Hospitals Are Losing Money on Physicians. Here’s How CEOs Can Respond.

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By Jay Asser

Hospitals have long accepted physician losses, but that mindset is becoming untenable as rising employment costs continue to add to the significant financial strain many organizations face.

Though employing physicians—regardless of profitability—can help hospitals achieve strategic goals and better serve their communities, CEOs should evaluate whether these physicians are consistently generating losses and consider alternative arrangements.

Due to a variety of factors, hospitals currently lose an estimated $306,792 per physician annually, which is an increase of 5% from the previous year, according to Kaufman Hall’s Physician Flash Report.

The leading reason for those losses is the dwindling reimbursement advantage, Kaufman Hall wrote. Regulatory changes and the growing presence of ambulatory surgery centers (ASCs) are offsetting the higher reimbursement rates for physician services billed under hospital outpatient department.

Meanwhile, the overuse of low- or negative-margin services that are encouraged by hospitals to boost patient volume, and the integration costs stemming from administrative burden are also weighing down organizations financially.

To counteract these challenges, here are other strategies hospital CEOs can utilize instead of directly employing physicians, as posited by Kaufman Hall.

Target ASC joint ventures

By pursuing ASC partnerships, hospitals can adapt to the trend of decentralized care and bring in physicians through shared financial incentives. These collaborations also allow hospitals to maintain their market share.

Converting primary care clinicals into federally qualified health center look-alikes can unlock financial benefits for hospitals. In addition to FQHC look-alikes receiving better Medicaid and Medicare reimbursement, reducing the need for direct subsidies, physicians working at these facilities often receive medical school loan forgiveness as well.

Implement value-based care models

A fee-for-service environment can make the cost of employing physicians outweigh the revenue they bring in. Shifting to value-based care models like accountable care organizations or bundled payment arrangements can provide a win-win for both hospitals and physicians without requiring employment. These models also place on emphasis on quality over quantity, potentially leading to improved care for patients.

Jay Asser is the CEO editor for HealthLeaders.