2014 REVIEW OF PHYSICIAN AND ADVANCED PRACTITIONER RECRUITING INCENTIVES

2014 REVIEW OF PHYSICIAN AND ADVANCED PRACTITIONER RECRUITING INCENTIVES An Overview of the Salaries, Bonuses, and Other Incentives Customarily Used to Recruit Physicians, Physician Assistants and Nurse Practitioners 2014 Merritt Hawkins 5001 Statesman Drive Irving, Texas 75063 (800) 876-0500 merritthawkins.com

REVIEW 2014 OF PHYSICIAN AND ADVANCED PRACTITIONER RECRUITING INCENTIVES An Overview of the Salaries, Bonuses, and Other Incentives Customarily Used to Recruit Physicians, Physician Assistants and Nurse Practitioners Overview Key Findings Merritt Hawkins 2014 Review of Physician and Advanced Practitioner Recruiting Incentives: Recruiting Assignment Characteristics and Metrics Trends and Observations Summary 2 3 5 15 38 1994-2014 For additional information about this survey contact: Phillip Miller (800) 876-0500 phil.miller@amnhealthcare.com 5001 Statesman Drive Irving, Texas 75063 MerrittHawkins.com

Overview The 2014 Review is based on the 3,158 permanent physician and advanced practitioner search assignments that Merritt Hawkins and AMN Healthcare s sister physician staffing companies (Kendal & Davis and Staff Care) had ongoing or were engaged to conduct during the 12-month period from April 1, 2013, to March 31, 2014. Merritt Hawkins is a national healthcare search and consulting firm specializing in the recruitment of physicians in all medical specialties and other advanced practice clinicians. Now celebrating its 27th year of service to the healthcare industry, Merritt Hawkins is a company of AMN Healthcare (NYSE: AHS), the nation s largest healthcare staffing organization and the industry innovator of healthcare workforce solutions. This report marks Merritt Hawkins 21st annual Review of the search and consulting assignments the firm conducts on behalf of its clients. Merritt Hawkins Review is the longest consecutively published and most comprehensive report on physician recruiting incentives in the industry. The Review is part of Merritt Hawkins ongoing thought leadership efforts, which include surveys and white papers conducted for Merritt Hawkins proprietary use, and surveys and white papers Merritt Hawkins has completed on behalf of prominent third parties, including The Physicians Foundation, the Indian Health Service, Trinity University, Texas Hospital Trustees, and a Subcommittee of the Congress of the United States. The intent of the Review is to quantify financial and other incentives offered by our clients to physician and advanced practitioner candidates during the course of recruitment. Incentives cited in the Review are based on formal contracts or incentive packages used by hospitals, medical groups and other facilities in real-world recruiting assignments. Unlike other surveys, Merritt Hawkins Review of Physician and Advanced Practitioner Recruiting Incentives tracks starting salaries and other perquisites, rather than total annual compensation. It therefore reflects the incentives physicians and advanced practitioners are offered in the recruiting process, rather than total average compensation. The range of incentives detailed in the Review may be used as a benchmark for evaluating which recruitment incentives are customary and competitive in today s physician recruiting market. In addition, the Review is based on a national sample of search assignments and provides an indication of which medical specialties are currently in the greatest demand and the types of medical settings into which physicians and advanced practitioners are being recruited. 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 2

Key Findings Merritt Hawkins 2014 Review of Physician and Advanced Practitioner Recruiting Incentives reveals a number of trends within the physician and advanced practitioner recruiting market, including: Family Physicians For the eighth consecutive year, family physicians were number one on the list of Merritt Hawkins most requested recruiting assignments. General internists were second on the list, also for the eighth consecutive year, highlighting the continued nationwide demand for primary care physicians Combined, advanced practitioners, including physician assistants (PAs) and nurse practitioners (NPs), were fifth on the list of Merritt Hawkins most requested recruiting assignments, though neither were in the top 20 three years ago. The number of search assignments Merritt Hawkins conducted for PAs and NPs increased 320% over the last three years, underscoring the emerging shortage of these professionals. NPs PAs Demand also remains strong for physicians providing inpatient care. After family physicians and general internists, hospitalists ranked third among Merritt Hawkins top 20 search assignments. Lack of resources and diminished interest in inpatient psychiatry continues to stoke a staffing crisis in behavioral health. Psychiatrists were fourth on the list of Merritt Hawkins most requested search assignments, highlighting the ongoing critical shortage of physicians specializing in behavioral care. The decline of physician private practice continues. Fewer than 10% of Merritt Hawkins search assignments were for settings featuring private practice, compared to over 45% in 2004. 64% of Merritt Hawkins search assignments were for hospital-employed settings, while solo practice, which represented 20% of Merritt Hawkins search assignment settings in 2004, represented less than 1% of Merritt Hawkins assignments in the period covered by this Review. <10% 45% 3 2014 Review of Physician and Advanced Practitioner Recruiting Incentives

Concierge practice appears to be gaining momentum. Though only 1% of Merritt Hawkins search assignments were for concierge practice last year, two to three years ago Merritt Hawkins received virtually no requests to recruit into concierge settings. 1% A proliferating number of sites of service, including free-standing emergency departments, community health centers, retail clinics, and urgent care centers, are recruiting physicians, a sign that healthcare providers have adopted a strategy predicated on being everywhere, all the time. Like hospitals, these facilities also are employing physicians. Relative Value Units (RVUs) continue to be the most frequently utilized volume-based production incentive and were featured in 59% of Merritt Hawkins recruiting assignments in which a production bonus was part of the incentive package, up from 57% last year. Demand for physicians is not confined to traditionally underserved rural areas. Merritt Hawkins worked in all 50 states in, and 41% of the firm s search assignments took place in communities of 100,000 people or more. The use of quality/value-based physician incentives took a step back last year. Only 24% of Merritt Hawkins recruiting assignments featured production bonuses in which at least part of the bonus was based on quality/value metrics, down from 39% last year, signaling the difficulty many healthcare organizations are experiencing transitioning from volume-based incentives to quality/ value-based incentives. 24% 39% 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 4

Merritt Hawkins 2014 Review of Physician and Advanced Practitioner Recruiting Incentives: Recruiting Assignment Characteristics and Metrics (All of the following numbers are rounded to the nearest full digit.) 1 Total Number of Physician/Advanced Practitioner Search Assignments Represented The Review is based on the 3,158 permanent physician and advanced practitioner search assignments Merritt Hawkins/AMN Healthcare s physician staffing companies had ongoing or were engaged to conduct during the 12 month period from April 1, 2013 to March 31, 2014. 2 Practice Settings of Physician and Advanced Practitioner Search Assignments Hospital Group Solo Partnership Association Community HC/IHS Academics Concierge Other (493) 16% (29) 1% (94) 3% (28) 1% (305) 10% (153) 5% (20) 1% (1,975) 64% (2,006) 64% Hospital Group Solo Partnership Association Community HC/IHS Academics Concierge (436) 16% (28) 1% (220) 8% (29) 1% (152) 6% Other (135) 5% (1,710) 63% Hospital Group Solo Partnership Association Community HC/IHS Academics Concierge Other (505) 19% (54) 2% (344) 13% (82) 3% (187) 7% (1,495) 56% 5 2014 Review of Physician and Advanced Practitioner Recruiting Incentives

If Academic Medicine, what type of position?* (Of 188 Academic searches) Research Administration/ Leadership Teaching Clinical 38 (20%) 41 (22%) 26 (14%) 128 (68%) *Some Academic positions combine teaching, clinical and other roles, so the percentages exceed more than 100. If Partnership, time to partnership eligibility (of 93 searches offering partnership) Immediate / One Year 33 (36%) 29 (32%) 74 (34%) 158 (46%) Two Years Three Years Four Years Five Years 58 (62%) 54 (57%) 117 (53%) 158 (46%) 0 (0%) 6 (6%) 27 (12%) 23 (7%) 0 (0%) 4 (4%) 2 (1%) 0 (0%) 2 (2%) 1 (1%) 0 (0%) 3 (<1%) 3 50 States Where Search Assignments Were Conducted AK, AL, AR, AZ, CA, CO, CT, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MO, MN, MS, MT, NC, ND, NE, NH, NJ, NM, NY, NV, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY 4 Number of Searches by Community Size (1,044) 33% (819) 26% (1,295) 41% (804) 26% (775) 25% (1,518) 49% (1,001) 37% (784) 29% (925) 34% 0 25,000 25,000 100,000 100,000 + (588) 22% (906) 34% (1,173) 44% (730) 26% (901) 32% (1,182) 42% 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 6

