For some hospitals, hiring more doctors improves the bottom line

In a survey of health systems that participated in the survey, things are a lot more positive among those bringing in more physicians than expected by industry experts.

Simply comparing physician salaries with the revenue those doctors bill for may look as if they’re operating at a deficit., but that’s not the full story. (Photo: Shutterstock)

It’s popularly thought that by hiring more doctors hospitals are firing deficits right at their bottom lines, but that does not appear to be the case. Modern Healthcare reports that in its annual Hospital Systems Survey, 76 percent of respondents who brought in more doctors in 2017 said the move didn’t materially change their financial performance. Another 22 percent said the move actually bettered their bottom line, and only 3 percent said their finances deteriorated.

Among the 47 health systems that participated in the survey, things are a lot more positive among those bringing in more physicians than expected by industry experts.

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The report cites the Medical Group Management Association’s 2017 estimate that “hospitals’ multi-specialty physician groups lose nearly $185,000 per physician annually, and other industry groups have released similar estimates.” That’s based on the belief that physician compensation and other expenses related to their practices total more than they actually bill for.

But—and it’s a big but—such numbers don’t accurately reflect the whole picture of revenue generated by the doctors for the health systems during patient visits, since they don’t usually include ancillary services such as imaging and stress tests.

Using eight-hospital system Vidant Health as an example, the report cites Craig Hepp, Vidant’s senior administrator for population health, who points out that simply comparing physician salaries with the revenue those doctors bill for, it looks as if they’re operating at a deficit.

But such is not the case, Hepp says: “[T]hat isn’t the way it ends up being when you look at the other work they bring into the health system, whether it’s labs or imaging.” He adds that surgeries and imaging generate margins that the physician practices don’t—so looking at the latter rather than including the former is misleading.

Ken Hertz, a principal consultant with the MGMA’s health care consulting group, told Modern Healthcare, “There’s a tendency to hold your hands up and go, ‘Oh my god, look at all the money they’re losing per provider and per physician. But the reality is, it’s not exactly what it seems.”

Another example is 44-hospital system Sanford Health, where administrators recruit about 100 physicians per year to keep care available in rural communities. According to JoAnn Kunkel, chief financial officer of the Sioux Falls, S.D.-based health system, bringing in more doctors improved the bottom line. Using fill-in physicians is “incredibly expensive,” she’s quoted saying, while having doctors who stay in the community also pleases patients better.

Of course, the knife cuts both ways, with some physician expenses not readily apparent, either. The addition of administrative pay to doctors’ salaries is one example, while doctors are also paid for being on call and independent doctors can contract to cover emergency rooms and intensive care units.