Report Reveals Employed Physicians Losing Money for Employers

Physicians loosing money for employer
organizations that had doctors working as employees had a median loss over $175,000 per physician per year on the services they performed. If those physicians that have already aggregated and sold out their practices are still losing in excess of $175,000 per year, what does this portend for independent practice physicians today?

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The Physicians Foundation has once again published their excellent report, 2014 Survey of America’s Physicians Practice Patterns and Perspectives. The Foundation once again contracted with Merritt Hawkins – a subsidiary of AMN Healthcare – to conduct the survey. For those of us who like these kinds of reports, this one carries some interesting trends and data from their 2012 report forward and adds several pertinent and timely new questions to the mix. The 2014 report is chocked full of interesting information, trends, data points, and facts about how physicians respond and adapt to the Affordable Care Act. Over the coming days, we will be assimilating more of this information and relating it to other trends, reports, and raw data. Please keep checking back, as we do try to stay abreast of this new information as it is digested, analyzed, and evaluated.

As so often happens, one small entry grabbed our attention as it is highly indicative of a trend-line that is becoming of significant concern to us and many others. The foundation reports that for 2012 the median LOSS for an employed physician – meaning a doctor that is an employee of a hospital or group practice, a

significant and growing trend – was $176,463. To be clear, organizations with doctors working as employees had a median loss of over $175,000 per physician per year on the services they performed.

The median loss for employing a physician in 2012 was $176,463, which causes some observers to question the long-term financial sustainability of the physician employed model. (Making Physicians Pay Off, Modern Healthcare. February 22, 2014)

This is a shocking revelation in that we are led to believe that physician-owned private practices, either small group or individual while seeing small to modest gains in overall income last year, are losing money. This trend to unprofitability in individual practices is supported both in other reporting and in some of the empirical data from the Physicians Foundation’s report.

The trend to aggregation of independent practices by hospitals and large groups has been driven by the belief that, generally, the economies of scale gains of aggregation will deliver a consistent return to profitability during this time of declining margin in healthcare. Simply put, it is based on the concept that “We can make it up in volume!” Any retailer will tell you the failure of such an idea. Circuit City and many others have learned these lessons and can offer chapter and verse examples. If those physicians that have already aggregated and sold out their practices are still losing more than $175,000 per year, what does this portend for independent practice physicians today?

Looking at various other more consumer-based models tells us that it is not often aggregating volume that will return profitability in a declining margin industry; it is through the management of the mix and margin of services offered that is the key to sustainable performance. Sure, increased volume can bring economies of scale, but simply increasing the volume of negative margin services can have disastrous effects on a business or industry if you can’t also reduce the number of losing operations, you must perform to a minimum and replace the time saved with higher-margin services. The next question will be how do we re-educate patients and physicians and rebuild our healthcare system actually to yield better results?

This and other questions are exactly the kinds of issues Health Reform 2.0 was created to address. Stay tuned for more tidbits from this Physicians Foundation report.

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Tom Loker
Tom Loker

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