5 Top 20 Most Requested Searches by Medical Specialty Family Medicine (includes FP/OB) 714 624 631 532 375 Internal Medicine 235 194 235 295 246 Hospitalist 231 178 155 160 124 Psychiatry 206 168 168 133 179 Nurse Practitioner 128 69 23 Pediatrics 92 87 70 64 84 Emergency Medicine 89 111 106 92 116 OB/GYN 70 77 81 80 69 Physician Assistant 61 50 22 Neurology 61 71 41 79 49 General Surgery 58 74 130 69 61 Orthopedic Surgery 58 57 105 104 88 Gastroenterology 54 37 51 32 41 Hematology/Oncology 50 45 53 35 21 Otolaryngology 32 40 40 31 32 Cardiology 32 38 46 26 58 Urology 29 26 57 56 44 Neurosurgery 20 23 12 7 11 Pulmonology 18 24 68 32 32 Endocrinology 17 22 16 14 18 7 2014 Review of Physician and Advanced Practitioner Recruiting Incentives

6 7 Other Clinical Specialty Recruitment Assignments Addiction Medicine Allergy & Immunology Anesthesiology Anesthesiology/Pain Management Bariatric Surgery Bone Marrow Transplant Breast Surgery Certified Registered Nurse Anesthetist Chief of Community Medicine Clinical Genetics Clinical Lab Scientist Colon & Rectal Surgery Facial Plastic Surgery/ENT Genitourinary Gynecological Oncology Gynecology Hospice-Palliative Medicine Infectious Disease Intensivist Internal Medicine/Pediatrics Maternal Fetal Medicine Medical Director Medical Humanities MOHS Surgery Molecular Research Neonatology Nephrology Nuclear Medicine Obstetrics Occupational Medicine Ophthalmology Oral & Maxiofacial Surgery Pain Management Pathology Pediatric Anesthesiology Pediatric Cardiology Pediatric Emergency Medicine Pediatric Endocrinology Pediatric Gastroenterology Pediatric Ophthalmology Pediatric Physiatry Pediatric Pulmonology Pediatric Surgery Pediatric, Development-Behavioral Administrative, Academic and Executive Titles Include: Dean, College of Medicine Dean, College of Public Health and Human Professions Dean, College of Pharmacy Dean, College of Public Health Dean, College of Nursing Dean of Dentistry Chair, Department of Internal Medicine Chair, Department of Cardiology Chair, Department of Anesthesiology Chair, Department of Family Medicine Chair, Department of Surgery Chair, Department of Orthopedic Surgery Chair, Department of Pediatrics Chair, Department of PMFR Chair, Department of Neurology Chair, Department of Gastroenterology Chair, Department of Pediatric Radiology Chair, Department of Pediatric Surgery Chair, Department of Pediatric Oncology Chair, Department of Obstetrics/Gynecology Chair, Department of Pathology Chair, Department of Psychiatry and Behavioral Services Chair, Department of Ophthalmology Chair, Department of Otolaryngology Chair, Department of Radiation Oncology Chair, Department of Transplant Surgery Associate Dean, Diversity & Equity Associate Dean, Admissions and Student Affairs Associate Dean, Education and Health Professionals Associate Dean for Research Associate Dean, Graduate Medical Education Pediatrics Physiatry Physicist Plastic Surgery Podiatry Radiation Oncology Radiology Radiology, Neuro-interventional Reproductive Endocrinology Retina Surgery Retinal Disorders Rheumatology Sleep Medicine Surgical Oncology Thoracic Surgery Transplant Surgery Urgent Care Urological Gynecology Urological Oncology Vascular & Interventional Radiology Vascular Surgery Assistant Professor Chief Medical Officer Full Professor Associate Department Chair Clinical Director Medical Director Associate Professor Executive Residency Director Chief Executive Officer Division Chair Vice President, Medical Affairs Senior Researcher Director of Community Medicine Chief Diversity Officer Director of the Center for Institutional Diversity Chief Information Officer Vice President, Medical Services Director of Quality and Accreditation Chief Nursing Officer Residency Director 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 8

Income Offered to Top 20 Recruited Specialties 8 (Base salary or guaranteed income only, does not include production bonus or benefits) Family Medicine Internal Medicine $140,000 $199,000 $293,000 $145,000 $198,000 $360,000 $130,000 $185,000 $325,000 $130,000 $208,000 $325,000 $120,000 $189,000 $300,000 $150,000 $203,000 $345,000 $130,000 $178,000 $290,000 $130,000 $205,000 $285,000 $140,000 $175,000 $255,000 $145,000 $191,000 $250,000 Hospitalist Psychiatry $145,000 $229,000 $350,000 $150,000 $217,000 $350,000 $150,000 $227,000 $350,000 $165,000 $218,000 $300,000 $160,000 $221,000 $400,000 $160,000 $224,000 $300,000 $160,000 $217,000 $305,000 $160,000 $220,000 $275,000 $165,000 $208,000 $295,000 $150,000 $209,000 $310,000 Nurse Practitioner Pediatrics $70,000 $106,000 $150,000 $130,000 $188,000 $240,000 $75,000 $105,000 $150,000 $145,000 $179,000 $300,000 $70,000 $95,000 $121,000 $130,000 $189,000 $220,000 $120,000 $183,000 $250,000 $145,000 $180,000 $265,000 Emergency Medicine OB/GYN $220,000 $311,000 $400,000 $215,000 $288,000 $380,000 $210,000 $288,000 $450,000 $225,000 $286,000 $350,000 $170,000 $264,000 $380,000 $180,000 $268,000 $440,000 $160,000 $255,000 $380,000 $220,000 $282,000 $360,000 $185,000 $247,000 $380,000 $175,000 $272,000 $350,000 9 2014 Review of Physician and Advanced Practitioner Recruiting Incentives

2014 Review of Physician and Advanced Practitioner Recruiting Incentives 10 $71,000 $85,000 $75,000 $105,000 $118,000 $99,000 $150,000 $160,000 $130,000 Physician Assistant $400,000 $250,000 $275,000 $270,000 $315,000 $442,000 $447,000 $396,000 $420,000 $420,000 $500,000 $550,000 $600,000 $525,000 $600,000 Cardiology (non-invasive) $250,000 $300,000 $300,000 $230,000 $230,000 $372,000 $398,000 $412,000 $359,000 $349,000 $500,000 $650,000 $530,000 $500,000 $450,000 Otolaryngology $240,000 $291,000 $300,000 $300,000 $300,000 $454,000 $441,000 $433,000 $424,000 $411,000 $560,000 $600,000 $550,000 $505,000 $600,000 Gastroenterology $350,000 $250,000 $400,000 $300,000 $300,000 $488,000 $483,000 $519,000 $521,000 $519,000 $700,000 $750,000 $750,000 $700,000 $825,000 Orthopedic Surgery $315,000 $275,000 $210,000 $250,000 $300,000 $377,000 $382,000 $360,000 $369,000 $385,000 $450,000 $525,000 $450,000 $550,000 $500,000 Hematology/ Oncology $180,000 $180,000 $160,000 $160,000 $180,000 $262,000 $300,000 $280,000 $256,000 $281,000 $400,000 $400,000 $420,000 $345,000 $460,000 Neurology $430,000 $385,000 $330,000 $320,000 $250,000 $504,000 $424,000 $461,000 $453,000 $400,000 $625,000 $650,000 $650,000 $550,000 $550,000 Urology $270,000 $240,000 $220,000 $205,000 $175,000 $354,000 $336,000 $343,000 $336,000 $314,000 $515,000 $550,000 $450,000 $450,000 $410,000 General Surgery $350,000 $300,000 $400,000 $380,000 $325,000 $454,000 $461,000 $512,000 $532,000 $495,000 $550,000 $675,000 $650,000 $650,000 $680,000 Cardiology (invasive)

Neurosurgery Pulmonology $450,000 $591,000 $700,000 $230,000 $358,000 $425,000 $225,000 $351,000 $500,000 $450,000 $701,000 $1,000,000 $180,000 $321,000 $415,000 $550,000 $613,000 $700,000 $200,000 $311,000 $430,000 $590,000 $631,000 $720,000 $200,000 $305,000 $430,000 9 Type of Incentive Offered Endocrinology Salary Salary with Bonus Income Guarantee Other $175,000 $206,000 $235,000 633 (20%) 2,335 (74%) 127 (4%) 63 (2%) $170,000 $209,000 $300,000 525 (17%) 2,323 (75%) 217 (7%) 32 (1%) $180,000 $248,000 $380,000 489 (18%) 1,977 (73%) 191 (7%) 53 (2%) $180,000 $218,000 $270,000 428 (16%) 1,975 (74%) 239 (9%) 25 (<1%) $200,000 $219,000 $270,000 339 (12%) 2,082 (74%) 367 (13%) 25 (<1%) 10 If Salary Plus Production Bonus, on Which Types of Metrics Was the Bonus Based? (of 2,323 searches offering salary plus bonus, multiple categories possible. Note: 2011 is the first year this question was asked.) 59% 57% 54% 39% 21% 24% 25% 33% 35% 5% 11% 9% 3% 6% 9% 5% 5% 3% RVU Based Net Collections Gross Billings Patient Encounters Quality Other 11 2014 Review of Physician and Advanced Practitioner Recruiting Incentives

