Hospitals are facing a growing financial challenge — they’re losing money on physicians amid the migration to employed models, according to a May 6 article from Kaufman Hall.
Hospitals now lose an average of $306,792 per physician annually, according to the latest Kaufman Hall Physician Flash Report, a 5% increase from the previous year.
The report warns that health systems “cannot sustain this kind of financial strain indefinitely.”
Why the model no longer works:
1. Eroding reimbursement advantages
Physician services under hospital employment are typically billed at higher hospital outpatient department rates. But regulatory changes and the rise of ASCs are eating into these reimbursement benefits.
2. The volume over margin equation
Hospitals often incentivize physicians to increase patient volumes, but quantity doesn’t guarantee profitability. Overuse of low- or negative-margin services can amplify losses.
3. Heavy administrative burden
Bringing physicians, and entire practices, into hospital systems comes with substantial integration costs. From electronic health records to compliance and management structures, the administrative infrastructure required is significant and expensive.
Alternative approaches:
To remain competitive and financially viable, hospitals must explore models beyond direct employment. Here are three alternatives:
1. Partnering through ASC JVs
In a healthcare landscape that’s shifting toward outpatient and decentralized care, ASCs offer hospitals a smart way to maintain market presence.
2. Transitioning clinics to federally qualified health center look-alikes
Hospitals can reduce their financial burden while expanding access by converting primary care clinics into federally qualified health center look-alikes. These centers benefit from enhanced Medicare and Medicaid reimbursements and federal grants, relieving hospitals of the need to heavily subsidize operations.
3. Embracing VBC models
Value-based care arrangements, such as accountable care organizations, bundled payments and shared-savings contracts, align hospitals and physicians around quality and cost efficiency, without requiring employment.
The post Why hospitals keep losing money on physicians & what they can do about it appeared first on Becker’s ASC.
