Hospitals employing physicians see greater losses

January 11, 2015

The cost for a hospital to employ a physician is increasing, with a new report out of Kentucky revealing that 58% of hospitals reported annual per-physician losses of more than $100,000-an increase of 17% over the prior year.

A bright spot, however, is that hospitals who hired primary care physicians incurred lower losses on average ($100,000 or less) compared with hospitalists or specialist physicians (more than $100,000). Specialists also accounted for the greatest losses across the board, representing the only physician provider type to incur more than $200,000 in losses per physician annually.

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Larger hospital systems faced greater losses, as did larger hospitals, according to the report. Sixty-six percent of hospitals with more than 200 beds report losses between $100,000 and $200,000 per provider annually while 33% reported losses greater than $200,000. In smaller hospital systems and in hospitals with fewer than 200 beds, 88% reported losses less than $200,000, with 66% falling below the $100,000 mark for losses. Only 12% reported losses of greater than $200,000.

Seasoned physicians also come at a higher price, according to the report. Many more-experienced physicians come from existing practice and may bring with them a mix of payment types that could lead to losses, according to the report. Only a third of survey respondents reporting gaining physicians through acquisition from an existing practice, and 75% of those recruits incurred annual losses between $100,000 and $200,000 each. Conversely, 42% reported that they are recruiting more heavily from medical schools than from existing practices, and report that 60% of these new graduates incur losses of more than $100,000, but less than their more experienced counterparts.

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The increased employment of specialists, who incur greater losses, is also contributing to the upward trend in provider-related losses, but may be offset by the higher revenues and margins they contribute to hospitals, according to the report.

The most common compensation model reported was the RVU productivity-based method, used by 67% of those surveyed, with 63% of those reporting losses of between $100,000 and $200,000 per physician.

The majority of hospitals and healthcare organizations (64%) polled are starting to bundle physician compensation with performance metrics such as quality outcomes and patient satisfaction. Another 36% are tieing physician compensation to hospital and health system goals. While there doesn’t appear to be a link between bundling and losses, it is nevertheless a definite trend.

In terms of addressing physician underperformance and loss, 20% of those polled terminated physicians with costly losses, 30% audited their documentation, 20% changed their compensation model, and 30% reduced the physician’s personal compensation.

The study was commissioned by the Kentucky Hospital Association and performed by accounting and consulting firm Dean Dorton Allen Ford.