11 If Quality Factors Were Included in the Production Bonus, About What Percent of the Physician s Total Compensation Determined By Quality?* 12 If Income Guarantee, What Type? (of 127 searches offering income guarantees) 108 (85%) 19 (15%) Determined by Quality 13% *Question asked for the first time in 145 (67%) 146 (76%) 72 (33%) 45 (24%) 231 (97%) 8 (3%) 324 (88%) Net Collections Guarantee 43 (12%) Gross Collections Guarantee 13 If Income Guarantee, What was the Term Offered? (of 127 searches offering income guarantees) 14 Searches Offering Relocation Allowance 1 Year 2 Year 3 Year Other Yes No 64 (50%) 47 (38%) 16 (12%) 0 (0%) 2,845 (90%) 313 (10%) 105 (49%) 79 (36%) 28 (13%) 5 (2%) 2,821 (91%) 276 (9%) 2,577 (95%) 133 (5%) 87 (45%) 83 (44%) 21 (11%) 0 (0%) 2,451 (92%) 216 (8%) 113 (47%) 776 (32%) 49 (21%) 0 (0%) 2,671 (95%) 142 (5%) 202 (55%) 130 36%) 35 (9%) 0 (0%) 15 Amount of Relocation Allowance (Physicians only) 16 Amount of Relocation Allowance (NPs and PAs Only) $1,000 $9,849 $25,000 $3,500 $6,904 $10,000 $1,000 $9,555 $25,000 $1,000 $10,035 $40,000 $1,000 $10,454 $85,000 $1,000 $10,035 $30,000 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 12

17 Searches Offering Signing Bonus 18 Amount of Signing Bonus Offered (Physicians only) Yes No 2,212 (70%) 946 (30%) $1,000 $21,773 $150,000 2,199 (71%) 898 (29%) $1,500 $22,069 $200,000 2,170 (80%) 540 (20%) $4,000 $23,388 $200,000 2,025 (76%) 642 (24%) $5,000 $23,790 $200,000 2,135 (76%) 678 (24%) $2,000 $22,915 $100,000 19 Amount of Signing Bonus Offered (NPs and PAs only) 20 Searches Offering to Pay Continuing Medical Education (CME) Yes No $1,000 $8,000 $20,000 2,865 (91%) 293 (9%) 2,789 (90%) 308 (10%) 2,658 (98%) 52 (2%) 2,559 (96%) 108 (4%) 2,618 (93%) 195 (7%) 21 Amount of CME Pay Offered (Physicians only) 22 Amount of CME Pay Offered (NPs and PAs only) $1,000 $3,515 $15,000 $1,000 $2,450 $5,000 $1,000 $3,444 $15,000 $500 $3,391 $12,000 $500 $3,194 $10,000 $500 $3,335 $15,000 13 2014 Review of Physician and Advanced Practitioner Recruiting Incentives

23 Searches Offering to Pay Additional Benefits Health Insurance 97% 94% 97% 99% 98% Malpractice 99% 96% 99% 97% 99% Retirement 94% 87% 82% 90% 90% Disability 86% 83% 75% 77% 84% Educational Forgiveness 26% 22% 26% 29% 38% Housing Allowance 4% 6% 5% 6% Other <1% 2% 1% 3% 24 If Educational Loan Forgiveness was Offered, What Was the Term? (of 820 searches offering educational loan forgiveness) 25 If Educational Loan Forgiveness Was Offered, What Was the Amount? (Physicians only) 1 Year 2 Years 3 Years 90 (11%) 173 (21%) 557 (68%) $4,000 $77,000 $336,000 48 (7%) 183 (27%) 449 (66%) $1,000 $71,733 $210,000 41 (6%) 192 (27%) 474 (67%) 39 (5%) 208 (27%) 525 (68%) 26 If Educational Loan Forgiveness was Offered, What Was the Amount? (NPs and PAs only) $20,000 $40,000 $60,000 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 14

Trends and Observations Merritt Hawkins annual Review of Physician and Advanced Practitioner Recruiting Incentives, now in its 21st year, tracks three key physician recruiting trends, as well as various advanced practitioner recruiting trends. 1. Based on the physician recruiting assignments Merritt Hawkins is contracted to conduct, the Review indicates which types of physicians are in the greatest demand and which are the most challenging to recruit. 2. The Review also indicates the types of practice settings into which physicians are being recruited (hospitals, medical groups, solo practice etc.) and the types of communities that are recruiting physicians based on population size. 3. The Review further indicates the types of financial and other incentives that are being used to recruit physicians. Each of these trends is discussed below. WHO IS IN DEMAND? Merritt Hawkins 2014 Review of Physician and Advanced Practitioner Recruiting Incentives examines the permanent physician and advanced practitioner recruiting assignments Merritt Hawkins and AMN Healthcare s physician staffing divisions had ongoing or were engaged to conduct during the 12 month period from April 1, 2013 to March 31, 2014. These search assignments reflect the types of physicians hospitals, medical groups, community health centers, academic medical centers, government entities, physician hospital organizations, integrated medical systems, Accountable Care Organizations, urgent care centers and other organizations that are seeking nationwide. They also reflect which types of physicians may be particularly difficult to recruit, necessitating the assistance and additional resources of a physician recruiting firm. A CONTEXT OF CHANGE Physician recruiting trends and practices must be placed in the overall context of the nation s prevailing healthcare delivery system. It is not an exaggeration to state that healthcare delivery in the United States has undergone more changes in the 12 month period examined in this Review than in any previous 12 month period Merritt Hawkins has examined in similar Reviews conducted over the last 21 years. Important recent developments in healthcare delivery include, but are not limited to, the following: The enrollment in health insurance plans of eight million Americans through the Affordable Care Act (ACA). The enrollment of an additional five million Americans in Medicaid (as of May, 2014). The continued financial pressure on hospitals and other healthcare facilities as reimbursement cuts take effect prior to significant patient or revenue increases 15 2014 Review of Physician and Advanced Practitioner Recruiting Incentives

expected to result from ACA related increases in insurance enrollment. Decreased hospital census caused by high deductible insurance plans, continued unemployment, and more outpatient choices. To varying degrees, all of these developments impact both physicians and physician recruiting, because physicians continue to play a pivotal role in the healthcare delivery system and are inevitably affected by changes to it. The proliferation of Accountable Care Organizations (ACOs) and the continued movement toward outcomes/valuebased delivery models. The continued consolidation of hospitals, medical groups and other entities. The growth of outpatient medicine and the proliferation of multiple sites of service, including ambulatory surgery centers, retail clinics, urgent care centers, free-standing emergency departments and others. The adoption of team based care and the growing use of advanced practitioners such as nurse practitioners (NPs) and physician assistants (PAs). The adoption of electronic health records (EHR) as Physician Quality Reporting System (PQRS) physician participation deadlines near. The delay of both ICD-10 implementation and a permanent resolution to pending Medicare physician payment cuts mandated by the Sustainable Growth Rate formula (SGR). Release by the Center for Medicare and Medicaid Services (CMS) of data detailing $77 billion in Medicare payments to physicians and other healthcare professionals. The continued shortage of physicians nationwide. PHYSICIANS ARE STILL THE CENTERPIECE Though the healthcare system is evolving, and the role of other clinicians is growing, physicians remain the quarterbacks of the healthcare delivery team and are at the center of the healthcare system. Through patient consultations, hospital admissions, treatment plans, prescriptions, tests, and procedures physicians control the levers to both quality of care and healthcare economics. According to the Boston University School of Public Health, physicians receive or direct 87% of all personal spending on healthcare in the United States. While the quality of care contributions physicians make cannot be measured in dollars, the economic contribution of physicians recently was quantified by an AMA-sponsored study examining national and state-by-state physician economic output. 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 16

