https://mailchi.mp/fc76f0b48924/gist-weekly-march-1-2024?e=d1e747d2d8

A recent engagement with a health system executive team to discuss an underperforming service line uncovered a serious issue that’s becoming more common across the industry. 

“Our providers are more productive than ever,” the CFO informed our team, “and yet we keep losing money on the service line.” 

After digging into their physician compensation model, we came upon one source of the system’s issue. Because it was incentivizing physician RVUs equally across all payers, its providers responded, quite rationally, by picking up market share where growth was easiest: Medicaid patients, who weren’t generating any margin. 

“We recognize that we’ve been employing these physicians as loss leaders in order to generate downstream revenue,” the CFO shared, “but what’s the point of that revenue if there’s no longer any downstream margin?”
 

The economics of physician employment becomes a tough conversation very quickly; it’s a sensitive topic to many, and one with myriad facets. 

But the loss leader physician employment model obviously only works when it produces positive downstream margins. 

We’re in a critical window of time, where hospital margins are just beginning to recover as volumes return—but those volumes are not necessarily in the same places as before. 

The opportunity is ripe for systems to work closely with their aligned physicians to reexamine the post-pandemic margin picture for individual service lines and ensure incentives are aligning all parties to hit operating margin goals. 

Are these kinds of conversations taking place at your health system?