recruiter will complete 10 of the 14 searches. Two positions will not be filled due to extreme difficulty and two others will be canceled due to local hospital political problems.
The budget can be divided into a few major categories:
1. Staff Expenses: The In-House Physician Recruitment Network maintained by ‘Physicians Employment on the Internet’ surveyed 164 recruiters in 2000 and discovered that the average annual salary for a physician recruiter is $54,000. While recruitment assistant salaries vary widely across the nation, many non-urban sites can successfully find a half time assistant for $15,000.
2. Out-of-Pocket Expenses: What does it cost to generate candidates? Recruitment techniques vary greatly by recruiter. However, most people utilize classified ads in professional journals, Internet advertising, mailings, and other tested techniques. Allow $4,500 per search. For the 14 searches, the total is $63,000.
3. Interview Expenses: The costs of airline tickets, car rental, lodging, and meals generally total $1,500 per interview trip. Since a hospital frequently interviews four candidates per search, the total annual interview expenses are $84,000 ($1,500 x 4 x 14).
4. Relocation Expenses: This is another major expense, and one that can vary greatly. Hospitals have different levels of benefit for physician relocation. A limit of $10,000 per move is reasonable. However, some new recruits will relocate short distances so it is only necessary to budget $7,000 per move. For 10 placements budget $70,000 for relocation.
5. Other Expenses: Many recruiters have successfully utilized a database for sourcing or cataloging candidates. These products have proliferated the market in recent years, and a recruiter may want to budget for this. In addition, some recruiters have attended professional trade shows and found them to be helpful in sourcing candidates. Lastly, every recruitment budget should include funds for at least one recruitment search firm fee for that nagging, troublesome search in a difficult specialty.
Budget Figures
Table 1: Physician Recruitment Budget
Primarily Using In-House Recruiters
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Staff
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Recruiter
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$54,000
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Recruiter’s Fringe Benefits (20%)
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$10,800
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Half Time Assistant
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$15,000
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Assistant’s Fringe Benefits (20%)
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$3,000
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Staff Expenses Subtotal:
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$82,800
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Out-of-Pocket Expenses (4,500 x 14)
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$63,000
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Interview Expenses (1,500 x 4 x 14)
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$84,000
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Relocation Expenses (7,000 x 10)
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$70,000
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Database or Trade Shows
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$12,000
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Use of One Recruitment Firm (includes expenses)
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$21,000
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Total Expenses:
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$332,800
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Average Cost per Search:
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$332,800/14 = $23,771
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How does this compare to a hospital budget which utilizes recruitment search firms instead of a physician recruiter? With this approach the hospital still needs the half time assistant to coordinate phone calls, interviews, and relocation of physician candidates. In addition, the hospital still incurs the interview and relocation expenses.
Table 2: Physician Recruitment Budget Utilizing Search Firms Staff
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Staff
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Half Time Assistant
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$15,000
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Assistant’s Fringe Benefits (20%)
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$3,000
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Staff Expenses Subtotal:
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$18,000
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Inteview Expenses (1,500 x 4 x 4)
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$84,000
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Relocation Expenses (7,000 x 10)
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$70,000
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Search Firm Fill Fees (20,000 x 10)
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$200,000
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Search Firm Out-of Pocket Expenses (1,000/month)
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$12,000
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Total Expenses:
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$384,000
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Average Cost per Search Using a Search Firm:
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$384,000/14 = $27,429
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Thus, given the volume of searches for this example, it is less expensive to maintain a physician recruitment staff than to contract the service to an outside agency.
Break-Even Analysis
Hospital administrators frequently want to know at which point it costs the same to maintain a physician recruitment department or outsource the work to a recruitment agency. There is a point where the fixed costs in a hospital department can be allocated over several searches and an economy of scale develops.
If we use the figures from Table 1 and add up the unique and fixed expenses related to the hospital physician recruitment function and divide this number by the average cost per search as calculated by the search firm formula, we will determine an approximate break-even point. Keep in mind that this is not an exact science. (Some of the budget figures were based on the 14 assigned searches, whereas others were based on the 10 completed searches.)
The unique in-house fixed expenses total $160,800. This is the sum of the recruiter’s salary and fringe benefits, out-of-pocket recruitment expenses, database support, trade show attendance, and use of one agency for the tough search (see Table 1). Divide this figure by $27,429. The result is 5,862. Round this number up to 6. This is the approximate break-even point, where it is equally costly to recruit in-house or outsource the recruitment function.
Let’s double check. What are the recruitment costs for six searches under either recruitment scenario? They are almost identical.
Table 3: Break-Even Analysis Based on Six Searches
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Staff
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$82,800
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$18,000
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Staff Expenses
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$36,000
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$36,000
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Interview Expenses (15,000 x 4 x 6)
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$42,000
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$42,000
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Relocation Expenses (7,000 x 6)
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$120,000
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Search Firm Fill Fees
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$27,000
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$6,000
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Search Firm Expenses
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$12,000
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Out-of Pocket Expenses (4,500 x 6)
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$21,000
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Database/Trade Shows
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Use of One Search Firm
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Totals:
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$220,800
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$222,000
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Summary
This analysis of the development of a physician recruitment budget is merely a guide. Each hospital has its own unique issues that may increase or decrease certain line items within the physician recruitment budget. For example, a rural area may have to increase the amount budgeted for travel if it is located in an inaccessible geographical area. On the other hand, a hospital may want to decrease its budgeted amount for relocation if it historically recruits from a nearby urban area. However, the basic format can be adapted to most hospital recruitment programs. In addition, the break-even analysis is helpful if the in-house recruiter function is being evaluated for its cost efficiency.
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