The study revealed several physician related economic output metrics, including: Total economic output: The combined economic output of patient care physicians in the United States is $1.6 trillion. Per capita economic output: Each physician supports a per capita economic output of $2.2 million. Jobs: On average, each physician supports approximately 14 jobs. Wages and benefits: On average, each physician supports a total of $1.1 million in wages and benefits Tax revenues: On average, each physician supports $90,449 in local and state tax revenues. Source: The National Economic Impact of Physicians. Prepared for The American Medical Association by IMS Health. March, 2014. In addition to the economic output detailed by the AMA study cited above, physicians on average generate $1.4 million in net revenue per year for their affiliated hospitals, and therefore are critical to the economic viability of virtually every hospital in the United States (see Merritt Hawkins 2013 Survey of Physician Inpatient/Outpatient Revenue). Due to their pivotal role, it is the effective recruitment, compensation, and integration of physicians that will determine the direction of the healthcare system, including the implementation of valuebased reimbursement, the adoption of team-based care and EHR, increased patient access to services and the various other goals commonly grouped under the heading of healthcare reform. For this reason physicians continue to be in high demand while supply remains limited, a trend examined in more detail below. Healthcare Reform and Physician Supply Access to physician services in the United States already can be problematic. Merritt Hawkins 2014 Survey of Physician Appointment Wait Times indicates that even in large metro areas with a relatively high per capita concentration of physicians, physician appointment wait times can be protracted (see chart below): New Patient Appointment Wait Times In Days Physician revenue generation today is based largely on fee-for-service metrics, a standard likely to change as the health system pivots from volume-based reimbursement to valuebased reimbursement. However, if and when value-based payment systems eventually prevail, it is physicians, through their practice patterns and choices, who will ensure that quality of care is maintained within a structure of managed, finite resources. 17 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 50 45 40 35 30 25 20 15 10 5 0 Boston Denver Philadelphia Portland Minneapolis Detroit Washington, D.C. New York San Diego Seattle Dallas Source: Merrit Hawkins 2014 Survey of Physician Appointment Wait Times.

Of particular note is the fact that Boston has by far the highest average wait times of the cities examined in the survey, despite having 450 physicians per 100,000 population (the average ratio for the entire U.S. is 226 physicians per 100,000). In 2006, Massachusetts implemented a healthcare reform system very similar to the ACA, and today 97% of the state s residents have health insurance. Partly as a result, wait times to see a doctor have become extended, while emergency room visits increased rather than decreased. Whether the ACA will drive similar trends nationwide remains to be seen. In the 12 month period examined in this Review (April 1, 2013 March 31, 2014) Merritt Hawkins observed some healthcare facilities ramping up their physician recruiting activity in preparation for an anticipated increased demand for services related to insurance enrollment through the ACA. However, physician recruiting activity to date has not largely been driven by ACA related spikes in demand. Facilities are waiting to see how insurance enrollment impacts physician utilization particularly whether high deductible plans will limit physician visits and whether utilization will further be limited by the enrollment of relatively healthy younger people. The expansion of Medicaid enrollment through the ACA also to date has been a minimal spur to physician recruiting, having its greatest effect on Federally Qualified Health Centers (FQHCs) whose mandate is to provide accessible care for traditionally underserved and under-insured populations. A similar physician appointment wait time study conducted by the Massachusetts Medical Society (MMS) in 2013 shows an average wait time in Massachusetts of 39 days for a family physician appointment. The MMS study also shows that only 51% of family physicians and only 45% of general internists in Massachusetts are accepting new patients (Massachusetts Medical Society Patient Access to Care Study. July, 2013). Because so many physicians today are not accepting new Medicaid patients (only 45.7% in the markets examined in Merritt Hawkins Physician Appointment Wait Time Survey cited above) expanded Medicaid enrollment may have the greatest impact on hospital emergency rooms. Unable to access office-based physicians in a timely manner, Medicaid patients often rely on the emergency room for care. An analysis of California emergency department visits confirms that adult 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 18

Medicaid beneficiaries have the highest rate of ED visits, higher than both uninsured and privately insured patients. Similarly, a study of Medicaid expansion in Oregon showed that adults chosen in a lottery to receive Medicaid coverage used the ED about 40% more often than those who were not selected (Newsatjama.jama. com/2014/01/02). Trends other than ACA-related insurance enrollment, including the ongoing physician shortage, have had a more immediate effect on physician recruiting. A DEARTH OF DOCTORS Medical schools in the United States have expanded in recent years and will be producing 27,000 graduates annually by the end of this decade, 50% more than in 2000 (Help Wanted! Journal of Oncology Practice. Richard Cooper, M.D. January, 2014). However, Medicare funding for residency training was capped by Congress in 1997 and there has been little corresponding growth in the number of resident positions since then, though the U.S. population has grown by 50 million people. More than 60 state medical societies, specialty societies, and hospital organizations have called for the cap to be lifted, but without practical effect. at three times the rate of those 30 or younger, according to the CDC, and account for over 33 percent of all community hospital stays, though they comprise only 12 percent of the population (HealthLeaders December 29, 2010). An additional factor driving the physician shortage is the evolution of physician practice styles. As more physicians choose employment and opt for controllable schedules, physician productivity is decreasing. According to a survey conducted by Merritt Hawkins for The Physicians Foundation, physicians worked 6% fewer hours in 2012 than in 2008, a drop in productivity equivalent to the loss of 46,000 full time equivalent (FTE) physicians from the workforce. Projected Physician Shortages 131,000 91,500 58,000 Compounding the problem, some 10,000 Americans turn 65 every day (at a rate of one every eight seconds) and will continue to do so for the next 20 years (AAMC Physician Policy Workforce Recommendations, September, 2012). People in this age group see physicians 7,400 2008 2012 2020 2025 Source: AAMC Physician Workforce Policy Recommendations, September, 2012 19 2014 Review of Physician and Advanced Practitioner Recruiting Incentives

Physician demographics also are contributing to the shortage. Because over 40% of active physicians are 55 years old or older, the shortage will soon be compounded by a major wave of physician retirements during the next five to ten years. As a result of these and related factors, ongoing physician shortages are projected to worsen. The chart on page 19 illustrates the coming gap between the number of physicians in the United States and the number needed, as projected by the Association of American Medical Colleges (AAMC). Hospital Vacancy Rates for Clinical Professionals healthcare industry and by the emergence of aligned delivery models such as Accountable Care Organizations (ACOs)/ primary care medical homes/integrated delivery systems. As of April, 2014, over 428 provider groups were operating as ACOs. About four million Medicare beneficiaries are now in an ACO and an estimated 14% of the U.S. population is now being served by an ACO (Kaiser Health News. FAQ on ACOs. April 16, 2014). The graph below illustrates the accelerating rate of hospital consolidations nationwide: Number of Announced Hospital Consolidations, 2002 2012 90 94 Physicians 17.6% Nurses 17.0% 72 NPs/PAs 14.9% 58 59 51 57 58 60 52 Allied Professionals 13.3% Source: 2013 Clinical Workforce Survey. AMN Healthcare. 38 The shortage is compelling many healthcare facilities nationwide to recruit physicians to fill current openings on their staffs. The chart above shows the average hospital vacancy rate for various clinical professionals as tracked by AMN Healthcare s 2013 Clinical Workforce Survey. In addition to the physician shortage, physician recruiting is being driven in part by increased consolidation within the 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Irving Levin Associates. 2012 Healthcare Acquisition Report. In an effort to meet ACO staffing requirements, to manage the health of large population groups, and to secure market share, these large integrated organizations are recruiting or acquiring physicians en 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 20

masse, rather than on an ad hoc basis, as has been common in the past. Today, a large healthcare system/aco may initiate a search effort for dozens of primary care physicians at a time, in order to establish the primary care networks that are the key to population health management and team based care. In part because of their key role as care coordinators, primary care physicians (defined as family physicians, general internists, and pediatricians) remain in particularly high demand as delivery models shift. They also are the main targets for recruitment of expanding Federally Qualified Health Centers (FQHCs), urgent care centers and Veterans Administration facilities. For the eighth consecutive year, family medicine was Merritt Hawkins most requested search assignment, with general internal medicine second (also for the eighth consecutive year). Third on the list are hospitalists, who typically are general internists, while pediatricians are sixth, up from 9th two years ago (pediatricians were not in the top 20 as recently as 2005/06). The supply of primary care physicians has been inhibited in recent years by a decline of interest in these areas. In 1950, 50% of physicians were engaged in primary care and the remaining 50% were engaged in a handful of medical specialties Today, only 32% of physicians are engaged in primary care while the remaining 68% are engaged in one or more of 200 specialties for which board certification can be obtained (New York Times, June 23, 2010) a percent lower than most developed nations. Due to comparatively low pay and longer work hours, fewer U.S. medical graduates have displayed an interest in primary care over much of the last 15 years, ceding over 50% of filled residency positions in some years to international medical graduates (IMGs), according to the National Residency Matching Program (NRMP). While interest in primary care residencies among medical school graduates recently has increased, nearly one in five Americans live in a region designated as underserved for primary care by the federal government. Training of primary care physicians, with a focus on interprofessional cooperation, will have to be accelerated to meet the demand created by delivery systems built around prevention, population health management, team-based care and quality/volume-based reimbursement. Three-year rather than fouryear medical school programs may be one answer. New York University, Texas Tech, and Columbia University have launched three-year programs, and about ten other medical schools are considering doing so (The Washington Post. January 14, 2014). Urgent Care and the Retail Boom An additional spur to the recruitment of primary care physicians is the growth of urgent care centers and other proliferating sites of service (see chart on page 22). Hospitals, large medical groups and other entities are repositioning how they appeal to healthcare consumers, with a greater emphasis placed on access to 21 2014 Review of Physician and Advanced Practitioner Recruiting Incentives

