Hospitals are losing money on employed physicians: Here's how to save the bottom line and your staff

Establish clear strategic goals and target a financial return, get the revenue cycle right, and motivate employees accordingly.

Beth Jones Sanborn, Managing Editor

Even though a hospital's success hinges on the quality of its clinicians, the manner in which hospitals are staffing physicians and managing that workforce is often a losing proposition. Looking for ways to boost the return on hospital-employed physicians rather than managing losses should be driving a hospital's physician strategy. 

That's the key takeaway from a recent post to Harvard Business Review penned by Navigant consultants Jeff Goldsmith, Alex Hunter and Amy Strauss.

According to figures cited from the AMA, more than 25 percent of U.S. physicians practiced in groups that were with either partly or wholly owned by hospitals and another 7 percent were directly employed by hospitals. They also cited data from MGMA that said hospitals' multi-specialty physician groups lost almost $196,000 per employed physician, generating "nine-figure" operating losses.

Some of the driving force behind the employment trend is the theory that hospitals that directly employ physicians get higher rates from insurers and better position their organizations for value-based payments. The belief is that having salaried physicians helps control clinical volumes and makes performing under capitated contracts easier. 

Also, it's possible that hospital leadership was tired of negotiating with local physician groups or national staffing agencies so they opted to build up in-house staff, the authors wrote.

Whatever the reason, the math hasn't been working out for hospitals, who, the authors wrote, are losing money on their employed physicians because "compensation plus practice expenses and overhead are exceeding their collections, often by far.

"Many systems employing physicians have done so without developing a cohesive physician organization and lack standardized staffing and operational support functions, such as effective purchasing and supply chain operations, effective scheduling systems, and centralized office locations," the authors wrote.

Forming and implementing a good physician strategy needs several key elements. First, establish strategic goals for the physician "enterprise" so it can be sized and located correctly, then "quantify and budget" the return you are expecting on the practice's operational loss.

Then, get the revenue cycle right. If coding is inconsistent or data is incomplete, the bottom line suffers. Make sure medical bills are accurate and justifiable and that patients understand their financial obligations.

Look at your compensation and incentives. Both should match the practices strategic goals. For example, the authors said, compensating your physicians for increases in visits, procedures or hospital admission while trying to transition to value-based care could damage the group's performance.

Finally, motivate both your employed and your independent physicians. The hospitals must create value for both groups, the employed and the contracted physicians. A unified physician strategy will encompass all of them. Also hospital leadership should include their physicians in the planning and organization of care delivery.

"Physician are complex, highly trained professionals. They cannot be mere employees; they must be owners of the organization's goals and strategies," the authors wrote.

Twitter: @BethJSanborn
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