It is Time for a Fresh Look at Hospital Losses on Employed Physicians? Part 1 of 3

17 Mar It is Time for a Fresh Look at Hospital Losses on Employed Physicians? Part 1 of 3

By Randy Bauman © 2017stethoscope and money

Note: As hospitals continue to acquire physician practices and develop integrated physician networks, operating losses become more and more of an issue. This is Part 1 of a three part series looking at hospital losses on employed physicians.

Operating losses are the price of employing physicians. In many markets, the economics of private practice simply no longer works. As a result, any hospital employing physicians is likely to have losses. Losses can make strategic sense but when they balloon beyond expected levels – often 50%-100% or more of original projections – they become an issue.

The Best Way . . . .

The best way to minimize losses is upfront. Trying to reset the dial later is like trying to bayonet the wounded after the battle has been fought. Decisions effecting losses made during the acquisition process often include:

1.    Initial increases in physician compensation negotiated as part of the acquisition. This often sets the stage for ongoing losses.

2.    Decreases in provider production – there are many reasons for this including the necessary conversion to new EHR systems. While compensation plans with productivity standards is an obvious tactic to minimize these decreases, many compensation plans lack productivity incentives.

3.    Increased overhead – this if usually the result of applying hospital salary scales and benefits to staff. Layering on the direct administrative overhead of the network’s senior management team along with IT support and hospital indirect overhead worsens the picture.

4.    Revenue decreases – these are caused by a myriad of factors from billing system conversions, credentialing issues and payor contract rates. This worsens when coupled with increased Medicaid and self-pay and the stripping of ancillary services from the practices.

It seems like a bleak picture. But what if you are past this stage? What if the majority of the acquisitions are already done and the network largely in place? In Part 2, I will examine typical options for improvement and why they often meet with little success.