services. Urgent care centers, free standing emergency departments, emergency departments specifically for the elderly (of which there are now 50 in operation with another 150 on the way FierceHealthcare, February 20, 2014) and retail clinics are among the proliferating sites of service that allow healthcare providers to offer access to medical services everywhere, all the time. Urgent care centers alone now see 160 million patient visits a year, and studies show that 14% 27% of visits to hospital emergency rooms could be handled by an urgent care center (Becker s Hospital Review. August, 2013). Medical Practices That Can Arrange For Patients to See a Doctor or Nurse After Hours Nations Netherlands New Zealand United Kingdom Australia Germany Canada United States 2013 95% 90% 87% 81% 78% 47% 40% Source: Commonwealth Fund International Policy Survey of Primary Care Physicians Growth of Urgent Care 9,300 urgent care centers in the Unites States 40% expect to expand or add a new site 85% expect to see new patient growth 50% are free standing 50% are in retail shopping centers Source: Becker s Hospital Review. August 2013 Retail centers are expected to double from 1,400 in 2012 to 2,800 by 2015 with projected 25% to 35% growth in coming years (Advisory Board Daily Briefing, June 13, 2013). Many of these sites are staffed by primary care physicians or by NPs and PAs who provide primary care services. These outpatient settings are increasing in part because physician practices in the United States are less accessible after hours than practices in other nations, as the chart following indicates. Increased access is part of a wider trend in which healthcare facilities are trying to evolve healthcare delivery away from a transactional model toward an experiential one characterized by customer service, price transparency, provider ratings, and ease of use. With the understanding that consumers punish complexity and reward simplicity, healthcare is shifting to a retail model with a wider menu of niche providers to suit varying customer preferences. FQHCS AND SPECIALTY SERVICES As referenced above, FQHCs have an expanded mandate to provide access to traditionally underserved populations through funding provided by the federal stimulus bill and the ACA, and many have ramped up their recruiting efforts. In addition, numerous hospitals and larger medical groups have invested in high-end 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 22

specialty services in recent years, and the last decade has seen a building boom of sleep centers, heart centers, neuroscience centers, orthopedic centers and other specialty care facilities that require primary care doctors to ensure they have a requisite number of patients. ONLINE RESOURCES AND TELEHEALTH insurance companies willing to pay for these services. The share of large employers with more than 5,000 employees that offer telehealth services increased to 17% in 2013, from 12% the year before, and the percent of companies considering doing so grew to 43% from 33% in the same time frame (Wall Street Journal/MarketWatch, March 3, 2014). Even though physicians can be made more efficient and accessible through the use of technology, the existing physician workforce is insufficient to meet demand and is being supplemented by other clinicians, such as NPs and PAs, a trend underlined by the 2014 Review. Despite this proliferation of service sites, consumer access to physicians remains a challenge, which innovators and entrepreneurs are rushing to meet. New services promoting access are arising in markets nationwide, such as ZocDoc, an online service that allows consumers to access physician schedules in their cities to determine which physicians have openings. Zipnosis, pioneered by Park Nicollet in Minnesota, is an online program that for $25 a visit provides diagnosis of minor problems such as colds, flu, bladder infections, allergies and acne. Since 2010 it has expanded to Alaska, Colorado, Connecticut, Kentucky, Maryland, Massachusetts, New York, Rhode Island, Washington and Wisconsin. Phone and web-based telehealth services are exploding with more employers and IS THERE AN ADVANCED PRACTITIONER IN THE HOUSE? Prior to 2011, Merritt Hawkins received few requests to recruit advanced practitioners, including NPs and PAs. In 2013, NPs and PAs made the list of our top 20 most requested search assignments for the first time. In the 2014 Review, NPs and PAs combined rank as our fifth most requested search. The number of search assignments Merritt Hawkins conducted for NPs and PAs grew 320% collectively from to. There are over 115,000 NPs practicing in the U.S., with 88% focusing on primary care, and 18% practicing in rural areas, according to the American Academy of Nurse Practitioners (AANP). They hold prescriptive authority in all 50 states and 96% of them are female. 23 2014 Review of Physician and Advanced Practitioner Recruiting Incentives

Over 83,000 PAs practice in the U.S., about one-third in primary care and two-thirds in specialty areas, according to the American Academy of Physician Assistants (AAPA), and 62% are female. They have prescriptive authority in all 50 states and their numbers have increased by 100% over the last ten years. While NP and PA professional groups are seeking a wider scope of practice in many states, they and most other observers agree that NPs and PAs are intended to supplement physicians, not to replace them. In the emerging era of health professional shortages, physicians, NPs, PAs and other clinicians will need to practice to the limits of their training, so that work is redistributed as appropriate across the spectrum of healthcare providers. Facilities using NPs and PAs will need to understand their role and ensure they are truly supplementing physician services rather than duplicating them. This team-based model of care ultimately may only be achieved through programs stressing interprofessional education, when succeeding generations of clinicians trained in the team-based approach are integrated into the workforce. Nevertheless, many facilities aspire to this model today and are moving toward it. THE ROLE OF LARGE RETAILERS While there are still disputes about scope of practice issues between physician and advanced practitioner professional groups, the ways in which PAs/NPs are being used now are often being dictated by state governments, by large health systems, major employers and retailers. For example, Wallgreen s announced in April of 2013 that it will become the first retail chain to expand its health care services to include diagnosing and treating patients for chronic conditions such as asthma, diabetes, and high cholesterol, using PAs and NPs. (Walgreen s Becomes 1st Retail Chain to Diagnose, Treat Chronic Conditions, Kaiser Health News, April 4, 2013). The use of PAs/NPs in a diagnostic role is a significant step that may be imitated by other retail chains and sites of service. Whereas in the past, hundreds of independent physicians in a region may have decided if and how PAs and NPs were employed, today those decisions are being made at a more corporate level. In 18 states, NPs have full authority to evaluate and diagnose patients, order diagnostic tests and prescribe drugs, enabling them to open a practice or work in a retail clinic with no doctor on site. Law makers in numerous other states are considering legislation that would allow nurse practitioners to practice independently. Enhanced scope of practice laws for NPs and PAs and recognition of their expanded duties by third party payers are likely to further drive demand for these clinicians. 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 24

A LOOMING SHORTAGE OF NPS AND PAS The shortage of healthcare professionals is so acute that some experts believe that even the enhanced use of NPs and PAs will not be enough to fill the gaps. Like physicians, many NPs and PAs today are gravitating to specialty areas and to larger communities. Data generated by noted physician workforce analyst Richard Buz Cooper, M.D. show that while the number of NPs and PAs per capita is growing, the number in primary care per capita peaked several years ago and is declining. These numbers suggest there may not be enough PAs and NPs to ride to the rescue and alleviate primary care shortages, and that some of the same trends that have led to physician shortages may be duplicated in the PA and NP workforce. Though the number of NP and PA education programs is projected to grow by 3% to 5% annually, Dr. Cooper projects a 20% deficit of these clinicians by 2025 (Physician Shortage Isn t the Only Looming One, Advance for NPs and PAs, July 28, 2011). Though many hospitals and medical groups have become better at assimilating NPs and PAs onto their clinical teams, more interprofessional cooperation will be needed as primary care physicians focus on directing team-based care and managing chronically ill patients. THE CRISIS IN PSYCHIATRY Federal rules that go into effect in 2014 give Americans more access to behavioral health coverage, but as in primary care and other areas, coverage may not always lead to access. The shortage of psychiatrists and behavioral health resources has become acute nationwide, a fact highlighted by the difficulty many psychiatric patients in emergency departments have accessing an inpatient bed. In California, the average time is 10 hours. In central Ohio, it is 19 (Access to Mental Health Services Strained as Benefits Expand. HealthLeaders, February 27, 2014). In 2014, psychiatry was Merritt Hawkins fourth most requested specialty. As Merritt Hawkins has reported in this Review and elsewhere, the shortage of psychiatrists continues unabated while failing to receive the attention focused on the shortage of primary care physicians. The silent shortage will continue as psychiatrists are essentially aging out of the workforce, a trend illustrated by the chart below: 40 or Younger 10 % Psychiatrists by Age 41-50 20 % 70 % 55 % 50-60 31 % 61 or Older 39 % All active psychiatrists are 50 or older All active physicians are 50 or older Source: AMA Physician Master File 25 2014 Review of Physician and Advanced Practitioner Recruiting Incentives

Many psychiatrists today are seeking outpatient practice settings, so that it is increasingly difficult for inpatient facilities to recruit the physicians they need. This is particularly true of federally funded psychiatric facilities and correctional facilities, where the need is greatest. In the future, demand for psychiatric services will have to be addressed by primary care physicians, who today are prescribing a growing volume of psychopharmacologic drugs, and by non-physician behavioral health professionals such as psychologists. Psychologists now are able to prescribe medications in the military and in the Indian Health Service, and in two states, New Mexico and Louisiana. At least six states (Arizona, Hawaii, Montana, New Jersey, Oregon, and Tennessee) have or are considering giving psychologists prescriptive authority. WHAT ROLE WILL THE ED PLAY? While requests for emergency physicians were down relative to last year, emergency medicine nevertheless ranked as Merritt Hawkins seventh most requested search. The number of hospital emergency room visits continues to grow and hit an all-time high of about 130 million in 2010, the last year for which numbers are available, up from 124 million in 2008, according to the CDC s National Hospital Ambulatory Medical Care Survey. Emergency departments now account for about half of all hospital admissions in the U.S. according to a RAND Corporation study (www.rand.org.news/ preess/2013/05/20.html). While the number of hospital-based emergency departments has decreased in recent years, the number of freestanding emergency departments has increased, doubling in the last decade and now up to 284 in 45 states (Freestanding Emergency Department Growth Creates Backlash, American Medical News, April 29, 2013). Opened by hospitals and physicians, sometimes in alliance and sometimes separately, they are able to take more complex cases than urgent care centers. Freestanding EDs are subject to the Emergency Medical Treatment and Active Labor Act (EMTALA) if they accept Medicare or Medicaid, and must see all patients who present to the department. The proliferation of free-standing EDs is part of the shift in philosophy referenced above in which healthcare organizations are placing a premium on making services more accessible to patients by expanding hours and creating multiple service sites. Despite popular perceptions, emergency department visits are not largely driven 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 26

by the uninsured, but by those with insurance. According to the Center for Health System Change (CHSC) Testimony before the Senate (Nonurgent Use of Hospital Emergency Departments, May 11, 2011) the uninsured s use of emergency departments is considerably less than privately insured people. WHICH SPECIALISTS ARE IN DEMAND? Tellingly, the rate of hospital room visits increased in Massachusetts after healthcare reform expanded access to health insurance in the state in 2006 (Emergency Room Visits Grow in Massachusetts, Boston Globe, July 4, 2010). What the CHSC testimony and other sources underline is that insured patients come to the ED for problems when they cannot obtain reasonable access to a primary care physician or other providers. The conclusion is that EDs are not serving as the primary care source for uninsured patients as much as they are serving as a source of convenient care for the insured. As more patients obtain health coverage through the ACA, and as the shortage of primary care physicians persists, emergency room visits can be expected to increase, further driving demand for physicians staffing the emergency department. Demand will be particularly strong for ABEMs (physicians board-certified in emergency medicine), as trauma centers require EDs that are ABEM staffed. Even though ABEMs command salaries up to 50% greater than primary care physicians who may moonlight in the ED (particularly in rural areas), they are in great demand, and these searches are among Merritt Hawkins most difficult assignments to fill. Healthcare reform, defined as both the ACA and ongoing market changes, is driving the pivot from a volume and procedurally-based system in which specialists predominate to a quality and preventive-based system more generally directed by primary care physicians. Part of this trend includes ongoing Medicare and other third party reimbursement cuts to specialists coupled with Medicare and other reimbursement increases to primary care physicians. Both these trends have diminished to some extent demand for certain medical specialists. For example, in 2001, 2002 and 2003, radiology was Merritt Hawkins most requested specialty. This year, radiology is not in the top 20. Similarly, anesthesiology, once a top search assignment, also is not in the top 20. Inhibiting demand for anesthesiologists is the use of certified registered nurses anesthetists (CRNAs), who now administer 65% of all anesthetics nationwide, according to the American Association of Nurse Anesthetists (AANA) 27 2014 Review of Physician and Advanced Practitioner Recruiting Incentives

and are particularly prevalent in smaller, rural communities. However, demand for particular specialists cannot be measured only by number of search assignments requested, since more populous specialties such as family medicine and general internal medicine can be expected to generate more requests than less populous specialties. The chart below ranks demand for specialists based on Merritt Hawkins search assignments as a percent of all physicians in each specialty. their fields, and as patients age and require more specialty services, demand for specialty physicians should remain strong. WHERE ARE THEY RECRUITING? INTO WHICH SETTINGS? Merritt Hawkins annual Review tracks the types of practice settings into which physicians and advanced practitioners are being recruited. These can include hospital employed settings, group practice settings, solo practice settings, physician partnerships Merritt Hawkins Top Physician Search Assignments as a Percent of All Physicians Per Specialty (patient care only) Hospitalists Family Medicine Psychiatry Neurology Gastroenterology Otolaryngology Pulmonology Urology Emergency Medicine General Surgery Hematology/Oncology Internal Medicine OB/GYN Pediatrics. 0045 0038%.0036%. 0031% 0028%.0027%.0026%. 0025%.002%.0018%. 0082%. 0069% 0055%.019% Considered this way, demand for such nonprimary care areas as psychiatry, neurology, gastroenterology, otolaryngology, urology, hematology/oncology, general surgery and others remains strong. Over 20 medical specialty societies have released studies projecting shortages in or associations, Federally Qualified Health Centers (FQHCs), academic medical centers, Indian Health facilities and other settings. The 2014 Review signals the continuation of a trend that Merritt Hawkins has observed for almost a decade. From 2004 to 2013, the percent of search assignments we represented 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 28

in hospital employed settings increased (see chart below) each year, peaking at 64% where it remained in 2014. These numbers underscore the rapid decline of physician private practice ownership and the growing predominance of hospital employment of physicians and employment of physicians in other practice settings. CONCIERGE GROWING The 2014 Review marks the first time Merritt Hawkins has tracked concierge practices as a separate practice setting. We anticipate that this style of practice will grow in response to widespread physician dissatisfaction with the prevailing medical practice environment and the desire of Merritt Hawkins Hospital Employed Search Assignments 2014 2013 2006 (64%) 1,975 (64%) 2012 2011 2010 2009 2008 2007 1,710 (63%) 1,495 (56%) 1,430 (51%) 1,579 (45%) 1,416 (45%) 1,297 (43%) 2006 2005 510 (19%) 654 (23%) 2004 285 (11%) The 2014 Review indicates that less than ten percent of Merritt Hawkins recruitment assignments now are for settings in which physicians are likely to be independent and self-employed. These settings include partnerships (3% of Merritt Hawkins search assignments) solo settings (less than 1% of Merritt Hawkins search assignments) concierge settings (1% of Merritt Hawkins search assignments) and a number of medical group settings featuring ownership arrangements (approximately 4% 5% of Merrit Hawkins search assignments). many doctors to embrace alternatives to traditional practice models. The concierge model, which typically eliminates third party payers, represents one of the few financially viable ways in which physicians may be able to maintain independence in the future. The chart on page 30 illustrates the percentage of physicians in various specialties who remain in independent private practice. The trend toward physician employment is being driven by a variety of factors, including a growing reluctance among 29 2014 Review of Physician and Advanced Practitioner Recruiting Incentives

physicians to assume the financial risks and administrative responsibilities of private practice ownership in today s problematic medical practice environment. Hospital and medical group consolidation, emerging practice models such as ACOs that require large physician panels, and proliferating sites of service such as free standing emergency departments, urgent care centers, and retail clinics, all of which typically employ FQHCS AND ACADEMIC SETTINGS Among the proliferating sites of service are FQHCs, which are expanding and adding new sites of service to meet anticipated demand. Funding for these safety net health centers, charged with providing affordable, quality patient care to traditionally underserved populations, was significantly Physician Practice Owners by Specialty Pediatrics Emergency Medicine Family Practice Psychiatry 37% 38% 40% 41% General Surgery Internal Medicine Internal Medicine Subspecialties Surgical Subspecialties 46% 46% 62% 72% Source: Policy Research Perspectives: New Data on Physician Practice Arrangements. American Medical Association. 2013 doctors, also are contributing toward the move to employment and away from private practice. One of the repercussions of physician employment is declining productivity. Employed physicians see 17% fewer patients per day than independent physicians according to a survey conducted by Merritt Hawkins for The Physicians Foundation. increased by the federal stimulus bill and the ACA. By 2015, FQHCs are projected to increase patients seen from 20 million a year to 30 million. Merritt Hawkins is conducting an increasing number of search assignments for FQHCs. In 2014, FQHCs and Indian Health facilities accounted for 12% of all Merritt Hawkins search assignments, up from about six percent in 2012. The 2014 Review also indicates that academic medical centers are recruiting 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 30

physicians in greater numbers. The Association of American Medical Colleges has committed to growing medical school enrollment by 30 percent by 2015 and is on target to reach that goal. Academic medical centers are becoming more involved in the delivery of care and are expanding their clinical networks. In an era of physician shortages, many physician faculty members are being lured to private practice by comparatively high income offers. Further, leaders at academic institutions, including Chairs, Department Heads, and others, frequently are targeted for leadership positions by pharmaceutical companies, integrated systems, and other organizations, leading to a brain drain that also has been observed among faculty at nurse training programs. These trends, combined with the need to replace an aging academic workforce, are likely to spur recruitment at hundreds of teaching facilities nationwide. The 2014 Review marks the second time Merritt Hawkins has tracked academic searches as a separate category. Such searches accounted for six percent of all Merritt Hawkins search assignments in the 2014 Review period, up from five percent the previous year. SEARCHES BY COMMUNITY SIZE The 2014 Review indicates that Merritt Hawkins conducted physician search assignments in all 50 states during the 12-month period from April 1, 2013 to March 31, 2014. Hospitals, medical groups and other organizations in every state found it necessary or desirable to retain the services of a physician search firm such as Merritt Hawkins, suggesting that physician recruitment challenges are wide spread. Forty-two percent of Merritt Hawkins search assignments took place in communities of 100,000 people or more, suggesting that it is not only traditionally underserved smaller communities that face challenges in physician recruiting. Facilities in large urban centers and even resort areas are recruiting physicians and sometimes find it necessary to enlist the help of recruiting firms to do so. In many cases, urban recruiting is being driven by large, integrated systems such ACOs and academic centers with multiple physician recruiting needs. WHAT ARE THEY OFFERING? Merritt Hawkins Review of Physician and Advanced Practitioner Recruiting Incentives tracks the starting salaries or income guarantees being offered to recruit physicians, as well as other recruiting incentives typically offered to doctors and advanced practitioners. salary and income guarantee numbers represent the base only and are not inclusive of production bonuses or other incentives. This is in contrast to physician compensation numbers compiled by the Medical Group Management Association (MGMA) and other organizations, which 31 2014 Review of Physician and Advanced Practitioner Recruiting Incentives

track average physician incomes, including production bonuses. Merritt Hawkins salary and income guarantee ranges are therefore indicators of what is required to attract physicians already established in a practice or those coming out of residency training to particular practice opportunities, rather than indicators of physician average incomes. Comparisons between Merritt Hawkins average salary numbers and MGMA overall compensation numbers in several specialties are listed below. doctors can be rewarded for reaching quality and cost effectiveness goals. In general, however, we see across the board demand for family physicians in a growing number of practice settings as the impetus for higher family medicine average salaries. Pediatricians also saw a year over year increase in salary offers, from $178,602 in to $188,000 in. One reason for the increase is that the type of organizations recruiting pediatricians is changing, from smaller, single-specialty Merritt Hawkins vs. MGMA Compensation s Merritt Hawkins MGMA Family Medicine $199,000 $225,701 Internal Medicine $198,000 $244,689 General Surgery $354,000 $402,409 Orthopedic Surgery $488,000 $586,311 SALARIES IN PRIMARY CARE The 2014 Review indicates that demand for family physicians continues strong, exerting upward pressure on salary offers which increased to an average of $199,000 this year, up from $185,000 the previous year. er salaries may reflect the growing responsibility and value of family physicians in team-based and value-driven delivery models, such as the patient-centered medical home, in which primary care practices to hospitals and hospital systems that have the resources to offer more. By contrast, average salary offers for general internal medicine physicians decreased year over year, from $208,313 in to $198,000 in. This trend may be driven by the types of organizations that are recruiting general internists, including a growing number of FQHCs, Indian Health and Veterans Administration facilities, all of which typically pay less than private sector settings. 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 32

SALARIES IN SPECIALTY CARE As referenced above, the ACA, marketbased reforms, and targeted Medicare cuts all tend to enhance the financial prospects of primary care physicians and may inhibit the prospects of specialists. In some cases, the 2014 Review indicates at least a year over year decrease in salary offers in some specialty areas (see chart below). Reimbursement cuts for office-based oncology services have impacted salary offers in the specialty, while salaries for Specialties Seeing Year Over Year Salary Decreases Neurology $300,000 $262,000-12.7% Hematology/oncology Otolaryngology $382,000 $377,000 $398,000 $372,000-1.3% -7.9% Endocrinology Psychiatry $209,000 $206,000 $218,113 $217,000-1.4% -0.5% 2013 2014 Specialties Seeing Year Over Year Salary Increases Hospitalist $227,419 $229,000 +0.7% Emergency Medicine $288,000 $311,000 +8% OB/GYN $285,581 $288,000 +0.8% General Surgery $336,375 $354,000 +5.2% Gastroenterology $441,421 $454,000 +2.8% Orthopedic Surgery $464,500 $488,000 +5.1% Urology Pulmonology $424,091 $351,125 $358,000 +2% $504,000 +18.8% 2013 2014 33 2014 Review of Physician and Advanced Practitioner Recruiting Incentives

psychiatrists may have plateaued due to the limited resources available to the state supported facilities that frequently recruit psychiatrists. The decrease in neurology shows a step back after two years of increases that may be a temporary adjustment. Surgical specialty areas such as ob/ gyn, general surgery, gastroenterology, orthopedic surgery and urology continue to entail complex procedures which generate revenue for physicians and hospitals, even though the ACA and market forces generally enhance reimbursement for primary care services and inhibit reimbursement to specialists. Incomes in some specialty areas therefore continue to increase, as they did for highdemand hospital-based specialists such as emergency medicine physicians and hospitalists (see chart on page 33). PHYSICIAN ASSISTANTS AND NURSE PRACTITIONERS salaries for NPs increased year over year, from $105,000 in to $106,000 in. This was to be expected as demand for NPs grows, and NP salaries are likely to increase next year. salaries for PAs declined, from $118,000 in to $105,000 in. This decline can largely be attributed to the fact that Merritt Hawkins recruited a higher percent of primary care PAs in the period covered by the 2014 Review than it did the previous year. As with physicians, primary care PAs are not as well paid as PAs who have chosen to specialize. THE USE OF QUALITY/VALUE- BASED INCENTIVES STALLS In today s recruiting market, the average salary offered to recruit physicians may be secondary in some cases to how overall compensation is structured and to how physicians will be rewarded. Reflecting the growing number of employed physicians, most income packages offered to physicians today are structured as salaries or salaries with production bonuses. Income guarantees, which typically are offered to independent, private practice physicians, have become progressively less utilized in recent years. Ninety-four percent of the search assignments Merritt Hawkins conducted in featured either straight salaries or salaries with production bonuses, while only four percent offered private practice income guarantees. Seventy-four percent of all search assignments offered a salary with some type of production bonus. Of these, the majority (59%) featured a production bonus calculated on Relative Value Units (RVUs). RVUs are a metric for determining physician productivity based on work units performed by a physician, rather than the number of patients seen. For example, a physician may be assigned a larger number of RVUs for examining a patient with acute diabetes than for 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 34

examining a patient with a cold. RVUs are one of several volume-based metrics that help ensure physicians remain productive. Additional volume based metrics used in production bonuses include net collections, gross billings, or number of patients seen. However, the trend in health care today is to reward physicians for meeting certain quality/value-based standards or other standards that are not purely based on volume. These quality metrics could include patient satisfaction scores, outcome measures, low readmission rates, timely submission of charts, adherence to treatment protocols and others. A growing number of physician compensation models include a quality component as well as a volume-based component. In, 39% of searches conducted by Merritt Hawkins that offered a production bonus included a quality component in the bonus structure, up from 35% in 2012 and up from less than seven percent in 2011 (Note: in the 2011 Review, quality-based metrics were included in the Other category). However, in the 2014 Review, the number of production bonuses featuring a quality component dipped to 24%. This decline reflects the continued difficulty hospitals, medical groups and other employers are having in creating value/quality based physician compensation models. Metrics that are essentially fee-for-service in nature, such as RVUs, are easier to calculate and to explain to physicians than are value-based metrics, which can be more subjective. After a period in which many facilities were determined to move toward quality-based payments, some facilities have hit a wall and have put off struggling with their physicians over this issue until the definition of quality and how to reward it becomes clearer. In addition, a growing percent of Merritt Hawkins clients are composed of urgent care centers and other facilities that do not typically include quality metrics in their physician compensation formulas. While the end-game (a value-based system) is clear to most healthcare leaders, the path to reach this goal is not. The ACA provided an impetus to this tectonic shift which may be inevitable, but there will be starts and stops along the way before the realization of this transformative change. 35 2014 Review of Physician and Advanced Practitioner Recruiting Incentives

WILL INCENTIVES CHANGE BEHAVIORS? SIGNING BONUSES AND HOUSING ALLOWANCES An additional concern is that value-based compensation metrics to date have had little impact on overall physician compensation and therefore may not be significant enough to affect physician behaviors. However, the 2014 Review indicates that value-based metrics (in those bonus structures in which they are included) determine 13% of the physician s overall compensation, a number that likely is high enough to influence physician behaviors. Creating a physician compensation model in the Goldilocks zone (with enough volume-based metrics to ensure productivity and enough value-based metrics to promote desired behaviors) remains a core challenge for many healthcare facilities. Searches Offering Signing Bonuses 85% 80% 74% 76% 76% 72% 71% 70% 58% 46% Signing bonuses were offered in 70% of the recruiting assignments Merritt Hawkins conducted in, down from 71% last year. This drop may be a result of an increasing number of instances in which physicians are changing employers within the same community and do not need the extra inducement of a bonus. Some facilities also may be hesitant to offer signing bonuses in light of renewed attention to Stark-related recruiting regulations, while others are using pay for emergency department call as a type of bonus. The graph on this page illustrates the use of signing bonuses over the last several years. Signing bonuses offered to physicians in averaged $21,773 down marginally from $22,069 the previous year. Signing bonuses offered to NPs and PAs averaged $7,786. Certain other incentives, such as paid relocation, paid CME, health insurance and malpractice insurance are standard in the majority of Merritt Hawkins physician search assignments. The average relocation allowance offered to physicians in was $9,849, up from $9,555 the previous year, while the average CME allowance offered to physicians in was $3,515, up from $3,444 the previous year. The average relocation allowance offered to NPs and PAs was $6,904 while the 2004/05 2005/06 2006/07 2007/08 2008/09 average CME allowance was $2,450. 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 36

This is the first year Merritt Hawkins has tracked relocation and CME allowances for advanced practitioners. Twenty-six percent of Merritt Hawkins search assignments featured medical education loan forgiveness, up from 22% the previous year. Educational loan forgiveness entails payment by the recruiting hospital or other facility of the physician s medical school loans in exchange for a commitment to stay in the community for a given period of time. The term of forgiveness in 68% of searches Merritt Hawkins conducted in featuring educational loan forgiveness was three years; 21% of searches offered a two-year term, and 11% offered a one year term. The average amount of loan forgiveness offered to physicians was $71,000. The average amount of loan forgiveness offered to NPs and PAs was $40,000. The 2014 Review tracks a relatively new physician recruiting incentive: housing allowances. Given the current volatile real estate market, some physician candidates are unable to leave their current homes in order to relocate. Housing allowances help pay for their housing in their new location, allowing them the flexibility to relocate. Such allowances may be rolled into the overall signing bonus. Some facilities, however, emphasize housing bonuses by identifying them as a separate, clearly delineated incentive. Housing allowances as a stand-alone benefit were offered in four percent of the search assignments Merritt Hawkins conducted in, down from six percent the previous year. 37 2014 Review of Physician and Advanced Practitioner Recruiting Incentives

Summary Merritt Hawkins 2014 Review of Physician and Advanced Practitioner Recruiting Incentives indicates that demand for primary care physicians remains particularly strong, as they are seen as the keys to achieving quality and cost objectives necessary under emerging delivery models. Recognizing that other types of clinicians will have to help address primary care physician shortages, demand is rising for advanced practitioners such as nurse practitioners and physician assistants. The 2014 Review also suggests that recruiting physicians remains a national challenge, as Merritt Hawkins conducted search assignments in all 50 states in. This challenge is not confined to traditionally underserved rural areas but is prevalent in communities of all sizes. The enrollment of eight million people in health insurance plans through the Affordable Care Act is not yet a major driver of physician recruiting activity, but is likely to spur demand for physicians in the near future. The 2014 Review further suggests that the independent, private practice model is becoming an anachronism. Hospital employment of physicians, and employment of physicians in other settings, such as community health centers, urgent care centers and freestanding emergency departments, continues to displace the independent model. While reimbursement in healthcare is moving toward value-based metrics, the 2014 Review indicates that many healthcare facilities are still struggling with the challenge of rewarding physicians for both volume-based productivity and value-based behaviors. 2014 Review of Physician and Advanced Practitioner Recruiting Incentives 38

Merritt Hawkins Additional Discussion Groups/Surveys/White Papers Merritt Hawkins hosts a professional Discussion Group on LinkedIn to review and discuss matters pertaining to physician recruiting, compensation, workforce solutions and related healthcare trends. To join, visit http://linked.in/ab6moc. Merritt Hawkins is an AMN Healthcare company. AMN Healthcare, the largest healthcare staffing organization in the United States, is the industry innovator of healthcare workforce solutions. Surveys and white papers completed by Merritt Hawkins or other AMN companies include: Survey of Physician Appointment Wait Times Survey: A Survey of America s Physicians: Practice Patterns and Perspectives (With The Physicians Foundation) Physician Inpatient/Outpatient Revenue Survey Survey of Final Year Medical Residents White Paper: Incentive-Based Physician Compensation Hospital-Specific Physician Requirements Model (In conjunction with Richard Buz Cooper, M.D., University of Pennsylvania) White Paper: Ten Keys to Physician Retention White Paper: The Cost of A Physician Vacancy White Paper: RVU-Based Physician Compensation White Paper: The Economic Impact of Physicians Curriculum: Physician Recruiting, The University of Florida Review of Temporary Healthcare Staffing Trends & Incentives Review of Temporary Healthcare Staffing Trends & Incentives (Mid-level Providers) Survey of Chief Nursing Officers Survey Registered Nurses Survey of Travel Nurses BOOKS WRITTEN BY MERRITT HAWKINS: Will the Last Physician in America Please Turn Off the Lights? A Look at America s Looming Physician Shortage, Fourth Edition Merritt Hawkins Guide to Physician Recruiting In Their Own Words: 12,000 Physicians Reveal Their Thoughts on Medical Practice in America. (With The Physicians Foundation) For additional information about this survey or other information generated by Merritt Hawkins or AMN Healthcare, please contact: Merritt Hawkins / Corporate Merritt Hawkins / Atlanta Merritt Hawkins / Irvine 5001 Statesman Dr 7000 Central Parkway, NE, Ste 850 19200 Von Karman Ave, Ste 400 Irving, Texas 75063 Atlanta, GA 30328 Irvine, CA 92612 (800) 876-0500 (800) 306-1330 (800) 288-1210 39 2014 Review of Physician and Advanced Practitioner Recruiting Incentives

Speaking Presentations from Merritt Hawkins and AMN Healthcare An Educational Resource Merritt Hawkins and AMN Healthcare are committed to providing survey data and other information of use to healthcare executives, physicians, policy makers and members of the media. AMN Healthcare offers speakers to address healthcare industry trends in staffing, recruiting and finance. Topics include: A History of Medical Practice in America Clinical Workforce Solutions Evolving Physician Staffing Models Physician and Nurse Shortage Issues and Trends How to Make Your Hospital or Group a Physician Magnet New Strategies for Healthcare Staffing Healthcare Reform and Workforce Issues Economic Forecasting for Clinical Staffing Allied Staffing Shortages Vendor Management Recruitment Process Outsourcing Other topics Upon Request For more information or to schedule a speaking engagement, please contact: Phillip Miller Phil.Miller@amnhealthcare.com (800) 876-0500 5001 Statesman Drive Irving, Texas 75063 (800) 876-0500 www.merritthawkins.com

An Overview of the Salaries, Bonuses, and Other Incentives Customarily Used to Recruit Physicians, Physician Assistants and Nurse Practitioners 2014 Merritt Hawkins 5001 Statesman Drive Irving, Texas 75063 (800) 876-0500 merritthawkins.com